Am I Paying Interest on Leasing a Car?

Some car leasers often wonder whether there is some sort of interest being paid on their monthly lease payments. Technically speaking, there is no “interest” on  leasing a car, but that’s only because dealers use a different term for interest or interest rates when it comes to car leasing. You see, for financing the purchase of a vehicle, interest rates are used, but when leasing a vehicle, money factors are used. The money factor is generally a small decimal number that is similar to an interest rate. The money factor can even be converted into an interest rate by simply multiplying it by 2400.

The money factor is used to come up with the finance fee, which makes up a small portion of the monthly lease payment. The finance fee is a required fee that is paid to borrow the finance company’s money in order to lease a car. Similarly, when you purchase a vehicle, an interest rate is used to come up with the amount you are obligated to pay in interest charges.