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

Zacks Investment Research

is an A+ Rated BBB

Accredited Business.