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Money Factor Formula:
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The Money Factor is a decimal number that represents the interest rate on a lease. It's essentially the lease equivalent of the interest rate on a loan, converted from the Annual Percentage Rate (APR).
The calculator uses the Money Factor formula:
Where:
Explanation: The formula converts the annual percentage rate to a money factor by dividing by 2400, which is the standard conversion factor used in leasing calculations.
Details: The money factor is crucial for determining the finance charge portion of your lease payments. A lower money factor means lower interest costs and lower monthly payments on your lease.
Tips: Enter the APR as a decimal percentage (e.g., for 5.5% APR, enter 5.5). The calculator will convert it to the corresponding money factor used in lease calculations.
Q1: Why divide by 2400 specifically?
A: The divisor 2400 comes from (12 months × 200), which is the standard conversion factor used in the automotive leasing industry to convert APR to money factor.
Q2: What is a good money factor?
A: Money factors typically range from 0.001 to 0.004. Lower is better. A money factor of 0.00125 is equivalent to a 3% APR, while 0.0025 is equivalent to a 6% APR.
Q3: Can I negotiate the money factor?
A: Yes, money factors are often negotiable. Dealers may mark up the buy rate from the leasing company, so it's worth shopping around and negotiating.
Q4: How does money factor affect monthly payments?
A: The money factor directly affects the finance charge portion of your lease payment. A higher money factor means higher monthly payments.
Q5: Is money factor the same as interest rate?
A: No, but they're related. Money factor is a different way of expressing the interest cost in a lease. You can convert money factor to approximate APR by multiplying by 2400.