Ninja_Matt
Authorized Vendor
Sorry for the slow response guys, end of month/beginning of month are very busy for us!wow
Great write up @Ninja_Matt! I will use this with my car shopping. I have a question about the money factor. I understand that basically it is the interest rate you get when leasing a car. Does the money factor matter to me if I am looking for a specific monthly price point? You can get to a $400 lease with a high money factor and a low purchase price. You can also get there with a low money factor and a high purchase price.
So Money Factor does matter, but not entirely... let me clarify.
As @Tiggs points out, the lender sets the money factor, so while it does matter in terms of being an informed consumer and knowing how your lease is structured, however it is a set value that cannot be changed (at least the base number set by the lender). Instead of correlating Purchase Price and Money Factor (not to say Purchase Price isn't important, its very important), its better to correlate Money Factor and Residual, as these are the terms set by the bank and cannot be changed. So higher the money factor, the higher the payment, the higher the residual the lower the payment. So generally speaking, in terms of seeking a low monthly payment, you will want a low money factor and a high residual. However what you typically will find is lease banks will either go for a higher money factor but a higher residual as well, or a low money factor with a low residual. Both will output similar payments, however the low money factor and low residual lease is superior, all else equal.
The reason for this is for equity, the low residual/low MF lease will be more equitable since you are paying more in principal towards the actual value of the car, where the high residual/high MF lease will result in more of those payments going towards interest. A great example of this was when Nissan was running 98% residual (18 month) leases on Frontiers about 2 years ago, this meant after making 18 months of payments, your payoff/residual purchase price was only 2% lower than MSRP. It yielded a phenomenal lease payment, but if you tried to get out of it early or tried to find equity at the end it would be impossible. This may or may not matter to you, so this is where the question comes in, does the money factor matter? Well, it depends on what your expectations are from the lease and how much you care about committing to a 3 year lease, but ultimately if you aren't comparing different makes/models and only shopping for one specific model, then its good to be aware of it, but you have no control over it so I wouldn't make it a requirement of any type.
@cs97jb I presume you are referring to the 1% of MSRP rule, this is a great rule of thumb but can be broken by many different leases and does not dictate anything set in stone. In order to compare a proper % of MSRP though, you should be comparing it to an "inceptions paid up front" structure lease. Not to say you need to stick with that structure, but if you roll all your inceptions into the payment your payment will inflate and make it seem like a worse deal using the 1% rule, even if it is a great deal. However, some cars break this rule, Mercedes EQ products for example are notoriously affordable lease payments for their MSRP, I have seen $100k+ MSRP EQS with lease payments in the $500-$600/mo range, well below the 1% rule. Honestly, 1% of MSRP on an EV is probably overpaying for one in some cases. It's still a great rule of thumb, but not a steadfast rule. Having first hand market knowledge of a specific vehicle and area is the best way to know if you are really getting a great deal, so for that I would recommend using the calculator and trying to find a similar deal to what I shared.
One last thing to add to @Tiggs post, I would argue our Calculator tool is better for finding lease programs than Edmunds forum - not that Edmunds won't be accurate, I'm sure they will, but ours is automated (so no asking for specific programs upon request) and can generate virtually all Manufacturer programs up to date realtime, based on your and your dealer zip specifically, for all terms. Want to compare programs in TX vs FL vs NY vs CA for 15 different cars? No problem