Posts Tagged ‘money factor’

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.

[wp_ad_camp_1]

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.