Money Factor

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Definition of 'Money Factor'

The money factor is a multiplier used to calculate the interest rate on a lease. It is expressed as a decimal, and is typically between .0002 and .0005. The higher the money factor, the higher the interest rate.

The money factor is based on the lease term, the residual value, and the annual percentage rate (APR). The lease term is the length of time you will be leasing the vehicle, and the residual value is the estimated value of the vehicle at the end of the lease. The APR is the interest rate that you will be charged on the lease.

To calculate the money factor, you can use the following formula:

Money factor = (APR / 12) * (1 – Residual value / Purchase price)

Once you have calculated the money factor, you can multiply it by the lease payment to determine the total amount of interest you will pay over the life of the lease.

The money factor is an important factor to consider when comparing lease offers. A lower money factor will result in a lower interest rate, and therefore a lower monthly payment. However, it is important to remember that a lower money factor will also result in a higher residual value, which means that you will have to pay more money at the end of the lease.

If you are considering leasing a vehicle, it is important to compare different offers and to understand how the money factor impacts the total cost of the lease.

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