Money factor calculator

It is two conversions in one number. Dividing an APR in percentage points by 1200 gives the monthly rate as a decimal. The second factor of 2 comes from how a lease charges the finance cost: the rent charge multiplies the money factor by capitalised cost plus residual, which is twice their average, so the factor itself has to be half the monthly rate.

Once that is clear, the conversion stops being a magic constant. A 3 percent APR is 0.0025 a month, and half of that is the 0.00125 money factor a lease desk would quote.

A money factor is deliberately unreadable as a rate. Nobody has intuition about 0.00125, and everybody has intuition about 3 percent. Doubling it to 0.0025 doubles the finance cost and still looks like a rounding difference, which is exactly why the number is quoted this way.

So the habit worth building is automatic: multiply by 2400 before agreeing to anything. The car lease calculator then shows what that rate costs each month on a particular capitalised cost and residual.

The same money factor gets quoted three ways: 0.00125, 1.25, or 125. The last two are the same number with the decimal point moved to make it easier to say, and they are all 3 percent. If a quoted factor gives an absurd APR, the decimal point has moved rather than the rate.

A factor over about 0.004 is above 9.6 percent, which is high for secured car finance. The check is fast and it is the only defence against a number designed not to be checked. APR is the standard the conversion lands on.

It maps between two ways of writing the same finance rate. It does not price the lease, because a payment also needs the capitalised cost, the residual and the term. How money factor works covers the conversion in prose, and car finance and depreciation puts it in context. This is educational material, not financial advice.