What it is:
Money factor represents the interest you pay when you lease a car. It is included in your monthly lease payment.
How it works/Example:
The money factor is most often expressed in a lease agreement as a very small decimal, such as 0.00247 (although some dealers will quote it as a larger decimal -- 2.47). Just like interest on a loan, the lower your money factor, the lower your monthly lease payments.
To determine your annual interest rate, just multiply the money factor by 2,400. (And yes, it is always 2,400. This number is not in any way related to the length of the lease.)
APR = Money Factor x 2,400
APR = 0.00247 x 2,400
APR = 5.928%
So our money factor of 0.00247 translates into an annual interest rate of 5.928%. See our car loan calculator to learn more about how different interest rates impact your monthly payment.
Why it matters:
Since the leasing agency purchased the car from the dealer, you're technically driving the leasing agency's car. And not surprisingly, they expect you to pay interest. "Money factor" is just a fancy word for "interest."
According to the Lease Guide over at LeaseGuide.com, that APR should be comparable to, if not lower than, local new-car loan interest rates.