Money factor vs APR
By Jude Wallis
They are the same rate written two ways. Multiply a money factor by 2400 and you have the APR; divide an APR by 2400 and you have the money factor. A quoted 0.00125 is 3 percent a year. A quoted 0.0025 is 6 percent, twice the finance charge for a decimal that looks almost identical.
| Money factor | APR | |
|---|---|---|
| How it looks | A decimal with several zeros, such as 0.00125. | A percentage, such as 3 percent. |
| Conversion | Multiply by 2400 to read it as an APR. | Divide by 2400 to read it as a money factor. |
| At 6 percent | 0.0025. | 6 percent. |
| What the rate is applied to | Capitalised cost plus residual, added together. | The outstanding balance, which falls each month. |
| Why the base differs | Adding the two values approximates twice the average balance over the term. | No approximation needed; the balance is known each month. |
| Where it goes wrong | Reading 0.0025 as a quarter of a percent rather than 6 percent. | Comparing it with a money factor without converting first. |
On this page
The 2400 is 12 months times 200
The constant is not arbitrary. A lease charges its finance cost on capitalised cost plus residual added together, which is roughly twice the average amount outstanding over the term, so a factor of 2 goes into the conversion. Twelve turns an annual rate into a monthly one, and 100 turns a percentage into a decimal. Multiply 2, 12 and 100 and you have 2400.
That is why the same rate produces such different-looking numbers. Three percent becomes 0.00125, a decimal small enough that it reads as no charge at all if nobody converts it. Six percent becomes 0.0025, which looks barely different and costs exactly twice as much.
Convert before comparing anything
A lease quote and a loan quote cannot be compared side by side while one is a decimal and the other is a percentage. Convert the money factor first, then judge it against the car loan rates actually available to you, since both are the price of the same borrowed money.
The conversion is also a negotiation check. A dealer who quotes a money factor rather than a rate is quoting the number that hides the size of the charge. The money factor calculator does the multiplication, and how money factor works explains where the constant comes from.
What the converted rate does not include
The rate is only one of the two charges inside a lease payment. The other is depreciation, set by the capitalised cost and the residual, and it is usually the larger of the two. A low money factor on a weak residual can still produce a high payment. Lease against buy sets the whole payment against a loan, the car lease calculator splits it into its two parts, and APR covers what the annual rate is meant to capture. This is educational material, not financial advice.
Worked examples
A 3 percent lease rate as a money factor
A lease is offered at the equivalent of 3 percent APR. What money factor does that correspond to?
- Divide the APR by the conversion constant: 3 divided by 2400.
- That gives a money factor of 0.00125.
A money factor of 0.00125, which multiplied back by 2400 returns the 3 percent it came from.
A quote of 0.0025 read as a rate
A second dealer quotes a money factor of 0.0025. What is that as an annual rate?
- Multiply by 2400: 0.0025 times 2400.
- The answer is 6 percent, double the first quote.
A money factor of 0.0025 is 6 percent APR. The decimals differ by almost nothing and the finance charge differs by half.
Common questions
Why do leases quote a factor at all?
Convention, and the fact that the charge is applied to cost plus residual rather than to a falling balance.
Can a money factor be negotiated?
Often yes, within a band the finance company sets, in the same way a loan rate can be.
Is a lower money factor always the better deal?
Not by itself. Depreciation is usually the bigger half of the payment, so check the residual and the capitalised cost too.
Is this financial advice?
No. It is educational material about converting one rate quote into another.
Keep reading
This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.