1. What is the Money Factor?

The Money Factor (MF) is a decimal number used to calculate the finance charges on equipment leases. It's essentially the lease equivalent of an interest rate, but expressed differently.

2. How Does the Calculator Work?

The calculator uses the Money Factor formula:

Where:

• \( MF \) — Money Factor (decimal)
• \( APR \) — Annual Percentage Rate (%)

Explanation: The formula converts the annual percentage rate (APR) into the money factor by dividing by 2400 (which is 12 months × 200, a conversion factor used in leasing).

3. Importance of Money Factor Calculation

Details: Understanding the money factor helps lessees compare lease offers and understand the true cost of leasing equipment. A lower money factor means lower financing costs.

4. Using the Calculator

Tips: Enter the Annual Percentage Rate (APR) in percentage form. The calculator will convert it to the money factor used in lease calculations.

5. Frequently Asked Questions (FAQ)

Q1: What is a good money factor?
A: Money factors vary by market conditions and creditworthiness. Generally, lower is better. Typical values range from 0.001 to 0.004.

Q2: How is the money factor used in lease payments?
A: The money factor is multiplied by the sum of the net capitalized cost and residual value to determine the finance portion of the monthly payment.

Q3: Why divide by 2400?
A: The 2400 factor accounts for converting an annual rate to a monthly rate (divide by 12) and adjusting for the way lease payments are calculated (multiply by 200).

Q4: Can I negotiate the money factor?
A: Yes, money factors are often negotiable, especially if you have good credit or are comparing multiple lease offers.

Q5: How does money factor compare to interest rate?
A: To approximate an equivalent interest rate, multiply the money factor by 2400. For example, 0.0025 MF ≈ 6% APR.