The money factor is the most negotiable element of a car lease. However, customers face the most frustration here because they don’t have a proper understanding of the money factor. Money factor is also known as lease rate factor or lease rate. If you generally ask someone, they will say that the money factor is related to the interest rate, which is somewhat true. However, it is more than just interest rate. Basically the lease payment of your vehicle is represented as the percentage of the total cost of the car. It is written in a decimal number such as 0.00234. A higher money factor means your lease payments will be high too.
Many factors vs. interest rates
Money factor is not quite same as the internet rate. It is easy to determine the money factor’s internet rate equivalent by multiplying it by 2400. For instance, if you have a money factor of 0.0021, after multiplying it by 2400, you get 5.04. So, we will say that 0.0021 is equivalent to 4.04% APR interest. The money factor of .0052 is the equivalent to 12.48% APR interest and this will not be a favorable rate.
The conversion factor is going to be the same regardless of the lease term. The conversion factor will always be 2400 whether your lease period is 24 months or 48 months. In order to convert the internet rate to an equivalent money factor, you simply have to divide the APR interest rate by 2400.
Does money factor vary?
Yes, sometimes. There are 3 common factors that can affect the money factor. Just like interest rate can vary from one bank to another, different financing companies offer different lease rates for automotive. Apart from this, your credit score can affect the money factor too. If you have a good credit score, your money factor will be low and if you have a poor credit score, your money factor will be high. The third element that can affect the money factor is the markup or the commission of the dealer. This is also known as the reserve or the buy/sell rate.
How to negotiate the best lease rate?
When you are leasing a car, lease rate is not the only number you should be looking at. You must also examine the sale price of the car and its residual value at the end of the lease period. Before you make a deal, just ask what money factor is being used for calculating the lease payment. The salesperson may not know what the lease rate is. In that case, you can ask the financing manager at the dealership or the lease provider about this.
If the number that you are given is high, just let them know you want a quote from other financing companies. Chances are the dealer is working with a financing company that is offering them a better incentive but that does not mean they can’t get you a quote from another source.
The dealer’s commission can range from 1 to 6% of the sale price. For a $25,000 vehicle, the dealer may be making up to $1,500 or more than if you had bought the car by financing it yourself via a car loan taken from a bank or any other independent lender.
Once the lease is finalized, do not expect the money factor to be included in the lease contract. Simply check the total of finance charges. The higher the lease rate, the more the total finance charges figure.
Things to keep in mind
Keep in mind that when you are discussing finances with your car dealer, the dealer is likely to connect with that finance company which is in their best interest. Chances are there are lots of leasing companies out there who can offer you better rates. So, don’t pay the dealer a higher incentive in commission. The choices that are being presented to you are not necessarily the best ones. Hence, it is recommended to do your own comparison shopping before visiting a car dealer.
There are sites such as leasecompare.com that can help you compare lease payments and find money factors across multiple lenders. You can even look for information such as acquisition fee, residual etc. by the privacy and comfort of your own home.
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