What is a money factor?
Car leasing companies are in the business to make money and this “money factor” is where they make their profit. Here’s how it figured. Let’s say you negotiate the price of the car down $1,500 from the sticker price. To that you add the acquisition fee, sales tax, license, disposition fee, and any other transactional fees. You’re basically borrowing all that money from the leasing company and paying it off in monthly installments, so you have to pay interest on that money. The leasing company isn’t lending you that money or leasing the car out of the goodness of their heart, so they add an amount on top of the interest. That amount used to be called a leasing fee. Now it’s just called the money factor.
Adjust the money factor by a multiplier
The money factor isn’t your interest rate. To arrive at the real rate, multiply the factor by 2,400 (or 2.4). Let’s say you’re quoted a factor of 3.1. Multiply that by 2.3 and the annual percentage rate comes out to 7.44%. The final number will always be higher than the going rate for car loan because it includes the leasing company’s profit. You should shop for the lowest factor. Every leasing company charges a different amount based on your credit rating and the market conditions.
©, 2016 Rick Muscoplat
Posted on by Rick Muscoplat