When you finance a car purchase through a traditional loan, the interest rate is expressed as an Annual Percentage Rate (APR)—for example, 5.9%. However, when you lease a vehicle, dealerships and captive finance companies use a metric called the Money Factor (also referred to as the lease factor).
To the untrained eye, a number like `0.00185` looks harmless. In reality, it is intentionally obfuscated interest. If you don't know how to convert it, you won't realize whether the dealer has quietly added a 1% to 2% markup to your financing charge.
Converting a lease money factor into its equivalent APR is remarkably simple once you know the multiplier. You multiply the money factor by 2,400.
Example: If your dealer quotes you a money factor of `0.00175`, multiply that by 2,400:
Automotive manufacturers (like BMW Financial Services, Toyota Financial, or Honda Finance) set a "buy rate" money factor for tier-1 credit customers—this is the wholesale wholesale cost of money. Dealership finance and insurance (F&I) managers are legally permitted to markup that money factor by up to 0.00040 (nearly 1% in APR) as hidden dealer profit.
On a 36-month lease for a $50,000 vehicle, a minor 0.00040 money factor markup costs you an extra $700 to $900 in pure profit straight to the dealership over the term.