Money Factor

What is a 'Money Factor'

A money factor is the alternative method of presenting the amount of interest charged on a lease with monthly payments. A money factor can be translated into the more common annual percentage rate (APR) interest by multiplying the money factor by 2,400.

Also known as a "lease factor".

BREAKING DOWN 'Money Factor'

For example, if quoted a money factor of .002, the interest rate on that loan would be approximately (.002) x 2,400 = 4.8%

Money factors are used in cases where the monthly payments may fluctuate based on the residual value of an asset, such as an auto lease. In a typical lease, the investor is paying the difference between the retail value of the automobile and the interest payments.

A money factor may also be presented as a factor of 1,000, such as "2.0" rather than ".002". While the decimal version is more common, a money factor that is a whole number can still be converted to an APR by multiplying it by 2.4.

RELATED TERMS
  1. Minimum Lease Payments

    The lowest amount that a lessee can expect to make on a lease ...
  2. Capitalized Lease Method

    An accounting approach that identifies a company's lease obligation ...
  3. Capital Lease

    A lease considered to have the economic characteristics of asset ...
  4. Lease Rate

    The amount of money paid over a specified time period for the ...
  5. Closed-End Lease

    A rental agreement that puts no obligation on the lessee (the ...
  6. Graduated Lease

    A type of long-term, typically for commercial property, lease ...
Related Articles
  1. Credit & Loans

    4 Ways to Get the Best Deal on a Car Lease

    Car buyers typically negotiate when purchasing a vehicle, but many don't negotiate when leasing a car. There are several ways to save if you ask.
  2. Economics

    How Does an Operating Lease Work?

    Operating lease is a term used mostly in accounting to denote a lease that gives the lessee rights to use and operate an asset without ownership.
  3. Economics

    What is a Capital Lease?

    A lease considered to have the economic characteristics of asset ownership.
  4. Professionals

    Determining The Value Of The Lease And The Lease Asset

    CFA Level 1 - Determining The Value Of The Lease And The Lease Asset. An in depth look at operating vs. capital leases and their impact on financial statements and ratios. Provides sample calculations ...
  5. Professionals

    Capital And Operating Leases

    CFA Level 1 - Capital And Operating Leases. Lists the requirements a lease must satisfy to be classified as an operating lease. Examines the incentives of operating over capital leases.
  6. Home & Auto

    When Is Buying A Car Better Than Leasing?

    People who lease a car are often more concerned with the short-term picture.
  7. Professionals

    Effects Of Capital Vs. Operating Leases

    CFA Level 1 - Effects Of Capital Vs. Operating Leases. Examines the impact on lease classification on financial statements. Compares the differences between operating and capital leases.
  8. Professionals

    Buy Vs. Lease/Rent

    Buy Vs. Lease/Rent
  9. Savings

    Is There a Way to Get Out of Your Car Lease Early?

    For those who no longer want their car for whatever reason, transferring the lease to an interested party can be a particularly appealing choice.
  10. Savings

    When Is Leasing A Car Your Best Bet?

    Leasing a car isn't right for everyone. But it's attractive for those who want low initial payments and the ability to get a new vehicle every few years.
RELATED FAQS
  1. How have low interest rates affected lease rates in the automotive sector?

    Find out how and why lower interest rates for leasing new automobiles have helped spur more consumers to lease cars instead ... Read Answer >>
  2. You are currently reviewing the following information for JKL Corp ...

    Free info on financial certification exams including study guides, exam questions, and much more! Read Answer >>
  3. Why might a bond agreement limit the amount of assets that the firm can lease?

    Bond covenants can limit the amount of leases a company can have because leasing contracts are a form of debt. Taking on ... Read Answer >>
  4. At the beginning of the year, HIJ Corp. began to lease new equipment ...

    The correct answer is: b) Total Lease Payment = Interest expense + Principal repayment Step 1: Interest expense = 8.5% of ... Read Answer >>
  5. What is the importance of residual value in an automobile lease?

    Find out how dealerships assign residual value and why this is an important factor in car leases. Learn about a tactic some ... Read Answer >>
  6. At the beginning of the year, ABC Corp. began to lease a major piece of equipment ...

    The correct answer is: A) Under the capitalized lease method, the lessee must treat the asset as if it was purchased with ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center