What is my car lease interest rate?
Lease rate is not in my contract. How do I find it?
It’s true. Unlike a loan contract, a car lease contract is not required to show the interest rate used in computing the monthly payment. And it isn’t shown.
Actually, lease finance rate is expressed as money factor, not interest rate. And that isn’t shown in a car lease contract either.
Money factor is a very small number. For example a lease might have a money factor of .00175. Money factor can be converted to interest rate simply by multiplying by 2400. So, in our example here, a money factor of .00175 is equivalent to a 4.2% APR interest. However, neither number is shown in lease contracts. The fact that it’s not disclosed is not a scam or illegality, it’s simply a practice in the business of car leasing — and is not required by law.
If I have an existing car lease contract, is it possible to find out what interest rate I am paying?
The key to getting the answer is a line item in your lease agreement form that is labeled something like “Rent Charge” or “Lease Charge” or Lease/Rent Charge.” The amount shown for this item is the total of all finance charges that will be paid during the life of the lease. This number is required by Federal law in all lease contracts.
From this number, we’ll calculate the interest rate with the following formula:
Interest Rate = 2400 x Rent Charge ÷ (Net Cap Cost + Residual) ÷ Term
where Rent Charge is the total of finance charges from the lease contract, Net Cap Cost is net price the lease is based on minus any down payment or trade-in credits, Residual is the lease-end residual value, and Term is the number of months in the lease. All these numbers come straight from a lease contract form.
Let’s work an example and calculate lease interest rate:
Rent Charge = $3500
Net Cap Cost = $20,000
Residual = $12,000
Term = 36 months
then, using our formula:
Interest Rate = 2400 x 3500 ÷ ( 20000 + 12000) ÷ 36
which simplifies to:
Interest Rate = 2400 x 3500 ÷ 32000 ÷ 36
which results in:
Interest Rate = 7.29% APR
Summary
Even though finance interest rate or money factor are not shown explicitly in a car lease contract, it can be easily calculated from other numbers in the contract — primarily from the “Rent Charge” or “Lease/Rent Charge.”
To get car lease interest rate before you lease, you must ask your dealer. Don’t expect a sales person to know without asking his finance manager. Then you may get it in the form of money factor, not interest rate. But you can convert money factor to interest rate by multiplying by 2400. See Money Factor Calculator for more details.
The interest rate you pay with your lease will depend on your credit score, so don’t expect the answer you get to be the actual rate you will end up paying. It’s good to know your credit score before going car shopping. Get a Dark Web Scan and your Experian Credit Report for FREE! A low score will result in a higher lease interest rate.