Lease money factor: What is it and how is it determined?
Quick insights
- The money factor is one of several factors used to calculate the financing cost of a lease.
- A lease money factor is expressed as a decimal and contributes to the monthly payment amount.
- The lease money factor is a fixed cost during a lease but can vary among leasing companies, and can change based on market conditions and the applicant’s creditworthiness.
The cost of leasing a vehicle is affected by the price of the car, the length of the lease and various fees. In this article, we’ll explain the money factor, just one part of determining what you pay for a car lease.
What is the lease money factor?
The money factor is a fractional number expressed as a decimal, such as 0.00125. The money factor influences your monthly lease payment and what a vehicle lease will cost you. The figure is based on a variety of different factors.
How is a lease money factor determined?
The money factor is determined by the leasing company or financial institution that extends the lease, also known as the “lessor.” The main influences on the money factor include:
- The lessor’s policy
- The applicant’s (lessee’s) creditworthiness
- Promotions or incentives
- Market conditions
- The vehicle’s residual value (the car’s estimated value when the lease ends)
Standard lease money factor calculation
The lease money factor calculation does not differ by lessor. The money factor is part of a complex equation that calculates the financing cost of a lease. When shopping for a vehicle lease, you can ask the dealer or lessor the money factor to understand how it impacts the monthly lease payment.
Can you reduce the lease money factor?
Having good credit can lower the money factor of a lease you apply for. A lease money factor will likely vary by lender and market conditions, as well. When the car market is sluggish, for example, money factors may be lower. Plus, if there’s a promotion, or if the residual value of a leased vehicle is higher, the money factor might be lower—the higher the residual value, the lower the money factor in many cases.
In summary
The lease money factor is one of several numbers used to calculate the cost of leasing a car. Other important factors that determine the monthly payment and total cost of a lease include the vehicle’s residual value. The money factor a lessor charges will vary based on a variety of factors, including each lessor’s policy and market conditions.
