Archive for the ‘Money Factor’ Category

Am I Paying Interest on Leasing a Car?

Tuesday, April 24th, 2012

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.


What is Rent Charge on a Car Lease?

Tuesday, April 17th, 2012

The rent charge on a car lease refers to the total sum of finance charges that the lessee will pay over the entire term of the car lease. The rent charge is also known as the “lease charge” and it is one of the three components of what is paid for over the term of a car lease. To come up with the rent charge, the dealer uses the money factor. The money factor is a small decimal number that is similar to an interest rate on loans or vehicles that are financed. The money factor is based on the lessee’s credit worthiness, which essentially entails that people with higher credit scores will be offered lower money factors and thus lower monthly payments.

The rent charge is essentially a fee that is paid for borrowing the finance company’s money. Think of it as paying interest on a loan. The rent charge makes up a small portion of the total monthly car lease payment. The depreciation charge is what makes up the majority of the total monthly lease payment.


Can a Lease Price be Negotiated Lower than MSRP?

Sunday, April 15th, 2012

A lease price is quite often negotiated lower than the MSRP. The lease price, which in technical leasing terms is known as the “selling price” or “gross capitalized cost,” is used to come up with the monthly car lease payment. The lower the selling price of a car, the lower the monthly car lease payment. Therefore, it is in the best interest of people interested in leasing a car to negotiate the selling price of the car to bring it as low as possible.

If the dealer offers you a lease deal that uses the MSRP as the selling price, you have not necessarily received a good deal. Most good lease deals use selling prices that are significantly lower than the MSRP. Prior to visiting a dealership, you should look up invoice prices for the cars that you are interested in leasing. Invoice prices are the prices that dealers pay the manufacturers in order to buy their cars. The selling price of a car lease deal should be as close to the invoice price as possible in order for it to be considered a good lease deal. In some cases, the selling price is even lower than the invoice price.


Car Lease Rent Charge

Saturday, March 10th, 2012

The car lease rent charge is one of the several components of a monthly car lease payment. There are three different components that make up a monthly auto lease payment which include the rent charge, the depreciation charge, and sales tax. The rent charge, also known as the finance fee or leasing fee, is the portion of the monthly lease payment that is paid as a “fee” for borrowing a leased car. It is similar to paying interest on a loan.

The rent charge is calculated using a small decimal number that is similar to an interest rate on loans. This small decimal number is known as the money factor and can even be converted into an interest rate by multiplying it by 2400. It works in a way that is similar to interest rates in the sense that higher money factors lead to higher rent charges, while lower money factors lead to lower rent charges.

It is important to realize that money factors often remain unlisted on car lease agreements which means  car lessees often do not know whether the money factor that was used to determine their rent charge was fair or reasonable. Therefore, it is important to always ask the dealer what money factor was used to come up with the monthly lease payment. This money factor should then be converted into an interest rate. Money factors for car leases should be comparable to interest rates available for financed cars.


Video: How to Calculate Your Car Lease Payment

Saturday, January 7th, 2012

In this video, learn the secret formulas that dealers use in order to calculate car lease payments from start to finish. By learning the formulas that dealers use, you will fully understand what a lease payment consists of, which allows you to better negotiate a good deal on any future car leases.

How to Convert the Lease Money Factor into an APR Interest Rate

Wednesday, July 27th, 2011

When visiting a dealership for the purpose of leasing a new vehicle, you rarely hear the term “lease factor” being used by salesmen or managers. The lease factor or money factor can be defined most simply as a small decimal number that is similar to an interest rate. This small number is used to calculate your monthly lease payment. Now, you may be thinking, wait a second, how could there be an interest rate when I’m leasing/renting a vehicle? Aren’t interest rates used only when financing vehicles? Well, it turns out that a finance fee, which is calculated using the money factor, makes up a small component of your monthly car lease payment. The higher your money factor is, the more you will pay in finance charges/fees over the term of your lease. Your goal should be to obtain the lowest money factor possible.

Converting the money factor into its equivalent interest rate is very simple. All you need to do is multiply the money factor by 2400. This will give you the interest rate as a percentage. For instance, if the money factor for a certain lease deal is .0012, the equivalent interest rate works out to 2.88%.

The formula for converting the lease money factor into an interest rate is as follows:

Money Factor x 2400 = Interest Rate

Whenever you are at a car dealership for the purpose of leasing a new car, make it a habit to ask your salesmen about the money factor being offered for your lease deal. Then take this money factor and convert it into an interest rate to ensure that it is a fair deal. The converted interest rate for a lease should be close to the interest rates being offered on vehicle finance deals.

How to Lease a Car With Bad Credit

Tuesday, June 8th, 2010

Having bad credit means you are viewed as a high risk by the finance company who decides whether you qualify for a lease deal. If you have bad or poor credit, you are obviously in a less than ideal situation. However, keep in mind that not everyone has great credit and just because your credit score is sub-par does not mean there is no hope for you.

Generally, if your credit score is not 720 or higher, you will not qualify for the special lease deals that are typically available to tier 1 customers who have a higher credit rating. This means that you will most likely be required to make a much larger down payment or in leasing terms, a cap cost reduction, and you can also expect a higher interest rate or money factor.

If you would like to lease a car with bad credit, there are three different actions that you can take in order to improve the likelihood of getting a fairly good deal:

  1. Generally speaking, your most recent credit history has the greatest impact on your credit score. If your credit score isn’t too low, it would probably be a smart decision to put off leasing a car for several months until your credit score improves. During these few months, make sure all mortgage payments, credit card bills etc. are paid on time. You should also make an effort to reduce your debt as much as possible.
  2. Another great option would be to have a co-signer when you lease your next car. The co-signer is generally a blood relative who becomes equally responsible for making sure all lease payments are made on time. Your co-signer should have a higher credit score in order to offset your lower credit score. Having a co-signer is also an excellent way to improve your credit score over the life of the lease.
  3. Most car manufacturers have their own finance companies. For instance, American Honda Finance Corporation is Honda’s finance company. If your credit score isn’t too great, these finance companies may not approve you for a lease. Your best bet would be to research finance companies that are willing to work with customers who have bad credit. Car dealerships can help you find alternative finance companies.

What Are People Who Lease a Car Paying For?

Saturday, June 5th, 2010

Many people who are interested in leasing a car often wonder what exactly they would be paying for every month if they were to lease a car. When you lease a car, the bulk of your monthly payment comes from the difference between the car’s selling price and its residual value. This is known as the vehicle’s depreciation. The other two smaller components of your lease payment include the finance charge and sales tax.

To sum up, you are paying for 3 things that make up your payment every month:

  1. Depreciation Fee
  2. Finance Fee
  3. Sales Tax

You can learn more about monthly car lease payments or calculating car lease payments by visiting the links found under “Car Lease Guide.”