Question 1

What is money factor in a car lease?

Accepted Answer

Money factor is the lease equivalent of an interest rate. Multiply it by 2,400 to get the approximate APR. For example, a money factor of 0.00125 equals roughly 3% APR.

Question 2

What is residual value?

Accepted Answer

Residual value is the projected worth of the car at the end of the lease, expressed as a percentage of MSRP. A higher residual value means lower monthly payments because you're financing less depreciation.

Question 3

What is cap cost reduction?

Accepted Answer

Cap cost reduction is an upfront payment (like a down payment) that reduces the capitalized cost of the vehicle, lowering your monthly payment. Unlike a purchase, this money is not recovered if the car is totaled.

Question 4

Is leasing better than buying?

Accepted Answer

Leasing typically gives lower monthly payments and lets you drive a newer car more often, but you build no equity. Buying costs more monthly but you own the asset outright. Leasing is better if you prefer lower payments and don't drive excessively.

Question 5

How is a lease payment calculated?

Accepted Answer

Monthly lease payment = Depreciation fee + Finance fee + Tax. Depreciation fee = (Adjusted Cap Cost − Residual Value) ÷ Term. Finance fee = (Adjusted Cap Cost + Residual Value) × Money Factor.

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