Money Factor

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DEFINITION of 'Money Factor'

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".

INVESTOPEDIA EXPLAINS '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 100, 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 24.

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