How to Compute Money Factor From Total Finance Charge
Often, the fine print of a car leasing agreement will not explicitly state the APR or money factor used to compute your monthly payment, but instead will give the total financing charge for the length of the lease. This is also known as the total rental charge or total leasing charge. It's the sum of all the finance charge portions of each monthly payment.
Fortunately, if you know the total leasing charge for an auto lease agreement, you can use simple algebra to compute the money factor and APR. The method is explained below, or you can use the calculator on the left.
Solving for the Money FactorFirst we must assemble several variables. Let T be the total financing fee for a lease, C be the net capitalized cost of the car, R be the residual value, and N be the number of months you lease the vehicle. Then the money factor and APR are computed with the following equations:
Money Factor = T/[N(C + R)]
APR = (2400)(Money Factor)
ExampleSara leases a vehicle that costs $26,000 after down payment and trade-in. The residual value of the car is $17,000. In her lease agreement, the total financing fee is given as $5,263.20 for 36 months. To compute the money factor and equivalent annual interest percentage rate on this lease, we first assign values to the four variables:
T = 5263.2
C = 26000
R = 17000
N = 36
Using the formula for calculating the money factor, we get
Money Factor = 5263.2/[36(26000+17000)] = 0.0034
And the equivalent interest rate is
APR = (2400)(0.0034) = 8.16%
© Had2Know 2010