Money Factor on a Car Lease: How to Convert It to APR

If you're shopping for a lease and a dealer rattles off a number like 0.00125, you just heard the money factor. It's the lease version of an interest rate, and most buyers have no idea what it actually means. Here's what money factor is on a car lease, how to convert it to APR, and how to use that math to catch a bad deal before you sign.

What is money factor on a car lease?

Money factor is the interest charge baked into your monthly lease payment. It looks like a tiny decimal, usually something like 0.0015 or 0.00225. The lower the number, the less you pay in finance charges.

Dealers use money factor instead of APR because it plugs directly into the lease payment formula. It's the same idea as an interest rate, just dressed up in different clothes.

How to convert money factor to APR

The math is dead simple. Multiply the money factor by 2,400. That's your APR.

• →Money factor 0.00100 equals 2.4% APR
• →Money factor 0.00150 equals 3.6% APR
• →Money factor 0.00208 equals roughly 5.0% APR
• →Money factor 0.00292 equals roughly 7.0% APR

Going the other way? Take any APR and divide by 2,400 to get the money factor. So a 6% APR is 0.0025 in lease terms.

Why 2,400? The quick explanation

The number 2,400 comes from how the lease formula combines monthly interest with the depreciation calculation. You don't need to memorize the proof. Just remember the shortcut: times 2,400 to get APR, divide by 2,400 to go back.

What is a good money factor right now?

It depends on your credit score and the brand's current lease programs. Captive lenders like Toyota Financial or BMW Financial often run promo money factors well below market rates to move inventory.

• →Check Edmunds forums or LeaseHackr for the current base money factor on the exact model and trim you want
• →Ask the dealer for the buy rate from the captive lender, not the marked-up rate
• →Tier 1 credit (usually 720+) should get the lowest published money factor
• →If your APR equivalent is above 8%, pause and compare with at least one other dealer

How dealers quietly mark up the money factor

Here's the trick. The lender gives the dealer a base money factor, called the buy rate. The dealer can add up to roughly 0.0004 on top and pocket the difference. That's an extra point of APR you'd never notice.

On a $40,000 lease over 36 months, a 0.0004 markup can cost you over $1,000. That's real money for one question you forgot to ask.

Questions to ask before you sign

• →What is the money factor on this lease, in writing?
• →Is that the buy rate from the lender or has it been marked up?
• →What APR does that money factor convert to?
• →Are there any promotional money factors available this month for my credit tier?

What to do next

Before you walk into a dealership, pull out your phone and look up the current base money factor on a forum for the exact car you want. Multiply by 2,400 so you know the APR equivalent. Then ask the dealer to show you their number in writing. If the money factor on your car lease is higher than the published base rate, push back or walk. That one piece of math can save you a thousand bucks.