Loans

What Is the Money Factor?

By

Updated on September 27, 2022

Reviewed by Andy Smith

Person signing a leasing contract for a new car — Photo:
SeventyFour / Getty Images

Definition

The money factor is an additional charge that applies to auto lease agreements. It is similar to the interest charges you would have paid if you had purchased the car with a loan.

Key Takeaways

The money factor applies to vehicle leases and works similarly to the interest rate on a car loan.
The total monthly lease payment includes the money factor.
Money factors are expressed as decimal figures rather than annual percentage rates, but can be converted into APRs.
A dealer may not be required to disclose a lease’s money factor, but you can calculate it using the lease charge, capitalized cost, residual cost, and lease term.

How the Money Factor Works

The money factor is a financing charge added to the cost of a monthly lease payment. It specifically applies to vehicle leases and essentially is the cost of leasing the vehicle. Similar to the interest rate on an auto loan, the money factor helps to determine your lease payments, in addition to the manufacturer's standard retail price (MSRP), capitalized costs, and other factors.

The fee includes the costs of taxes and depreciation.

“When a person leases a car, he or she pays for the amount by which the vehicle's value depreciates during the period he or she owns it,” Imani Francies, a loan expert with US Insurance Agents, told The Balance in an email. “Depreciation, taxes, and interest are all included in the monthly leasing payments.”

Alternate names: MF, lease factor, lease fee

Dealers may not be upfront about disclosing the money factor, nor are they required to be.

For a car loan, the Truth in Lending Act requires that lenders disclose a loan’s annual percentage rate upfront, before you’re obligated to repay the loan. The federal government doesn’t require dealers to disclose the money factor on a lease.

“Most dealers won't tell you until you ask—and most customers aren't aware that they should—but it's crucial information since it plays a major role in calculating your monthly payments,” Francies said.

You'll need to request or insist on receiving the money factor, or lease financing rate, in writing from your leasing company or auto dealer. However, companies may not provide it to you, even if you ask. The Edmunds website’s community-forum moderators or community members may be able to supply you with a money factor if you provide certain details about your potential lease.

Note

To convert a money factor into an APR, multiply it by 2,400.

The money factor may depend on the exact vehicle you’re leasing, among other factors, including:

Your credit history and score
Specific make, model, and trim of the lease vehicle
Waiving various deposits, fees, or payments
Length of lease period
Paying your lease in one lump sum
Paying multiple security deposits

Just like an interest rate on a car loan, the higher your money factor, the higher your monthly payment. The good news is that your money factor could be negotiable. So you can lower your monthly payments by getting your dealer to offer a lower money factor. Ask if any of the variables above could lower your money factor.

Example of the Money Factor

Suppose you’re leasing a car and your lease agreement states a money factor of 0.004. You can convert the money factor into an APR by multiplying it by 2,400:

2,400 x 0.004 = 9.6

So, your APR is 9.6%.

Money Factor vs. Interest Rate

Money Factor	Interest Rate
Used for vehicle leases	Used for vehicle loans
Expressed as a decimal number	Expressed as an annual percentage rate
Not always disclosed	Required disclosure in your contract

Frequently Asked Questions (FAQs)

What is a good money factor?

The best money factor is the lowest possible, as you’ll pay less to lease the car for as long as you’re leasing. In general, the best money factor is one below 0.0025. Getting a “good” money factor may depend on having good credit, the length of your lease, and other factors.

The average money factor in 2021 was 0.001765, according to the state auditor of Georgia, citing research from Edmunds.com. This works out roughly to a 4.2% APR, using the multiplication formula (2,400 x money factor).

What is the money factor and residual value?

Money factor may depend on an auto having higher residual value, which is the car’s potential value at the end of the lease. Cars with higher residual values may lead to a lower money factor. Vehicles with lower residential values may lead to a higher money factor. However, the money factor can depend on many different variables.

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Sources

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.

CFPB. "What Is a Truth-in-Lending Disclosure? When Do I Get To See It?”
Federal Reserve. "Keys to Vehicle Leasing."
Edmunds. "Where Can I Find the Money Factor (MF) and/or Residual Value (RV) for a Lease?"
Maine.gov. "Leasing or Buying a Vehicle."
Capital One. "What Is the Lease Money Factor?"
Legislature of Georgia. "Revised Fiscal Note House Bill (LC 43 1746)."