By Trey Latham - October 24, 2012
We all know that a retail installment contract for a purchase has a principal balance, and finance charges calculated based on the annual percentage rate or APR. There is a significant difference, however, between retail deals and lease deals. There is no traditional ‘APR’ when it comes to leases. But there are finance charges. So, how are these finance charges calculated? Money factor.
Money factor is sometimes called ‘lease factor,’ and while comparable to an interest rate, it is really the finance fee collected by the leasing company on a per payment basis, compensating them for the asset they are allowing the lessee to drive around.
This factor is typically expressed as very small number, such as: .00375, and a simple rule of thumb to get the comparable interest rate is to multiply it by 2400 (in this example: .00375 * 2400 = 9% APR). For additional information, including the full calculation, visit the following site: http://www.leaseguide.com/mf2400.htm
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