You can calculate interest on a lease by determining the money factor. You can easily convert your money factor to the equivalent interest rate by multiplying it by 2,400. For instance, a money factor of 0.003 equals 7.2% APR (0.003 x 2,400). This equation can help you determine the fairness of your lease money factor, given your financial situation.
If your lease agreement doesn’t list your money factor explicitly, or the leasing company doesn’t share this information with you, you can use the following formula to find the lease factor:
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Lease Factor = Lease Charge / (Capitalized Costs + Residual Value) x Lease Term
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The lease charge totals your remaining payments on the lease. Capitalized costs include the vehicle’s selling price, while the residual value represents how much the car is worth at the end of the lease. Your lease terms are typically expressed in months. Many of these figures can also be helpful for a lease buyout calculator.
Here’s an example of how much interest you’d pay on a GMC Sierra 1500 with the following values:
- Lease charge: $12,000
- Capitalized costs: $52,500
- Residual value: $42,000
- Lease term: 24 months
Lease Factor of 0.0053 = $12,000 / ($52,500 + $42,000) x 24
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For this GMC Sierra 1500 lease agreement, you’d have a resulting money factor of 0.0053. Using our equation above to convert that to a percentage (APR), you’d have 12.72%. That’s a hefty money factor for this type of lease. However, you can see that identifying your money factor and converting it to an interest rate can help you compare offers to find the best lease.
How to find your lease interest rate
Depending on how your car lease is structured, you can locate your lease interest rate (i.e., the money factor) without much effort. Sometimes, lease interest rates are expressed as a factor of 1,000. A 0.003 lease rate equates to 3.0 as a factor of 1,000. However, you can also derive the money factor from your lease with the formulas above.
Historically, lease rates have mirrored the national average interest rate for new car loans. However, much of that has changed with the automotive industry as inventory numbers fluctuate and consumers adjust their spending habits. While you can typically negotiate a money factor with most leasing companies and dealerships, success rates tend to be lower now than previously.
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Category: Finance
