Understanding Lease Rate Factors: Converting to Interest Rates

When you're purchasing a car, financing is an important consideration. The most important aspect of financing is the interest rate. The higher the interest rate, the more money you're paying for the car. The lease rate factor, also known as the money factor, is a component of the interest rate used to determine loan payments. It's a different way of showing the amount of interest the lessee must pay on a lease with monthly payments. The lease rate factor is easy to convert to the more common annual percentage rate.

Step 1

Find the lease rate factor in your loan documents from the car dealership or financier. It should be a decimal, such as 0.0004.

Step 2

Multiply the lease rate factor by 2,400. For example:

0.0004 x 2400 = 9.6

The interest rate in this case is 9.6 percent.

Step 3

Recalculate the equation to eliminates the chances of mathematical error. And just to be 100 percent sure, perform the equation in reverse:

9.6 / 2400 = .004

The calculations were correct. The interest rate is 9.6 percent.