What Is a Money Factor?
Every lease payment has two main components: the depreciation charge (how much the car loses in value during the lease) and the finance charge (the cost of borrowing). The money factor determines the finance charge. It is the lease world's version of an interest rate, but it is expressed as a small decimal number instead of a percentage.
A typical money factor looks like 0.00125 or 0.00200. These numbers seem small, but they translate to meaningful APR equivalents. The conversion is simple: multiply the money factor by 2,400.
- 0.00050 x 2,400 = 1.2% APR
- 0.00100 x 2,400 = 2.4% APR
- 0.00125 x 2,400 = 3.0% APR
- 0.00150 x 2,400 = 3.6% APR
- 0.00200 x 2,400 = 4.8% APR
- 0.00250 x 2,400 = 6.0% APR
The reason the money factor exists as a separate format from APR is partly historical and partly because it makes the number look smaller than it actually is. A dealer quoting you a money factor of 0.00200 sounds far less alarming than saying "you are paying a 4.8% interest rate on this lease." That ambiguity is not accidental.
How the Money Factor Affects Your Monthly Payment
The finance charge on a lease is calculated using this formula: (Capitalized Cost + Residual Value) x Money Factor = Monthly Finance Charge.
This means the money factor applies to both the amount you are financing (the depreciation) and the residual value (the part of the car you are not buying). This is different from a traditional loan, where interest only applies to the outstanding balance.
On a car with a $40,000 cap cost and a $24,000 residual value:
- At a money factor of 0.00100 (2.4% APR): Monthly finance charge = ($40,000 + $24,000) x 0.00100 = $64/month
- At a money factor of 0.00200 (4.8% APR): Monthly finance charge = ($40,000 + $24,000) x 0.00200 = $128/month
- At a money factor of 0.00250 (6.0% APR): Monthly finance charge = ($40,000 + $24,000) x 0.00250 = $160/month
The difference between the best and worst money factor in this example is $96/month, or $3,456 over a 36-month lease. That is real money, and it is entirely determined by a number most consumers never see or question.
The Dealer Markup Nobody Tells You About
Here is the part that matters most: the money factor you are offered is often not the base rate.
Every month, each manufacturer's finance arm (Toyota Financial Services, BMW Financial Services, Ally, Chase Auto, etc.) publishes a base money factor for each vehicle, term, and mileage combination. This is the lowest rate available for your credit tier. Dealers receive this information and are authorized to mark it up by a set amount.
The markup works like this: if the manufacturer's base money factor is 0.00100 and the dealer marks it up to 0.00150, the difference (0.00050) generates additional profit for the dealer. On a $64,000 combined cap cost and residual, that 0.00050 markup adds $32/month, or $1,152 over 36 months. The dealer keeps that money. You pay it. And unless you ask, no one tells you it happened.
This is legal. It is standard practice. And it is one of the most common ways dealers increase their profit on lease transactions without the customer realizing it.
How to Protect Yourself
The good news is that the money factor markup is one of the most fixable problems in a lease deal:
- Ask the dealer directly: "What money factor are you using on this lease?" If they will not tell you, that is a red flag.
- Ask: "Is this the manufacturer's base money factor, or has it been marked up?" Dealers are not required to disclose the markup, but many will reduce it when asked directly.
- Research the base rate. Online lease forums and communities share current base money factors for most makes and models. Knowing the base rate before you walk in gives you leverage.
- Get pre-approved for a traditional auto loan as a comparison. If a credit union is offering you 4% APR on a loan and the lease money factor converts to 6% APR, you know the lease rate is inflated.
- Use a broker. At Vantage, we verify that every lease deal uses the manufacturer's base money factor with no dealer markup. This eliminates the hidden cost entirely.
Why This Matters More Than Most People Think
Most lease shoppers focus on the monthly payment and the selling price. Those are important. But the money factor is the silent third variable that can quietly add over a thousand dollars to your total lease cost without you realizing it.
Dealers know that consumers do not understand money factors. They know the decimal format makes the number look insignificant. And they know that most people will negotiate the selling price but never ask about the money factor. This information asymmetry is how markup profit gets built into lease deals every day.
Understanding your money factor is not about being confrontational with dealers. It is about having enough information to evaluate whether the deal you are being offered is actually competitive. For context on how credit scores affect your money factor tier, see our guide on what credit score you need to lease a car. For how money factor fits into the bigger payment picture, see what a good lease payment looks like in 2026.
Full Disclosure: How Vantage Handles Money Factor
Vantage is a licensed auto broker in New Jersey. When we structure a lease deal for a client, we use the manufacturer's base money factor with no dealer markup. This is one of the structural advantages of working with a broker instead of a single dealership: we do not profit from inflating the money factor.
Our 350+ dealer network competes on selling price, and the money factor is locked at the manufacturer's base rate for your credit tier. There may be a broker fee depending on the deal, which we disclose upfront. The savings from an unmarked money factor alone often cover that fee.
If you want to see what a lease looks like with the base money factor and a competitive selling price, get a free quote in 5 minutes. No spam. No pressure. Unsubscribe anytime.
.avif)
