Lease Percentage Rate Calculator
Understanding the Lease Percentage Rate
In the world of vehicle leasing, the cost of borrowing isn't usually expressed as a standard interest rate. Instead, dealers use a term called the Money Factor. Understanding how to convert this figure into a recognizable percentage rate is crucial for determining if you are getting a fair deal.
How the Calculation Works
This calculator determines the implied interest rate of your lease by analyzing the relationship between the money you are borrowing and the fee you are paying to borrow it. The math follows these specific steps:
- Adjusted Capitalized Cost: This is the Gross Cap Cost minus any Reductions (like trade-in credit or cash rebates).
- The Money Factor Formula: Money Factor = Monthly Rent Charge / (Adjusted Capitalized Cost + Residual Value).
- Lease APR: To convert the Money Factor into a standard percentage rate, we multiply the Money Factor by 2,400.
Example Calculation
Imagine you are leasing a car with the following terms:
- Gross Cap Cost: $40,000
- Cap Reductions: $2,000 (Adjusted Cap Cost = $38,000)
- Residual Value: $22,000
- Monthly Rent Charge: $75
Using the formula: $75 / ($38,000 + $22,000) = 0.00125. This is the Money Factor. To find the percentage rate: 0.00125 x 2,400 = 3.0% APR.
Why the Rent Charge Matters
The "Rent Charge" is the portion of your monthly payment that goes strictly toward the financing cost, separate from the depreciation of the vehicle. By identifying this number on your lease worksheet, you can uncover the hidden borrowing costs that dealerships sometimes hide behind low monthly payment figures.