How to Calculate a Money Factor: Step-by-Step 2026

The formula, in one paragraph

A car lease payment has two parts: the depreciation fee, which pays for the value the car loses, and the finance charge, which is the cost of borrowing the car’s value. The depreciation fee is the cap cost minus the residual value, divided by the term in months. The finance charge is the cap cost plus the residual value, times the money factor. Add the two for the monthly payment. The money factor itself is the lease’s interest rate in disguise: multiply it by 2,400 for the equivalent APR.

Step 1: Start with the cap cost and the residual value

Start with the two prices in the lease. The cap cost is the price of the car in the lease, and the residual value is what the car is expected to be worth at the end of the lease. The example in this guide uses a $35,000 cap cost, a $21,000 residual value, a money factor of 0.00250, and 36 months. Keep the two prices apart until the last step: the difference between them drives the depreciation, and the sum of them drives the finance charge.

Step 2: Find the depreciation fee

Subtract the residual value from the cap cost, then divide by the term in months. On the example, that is $35,000 minus $21,000, which is $14,000, divided by 36 months, which is $388.89 a month. This is the part of the payment that pays for the value the car loses while you drive it. A car that holds its value has a small depreciation fee: at a $24,500 residual the fee is only $291.67 a month, while at a $14,000 residual it is $583.33 a month.

Step 3: Find the finance charge

Add the cap cost and the residual value, then multiply by the money factor. On the example, that is $35,000 plus $21,000, which is $56,000, times 0.00250, which is $140.00 a month. This is the part of the payment that pays for borrowing the car’s value. The money factor looks tiny, but it is charged on the full $56,000 every month, so one thousandth on the money factor is $56.00 a month here: at 0.00150 the charge is $84.00, and at 0.00350 it is $196.00.

Step 4: Add them up for the monthly payment

Add the depreciation fee and the finance charge to get the monthly payment before tax. On the example, that is $388.89 plus $140.00, which is $528.89 a month. All figures are computed from unrounded values and rounded only for display, so the rounded parts add to the rounded payment here. The total lease cost is the payment times the term: $528.89 times 36 is $19,040.00, of which $14,000.00 is depreciation and $5,040.00 is finance charges.

Step 5: Convert the money factor to an APR

Multiply the money factor by 2,400 for the equivalent APR, which is the standard approximation dealers and lenders use. On the example, 0.00250 times 2,400 is 6.00%. The other way round, divide the APR by 2,400 for the money factor: a 7% APR is 7 divided by 2,400, which is 0.002917. Always convert before you compare a lease with a loan, because a money factor of 0.00250 and an APR of 6.00% are the same rate in different clothes.

Working backwards from a $450 payment

The formula also runs backwards. For a $450 a month payment on the same $35,000 cap cost and $21,000 residual over 36 months, the money factor would need to be 0.001091, because the depreciation fee is $388.89 and only $61.11 of finance charge fits in $450. Or keep the money factor and raise the residual to $24,120.88, which cuts the depreciation fee enough to land on $450. Or keep the money factor and the residual and lower the cap cost to $32,394.50. Each lever works on its own: pick the one you can actually move.

When the numbers are small

The formula still works at the edges. With a $25,000 cap cost the payment is $226.11 a month, and with a $50,000 cap cost it is $983.06. At a money factor of 0.00150 the payment is $472.89, and at 0.00350 it is $584.89. After 24 months the payment is $723.33, and after 60 months it is $373.33. With a money factor of 0 the finance charge is $0.00 and the payment is $388.89, the depreciation alone. With the residual equal to the cap cost the depreciation is $0.00 and the payment is $175.00 of finance charge alone. With a 1-month term the whole $14,000.00 of depreciation lands in one payment of $14,140.00. With a residual of $0 the payment is $1,059.72 a month.

What NOT to do

Do not compare a money factor with an APR as if they were the same number: 0.00250 looks small, but it is 6.00% APR. Do not count the whole payment as a cost: $14,000.00 of the $19,040.00 is depreciation, and the finance charges are $5,040.00. Do not assume a longer term is cheaper: a 60-month lease costs $373.33 a month but $22,400.00 in total, against $723.33 a month and $17,360.00 in total at 24 months. Do not forget tax and fees: this payment is before tax, and the acquisition fee, the disposition fee, and any down payment are all on top.

That box is the whole formula.