Money Factor

Money FactorMoney factor is the interest rate. The Money Factor is basically the interest rate you are leasing the car for. money factor is calculated by taking the actual bank interest rate of the loan and dividing it by 2400, resulting in a decimal based number. For example a car lease with an 7% loan has a money factor of .0029. Using a Money Factor instead of an interest rate makes it easier to quickly calculate the interest portion of a car lease calculation. The interest portion of your lease is the (Money Factor) x (Captilized Cost + Residual Value). For instance, if you’re leasing a car with a Money Factor of .0029; a residual value of $12,000; and Capitalized Cost of 23,000 your interest portion is calculated as follows: ($23,000 + $12,000) x .0029 = $101.50.

The $101.50 represents the interest portion of your monthly car lease payment. It is really that simple. If you want to know the total amount of interest you’ll pay, simply multiply the monthly interest amount by the number of months in your lease term. So, for a 36 month lease, your total interest over the lease term would be $3,654: ($101.50 x 36). Despite it’s complicated sounding name, the money or Lease Factor is really a very simple calculation.

Why is Money Factor Important?

A lower interest rate always results in a lower monthly car payment. As you can see from our example above, however, the interest portion on a lease is a relatively small portion of the lease payment. The larger chunk of the your car lease payment is based on your car depreciation expense which is the difference between your car’s capitalized cost and its residual value at the end of the lease term.

Can You Negotiate the Money Factor?

The money factor, like the residual value, is subject to the terms of the bank and their discretion. While you cannot directly negotiate the money factor, is in your dealer’s best interest to work with the bank that will make your desired monthly payment possible. A good lease deal is based on a low average car payment. Getting a reasonable interest rate only represents about 1/3rd of the challenge in bringing down those monthly payments. There is nothing wrong, however, with asking your dealer for the money factor.

5 thoughts on “Money Factor”

  1. Daniel Rousseau

    I have credit scores between 819 and 827. So, how can I know for certain that when I sit down to read the details of an auto lease agreement I am being offered the lowest possible “money factor”? If the dealer is offering 0% financing for an auto loan to those with excellent credit, does it follow that the same 0% will be offered to a someone leasing a vehicle from that dealer?

    1. The beauty of leasing is that you don’t really need to concern yourself with all of the lease jargon. The main thing is how much bang-for-your-buck you are getting from your monthly payment. Let the dealer worry about money factor, discounted price, etc. Your job is to get the best deal you can. How do you know you’re deal is good? Two ways: Either use the lease evaluator calculator – or just know, that generally anything under 1.10% Lease to Value Ratio (Average Car Payment / MSRP)

      1. MSRP? Probably needs to be a little more clear to prevent mistakes.
        As in the Base MSRP? Or, the bottom line MSRP after shipping, Any Upgraded Package and any Port Installed Options (Manufacturer Installed Accessories). In addition, many dealers may install Tint for example, so if you’re being charged other fees, such as Tint, you’d technically need to include that in your MSRP calculation. In fact, I’d even include the doc fee you are charged. Think about it… If you have a $20,000 car, tint and doc fee alone can add another $750 to $1000 to that total MSRP, plus the increase in tax calculation;

        So your 1.10%, can you clarify that?

        1. The MSRP I use is the MSRP that is used on the manufacturer’s website. It isn’t going to include tax, tint, or any other add-ons. It is the industry-standard MSRP used for the particular model of car as advertised on the lease special they advertise. Anything you add to the original MSRP will affect your lease value accordingly.

  2. Never leave the money factor up to the dealer. They can increase that over and above what the leasing company (manufacturer, bank, auto service) charges the dealer. Once you negotiate the price of the car, now you need to make sure that the dealer isn’t sneaking more stuff into your lease. Their job is to slide stuff past the consumer as much as possible.

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