How to Convert a Money Factor to an APR

Converting a money factor to an interest rate is very important when you are negotiating a lease. The money factor can be converted into an APR percentage. There is a formula commonly used to calculate a money factor into an interest rate.

Difficulty: Moderate

Instructions

1. Grab your calculator. The money factor formula can be converted as follows:
   
   Money factor = .00625
   
   .00625 x 2400 = 15 (or 15% APR)
   
   Always calculate by 2400. It has nothing to do with the length of the lease. This formula will work for you every time when you convert a money factor into an APR percentage.

2. Watch out for quick talk. Most salesman with brush over the money factor very quickly and mask it as a percentage by calling it 6.25 (using our example money factor). The money factor is not 6.25, it is .00625.

3. Compare your money factor to current APRs. The money factor should not be higher than a regular APR you would be qualified for based on your credit. The money factor is a slick way for dealerships to make money on leases.

Tips & Warnings

• If a salesman calls a money factor 4.25, it is not a percentage. It is probably .00425, so do not let them confuse you by using this method of trickery.