What Is Lease Money Factor? [& How to Calculate It!] | FINN (2024)

Besides converting the money factor into an interest rate for better comparison, you can calculate your resulting factor with other values listed in a lease agreement. Consider a lease agreement with the following terms:

• $750 monthly payment
• $50,000 capitalized cost
• $46,000 residual value
• 24-month lease term

The following formula demonstrates how to calculate your lease money factor:

Money factor = Lease charge / (Capitalized cost + Residual value) x Lease term

You can calculate the money factor by plugging the values expressed in the lease into the equation above.

1. Determine the lease charge

The lease charge is the sum of your monthly payments for the life of the lease. Using the $750 monthly payment and 24-month lease term values, you can calculate your lease charge to be $18,000.

Note that leasing companies may charge additional fees, such as an acquisition or a disposition fee, on top of your monthly payment. Learn more about car lease fees to avoid and pay less for your lease.

2. Add the capitalized cost and residual value

The capitalized cost is the vehicle’s selling price. This value is not necessarily equivalent to the Manufacturer’s Suggested Retail Price (MSRP). Lease hackers know that even though you’re not buying the car you want to lease, you should still negotiate the selling price. A lower selling price and a higher residual value can affect how your monthly lease payments are calculated.

The sum of the capitalized cost and residual value is $96,000 ($50,000 plus $46,000).

3. Convert your lease term into months

The lease term describes how long a lease on a car is, often expressed as a number of months. For example, a 3-year lease is a 36-month lease term equivalent. You can divide the number of years in the lease by 12 to convert your lease term into months. In this case, the lease is already expressed as 24 months.

4. Multiply the sum of the capitalized cost and residual value by the lease term

The lease agreement stipulates a $50,000 capitalized cost and $46,000 residual value. Add those together for a sum of $96,000. Then, multiply that by 24 months to get 2,304,000. Don’t worry, this number may seem high now, but it will help calculate your money factor in the next step.

5. Divide the lease charge by the previous value

You determined the lease charge was $18,000, and the result of multiplying the lease term by the sum of the cap cost and residual value was 2,304,000. Divide $18,000 by 2,304,000, and you get 0.0078125, which is a rough money factor of 0.0078.

Consider a lease charge of $9,000, which is half of the lease charge in our initial calculation. This change equates to a $375 monthly payment over 24 months instead of $750. Divide $9,000 by 2,304,000, and you’d determine a more favorable money factor of roughly 0.0039.

As you can see, you can easily manipulate the formula’s values to determine the corresponding money factors. Don’t be afraid to run your calculations during negotiations, either. Doing so can help you identify where you can negotiate to get a lower monthly payment and a lease you can afford.