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Money Factor Definition

What Is Pelf Factor?

Money factor is a method for determining the financing charges on a lease with monthly payments. A money cause can be translated into the more common annual percentage rate (APR) by multiplying the money factor by 2,400.

Money factor is also grasped as a “lease factor”, “lease fee”, or “lease money factor”.

Key Takeaways

  • The money factor is the financing charge a bodily will pay on a lease.
  • It is similar to the interest rate paid on a loan, and it is also based on a customer’s credit score.
  • It is commonly depicted as a remarkably small decimal that begins in the thousandths place (i.e. 0.00#).
  • Multiplying the money factor by 2,400 will give the similar annual percentage rate (APR).
  • A lower money factor is more favorable to a borrower, and the money factor can be negotiated.

How the Filthy rich Factor Is Used

An individual who takes out a lease on a car pays for the amount by which the value of the vehicle depreciates during the prematurely he is in possession of it. The monthly lease payments made on the car include depreciation, taxes, and interest. If the car is expected to depreciate in value by $5,000 annually, this amount determination be factored into the monthly payments. Sales taxes are charged on both depreciation and interest and are included in the monthly payments of the lessee.

To learn the interest portion of monthly lease payments, the money factor is used. In effect, the money factor is the interest reckon that is paid for the duration of a lease term. It is similar to the interest rate paid on a loan, but the value of the money circumstance is expressed differently.

Unlike APR, which is expressed as a percentage, the money factor is expressed in a decimal format. Either way, the attracted by rate and money factor can be obtained by contacting the car dealer or checking with the credit union.

Important

The money middleman is directly determined by a customer’s credit score. The higher the credit score, the lower the money factor on a lease, and wickedness versa.

Calculating the Money Factor

The money factor can be calculated in two ways. One method relies on knowing the APR of the lease, while the other method be lacks leasing information such as payments, residual value, and the duration of the lease.

APR Method

First, the money factor can be converted to the of a piece APR by multiplying by 2,400. In the same vein, if the car dealer uses an interest rate, this can be converted to a money factor by segregating by 2,400.

For example, if quoted a money factor of .002, the interest rate on that loan would be approximately (.002) x 2,400 = 4.8%. Similarly, if the car dealer quotes a lease APR of 4.8%, a lessee can figure out the money factor of .002 by dividing the APR by 2,400.

Leasing Information Method

The B method of calculating the money factor is using the lease charge. If instead of an interest rate, the car dealer quotes a let out charge, the money factor can be calculated as:

Money Factor = Lease Charge / (Capitalized Cost + Residual Value) * Rent out Term

The lease charge of this formula is the sum of all future monthly finance costs over the entire life of the sublet. The capitalized cost is the agreed-upon cost you agree to pay for the vehicle, while the residual value is the agreed upon value of the carrier at the end of the lease. The lease term is expressed as the total number of months of the lease.

Special Considerations

A money factor may also be tendered as a factor of 1,000, such as 2.0 rather than .002. While the decimal version is more common, a loaded factor that is a whole number can still be converted to an APR by multiplying it by 2.4. For example, a money factor of 2.0 interprets to an APR of 4.8% when the money factor is multiplied by 2.4.

It is important to remember the 2.0 figure depicted above is not the APR on the lease. The boodle factor will always be lower than the APR, even when displayed as a integer greater than 1.

In addition to being unyielding by the borrower’s credit history, the money factor is also affected by the financing company’s rates as well as the dealer’s markup. The filthy lucre factor for a lease has historically been comparable to the national average for new car loans.

What Is a Good Money Factor?

The lettuce factor is the interest assessment on a lease. For this reason, a lower money factor is more favorable to a borrower as it indicates a lower financing charge. A good money factor will largely depend on borrower credit and prevailing demand conditions, but a fairly good money factor of 25 (0.0025) and below translates to an imposed 6% APR.

How Is Money Factor Designed?

There’s several ways to calculate the money factor. First, the money factor can be multiplied by 2,400 to arrive at an APR. Alternatively, the MO below can be used as a substitute:

Money Factor = Lease Charge / (Capitalized Cost * Residual Value) * Sublet Term

Can You Negotiate Money Factor?

The negotiability of the money depends on the dealer. Some dealers may explicitly state the loot factor is not negotiable, while others are open to negotiating the money factor to align to current market interest positions.

What Is a High Money Factor?

Each borrower will have their own opinion regarding what constitutes a soprano money factor. In general, a money factor of at least 35 (0.0035) translates to at least an 8.4% APR. For many, a money go-between of at least 35 would be considered high.

Is Money Factor Based on Credit?

A borrower’s money factor is basically based on the borrower’s credit score. Borrowers with higher credit scores will often have deign a lower money factor on a lease, while lower credit borrowers will have higher money proxies.

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