The term, money factor, is used in leasing, particularly car leasing, to specify a cost-of-money finance rate.


It is simlar, though not quite the same, as interest on a loan.

Money factor, which is sometimes called "lease factor" or simply "factor", determines how much you'll pay in finance charges over the life of a lease. The higher the money factor, the higher your monthly payment and the more you'll pay in total finance charges. Therefore, when shopping for a lease, you'll want to look for the lowest money factor.

Money factor is always expressed as a very small number, such as .00275. To convert to an equivalent interest rate (APR), simply multiply by 2400. Therefore, in our example, .00275 multiplied by 2400 yields 6.6% as the equivalent APR.

Sometimes it is expessed in a more readable form, such as 2.75, which actually means .00275. This can be confusing to leasing consumers because it appears to be a low interest rate, which it is not.

When visiting a car dealer for the purpose of leasing, ask them about the money factor on their leases. It is not something that is routinely discussed in lease transactions.

In fact, it is not even disclosed in most car lease contracts. If you don't ask, you'll never know. If a dealer refuses to disclose this important information to you, find another dealer.