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.

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