How to Convert a Money Factor to an Interest Rate

Components of a lease payment are depreciation fee, finance fee and sales tax. The depreciation fee is a calculation based on the negotiated price of the car, the expected residual value, any trade-ins or down payments and dealer fees -- all items you would expect to affect your monthly payment. The finance fee is calculated using a money factor, which may be based upon your credit score. The higher the money factor, the more you end up paying for finance charges over the lease term.

Step 1

Ask the salesperson for the money factor being used for your lease. It should be a very small decimal number, such as .00225. If your salesperson tells you the money factor is 2.25, ask if he means .00225.

Step 2

Multiply the money factor by 2400 to get the interest rate. The interest rate for a money factor of .00225 is .00225 times 2400 equals 5.4 percent.

Step 3

Compare the interest rate from the money factor to the interest rate you could qualify for if you purchased a new car. If the two interest rates are close, the dealership is giving you a fair deal on the money factor. Otherwise, negotiate for a lower money factor.

Photo Credits

About the Author

Diane Stevens' professional experience started in 1970 with a computer programming position. Beginning in 1985, running her own business gave her extensive experience in personal and business finance. Her writing appears on Orbitz's Travel Blog and other websites. Stevens holds a Bachelor of Science in physics from the State University of New York at Albany.

Zacks Investment Research

is an A+ Rated BBB

Accredited Business.