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Originally Posted by 06graphite
Can someone explain what the money factor is?
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Your MF is used to calculate the total interest charge on your lease. It is basically the interest rate charged on your lease, expressed a different way.
The formula to calculate the total interest on your lease is:
MF * (Cap cost + Residual) * # of months of your lease
This formula simply applies your interest rate to the average value of your car during your lease. The reason you ADD cap cost + residual is because you are averaging the two, but you don't see the division by 2 because it is included in the money factor calculation.
In other words, you can arrive at the same total interest charge number by the following calculation:
[(% Interest rate / 100) / 12] * [(Cap cost + Residual) / 2)] * Term
ie: Monthly interest rate * Average value of car during lease * # of months
People use "money factor" to simplify the above equation by combining the constants:
[[(% Interest rate / 100) / 12] / 2] * (Cap cost + residual) * Term
_or_
(% Interest rate / 2400) * (Cap cost + residual) * Term
_or_
Money factor * (Cap cost + residual) * Term
In conclusion, you can calculate your interest rate from your MF by multiplying it by 2400.