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Money Factor

Candlefocus Editor

Money Factor (MF) is a commonly used term in car leasing that refers to the cost of financing. It is a small figure expressed as a decimal that begins in the thousandth place, such as 0.00#. In terms of comparison, it is similar to the interest rate paid on a loan. Money Factor can indicate whether a particular lease is a good deal or not, since it is based on a customer's credit score and can be negotiated.

In order to calculate the equivalent annual percentage rate (APR) of a money factor, the money factor is multiplied by 2400. A lower money factor is more favorable to a borrower. For example, if the money factor is 0.0025, then the APR would be 2.4%. Interest rates expressed as money factors usually range from 0.001 to 0.0099.

Car leasing companies use two different types of money factors for different types of leases. A "capitalized cost reduction" money factor, or "cap cost reduction" money factor, is used when a lease customer makes a down payment, or capitalized cost reduction, on the leased vehicle. This type of money factor does not change over the term of the lease, and is usually lower than the money factor that would be applied without a down payment. On the other hand, a "noncapitalized cost reduction" money factor, or "non-cap cost reduction" money factor, is used when a customer does not make a down payment. This type of money factor tends to be higher than a "capitalized cost reduction" money factor, and can sometimes be changed over the term of the lease contract.

In short, the money factor is a financing charge incurred by borrowers on car leases and is based on the borrower's credit score. By multiplying the money factor with 2400, you can calculate the equivalent APR. It is important to shop around to compare different money factors and determine which one is the best deal.

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