# How can the interest rate be disguised in a car lease?

[Source] Personally, I think leasing can be a good way to go. For one thing, leasing allows people to drive more expensive cars. But you have to be careful. Some dealers base leases on 110 percent of the vehicle's sticker price. This is called a "full pop lease" and it's what most dealerships aim for. ♦ Also, it's easy to disguise the interest rate in a lease because it is expressed as a decimal multiplier instead of a more recognizable percentage rate. For example, a 9 percent interest rate becomes .00375.

Please enlarge on the sentences after ♦ (ie the black lozenge)? 9% = 0.09 necessarily, so how's the last sentence true?

• I think that may refer to something like a monthly interest, so (1+0.00375) raised to the 24 (assuming a 2 year lease) is roughly 9 percent. Jan 3, 2015 at 3:58
• Leasing is a good way to go only if you insist on driving brand new cars and will trade in for a new one every 24 months. You can do far better by (a) buying one of those two-year-old cars returned from lease (or any other recent-model used car in good condition), and (b) keeping it until it is really unrepairable. A car should be good for at least a decade, and at least a light-second... and many go much longer and farther than that. Jan 3, 2015 at 5:04
• @keshlam +1. Thank you. With much gratitude to other users and posts here, I confirm that I oppose and denounce leasing for myself, so I'm just asking this out of curiosity and for want of empowerment against unconscionable salesmen.
– user10763
Jan 4, 2015 at 19:04
• @keshlam with regards to "keeping it until it is really unrepairable" won't there come a time before that when it is repairable, but repair costs get to the point where it's more economically to just buy a new vehicle?
– user12515
Jan 20, 2015 at 20:09
• That's the definition of "really unrepairable", agreed. But many folks give up much too soon. If the cost of the repair is less than you'd be willing to pay for a car in equivalent condition which had just had this repair, it's worth fixing . Most modern cars are good for at least 20 years or a full light-second (186,000 miles plus), whichever comes last, unless you abuse them. Jan 20, 2015 at 20:16

You have met the money factor, an invention of some marketing department. It is a function of the capitalized cost and term you agree too.

``````Money Factor = Total monthly charge/((Net capitalization cost + Residual value) x Term)
``````

Thus, when negotiating a lease, the only thing there is to talk about is the purchase price of the car, which affects the capitalized cost. Residuals are set by whatever third party underwrites the whole thing, so don't try to argue about that. And of course you can pick the term.

0.00375 is the money factor for a 9% APR. Multiply by 2400 to get the APR.

0.00375 * 2400 = 9

If you don't want to do the math, there are tools available online.