TL-SorMaxima

Money Factor = Interest Rate. The lower the factor, the better your payment will be. There are basically 3 things that affect the price of a lease: money factor, capitalized cost (how much you actually paid for the vehicle), and residual factor. The lease is calculated based on how much you paid going in to the lease vs. what the car is worth coming out of the lease. That's why cars that cost about the same on the front end can have greatly differing lease payments.

RAdams

To further clarify.. with a lease you're paying for the difference between the selling price of the car, minus the residual value plus the interest (or money factor). Hence it is still crucial to negotiate the selling price of the car when leasing (yet another reason not to "payment shop"). You've also gotta watch the residual... I've seen dealers lower the selling price but knock down the residual which nets you nothing but a nicer "front end figure" on paper.

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2000 WDP 3.2TL non-NAV

Guest

As previously stated, your lease payment is based on the money factor, residual, capitalized cost,and term.
The residual is set by the lender and is not negotiated. It's the percentage of the MSRP that the lender thinks the call will be worth a lease end. The money factor may be negotiable. A perfect example is Mercedes Credit who will pay the dealer a fee based on the money factor that the dealer negotiates. If the dealer gives you the minimum money factor, they get no additional fee. My experience is that some MB dealers will always quote the mimimum fee while others will start higher.
A high residual will result in a lower lease payment but if you end up having to buy the car because you exceeded the mileage, etc. you would have wished for a lower one.
I just leased a Saab through Saab leasing this month. The payment came to the same amount as if I leased it under the February program but the money factor and residual changed. Since they lowered the residual (which will periodically occur throughout the model year), they lowered the money factor to compensate. As a result, if I have to buy the car at the end, I will save $1,300 vs. what I would have had to pay if I signed the lease in February.
Ask to see the money factor sheet they receive from the credit subsidiary or bank. Incidentally, in January when I was looking at Acuras, the money factor on a TL was .00345 (8.28%) while the mf on an RL was .00104 (2.5%). The residual was a lot higher on the TL. In the end, leasing an RL was only $100 more a month than leasing a TL.
There are several good sites that explain the calculation.

AnthonyG

A great site to vist is http://www.bankrate.com. The topic covering auto leasing is http://www.bankrate.com/brm/green/auto/2a.asp

Guest

To further clarify and add to glax's post, the money factor is a function of the interest rate AND the term of the lease. You take the money factor and multiply it by the total amount financed (less trade or residual) to get the monthly payment. A money factor for 36 months would obviously be higher than a 48 or 60 month loan or lease. It is also a way for a dealer to bury or disguise the interest rate. If a dealer offers a money factor, ask him what interest rate it is based on. His finance department better be able to tell you! Insist on knowing the rate.

Also, if you are buying the car and not leasing, I would ask for a "simple interest" loan. A simple interest loan pays a fixed portion of interest per payment. I got screwed by a dealer that put me into something else where I paid most of the interest up front (like a home mortgage). I went to sell the car after two years and found out I owed more than the car was worth and had to wait until I had made many more payments. Sorry for the long post - hope this helps.



<FONT COLOR="#800080" SIZE="1" FACE="Verdana, Arial">[This message has been edited by GL4TL on March 19, 2001 @ ]</font>

AnthonyG

In response to GL4TL's last paragraph, he had a Rule of 78's loan, which is basically a very bad deal. GMAC Financing is notorious for these type of auto loans. Avoid this type of auto loan like the plague.

Guest

GL4TL is well intentioned but he is not correct in two of his points.
First, money factors are higher for longer term leases just as finance rates are higher for longer term loans. Secondly, the formula for a lease payment is more complex than described. The actual formula is Monthly Payment = (Cap Cost - Residual)/Lease term + (Cap Cost + Residual)x Money factor. Of course, you would have to add your local sales tax. By the way, I'm a CPA and I still have yet to meet anyone who can tell me logically how this formula was developed.

tea elle

If I'm thinking of leasing for 36 months, does the money factor apply to the "interest rate" on the "loan" that is your lease payment? And if I'm planning to turn the car in in three years, why do I care what the residual value will be?

I guess I'm asking how much impact the money factor will actually have on my payments, and what is a good money factor vs. a bad one.

Thanks for the insight!

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2001 TL Silver w/ Black Leather
CL-S Wheels w/Pilots
Alpine CD Changer
Burlwood Shift Knob

Guest

The money factor is like the monthly interest rate in a loan, but specified differently as, for example, .00319. To convert to APR, multiply the Money Factor by 2400 ( always 2400 no matter how long lease ) .00319 x 2400 = 7.65%APR.

The residual value is what the leasing company is GUESSING the car's value to be at the end of the lease.
.70 residual for 24 mos. on a $30,000 car would mean that the vehicle is predicted to be worth $21,000 in 2 years.
.62 residual for 36 mos. on the same vehicle would mean that the vehicle is predicted to be worth $18,600 in 3 years.
Mileage comes into play also.

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My very own "Honda Inspire"