Money factor, explained
Money factor is the lease equivalent of an interest rate, expressed as a tiny decimal that looks confusing but isn't.
What it means
Money factor is how lessors express the interest rate on a lease. Instead of 6%, you'll see 0.00250. To convert money factor to APR, multiply by 2,400. So 0.00250 becomes 6% APR. Dealers and finance managers often present money factor because the small decimal looks less intimidating than a percentage, but it's the same cost of borrowing money. The money factor applies to the sum of the depreciation (cap cost minus residual value) and the residual each month.
Why it matters
A difference of 0.00010 in money factor translates to 0.24% APR, which can mean $5 to $15 per month on a typical lease. Dealers have some markup discretion on money factor just like loan rates, so the first quote isn't always the best. If your credit is strong, you should see a money factor close to current new-car loan rates divided by 2,400. Anything significantly higher means you're either in a lower credit tier or the dealer is marking it up. Always ask for the buy rate (the base rate from the leasing company) and the marked-up rate they're quoting you.
What to do
Before you sign, run the numbers through our lease vs buy calculator with the APR equivalent to see if leasing actually saves you money compared to financing. If the money factor feels high, push back or walk.
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