Converting a lease’s money factor to an annual percentage rate (APR) provides a standardized measure of the borrowing cost, allowing direct comparison with other financing options like loans. A money factor is a fraction representing the lease’s financing charge, often expressed in decimal form. Multiplying the money factor by 2,400 yields an approximate APR. For instance, a money factor of 0.0025 equates to an approximate APR of 6% (0.0025 * 2,400 = 6).
This conversion is crucial for consumers considering a lease agreement. It simplifies the complex leasing terminology and enables informed decisions by comparing the true cost of leasing against alternative purchasing methods. Historically, leasing arrangements utilized the money factor, making this conversion essential for transparency and consumer protection. Understanding the relationship between these two figures empowers consumers to negotiate better terms and avoid potentially unfavorable lease agreements.
