Did you ever look at leasing a car from a dealer? And if you did, were you confused when they quoted you a money factor instead of an interest rate when determining your monthly payment (assuming they did)?
As it happens, the money factor is a percentage that represents the cost of the money required to lease a vehicle and is similar to (but not the same as!) the interest rate paid on a loan. By law, it will not appear in the terms of your lease agreement - even though it's used in establishing the finance fee portion of your monthly payment.
For you as a consumer, being able to determine the money factor can help you determine whether or not you're overpaying for a lease. That's why we've created the following tool, which you may use to extract the lease money factor from the lease agreement you're considering. The tool below will also approximate the Annual Percent Rate of interest, which will allow you to compare your cost of money in leasing with the cost of borrowing (via a conventional loan) for owning instead:
The math underlying the tool above is presented by LeaseGuide.com. Also, the single best discussion of lease money factor, and how it may be calculated, is presented by efunda, a very cool resource for engineers.
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