One of the mysteries of auto leasing involves the “cost” of financing the transaction. Under an auto lease the “purchaser” is in effect purchasing the depreciation that takes place with the vehicle. This depreciation is equal to the difference between the capitalized cost (purchase price) and the residual value (bring back value). The lease payment is computed by amortizing this depreciation amount over the lease term and applying an interest rate (called the money factor) to the obligation. Since you will not usually see a stated interest rate in the standard lease contract it must be computed in order to properly evaluate and compare leasing options. Leasing companies must disclose either the money factor or the interest rate for you.

Most leasing companies will try to confuse you by quoting the money factor as a larger decimal such as 2.97, which really means .00297, because it sounds like a more attractive annual interest rate. Our input field has been designed to accept input with the larger, more commonly used, decimal expression (ie 2.97).

Following is a calculator that will compute the true interest rate (or money factor) of a lease contract: