Why is an APR used as opposed to a Money Factor?

December 17th, 2019 by

APR versus Money Factor at Jim Coleman Auto Group in Maryland | Calculator and money

You finally found it: The Hands-Down Most Perfect Car Ever with all the bells and whistles you could ask for! You’re already dreaming about trips to the beach, bumping that sound system, and feeling like a beast on the road then…

BAM! Reality hits, and you realize you have some major research to do before jumping into this huge purchase.

Well, you’ve come to the right place. Jim Coleman Auto Group is here to explain all the ins-and-outs of buying or leasing a vehicle, including any potentially confusing financing terms such as APR and money factor. So relax, you’ll be able to drive that perfect car and feel informed because we did the research for you.

Car Loans & APR

Are you looking to buy that new or used Honda, Toyota, Land Rover, Cadillac, Jaguar, or Infiniti? If so, are you going to be taking out a loan? If the answer is yes to both of those questions, then you’ll want to know what an APR is.

APR is the Annual Percentage Rate, or total amount of interest paid on your loan over a year. Determining if an APR is good or bad is based on your individual preferences and financial reach, so it’s a good idea to talk it out with a finance specialist.

Leases & Money Factor

Do you want to lease a new Honda, Toyota, Land Rover, Cadillac, Jaguar, or Infiniti? If yes, then you’ll want to understand money factors.

Basically, the money factor is the financing rate on a lease, similar to an interest rate on a loan.

Money factors exist due to the fact that calculating interest on a lease is more complicated than on a loan, so the leasing company does the math and includes it into the lease cost. They are expressed in very small numbers, such as 0.00275.

You can convert a money factor into an APR by multiplying it by 2,400.

The money factor is rolled into the cost of your lease and not required to be disclosed in your contract, so if you want to know you have to ask.

The Difference Between an APR and a Money Factor

In short, APRs and money factors are similar in concept but used for different purposes.

APRs are used for loans, whereas money factors are used for leases. Both represent the financing or interest on your payments, but are expressed in different ways.

It’s good to know these basics while considering your next purchase from the Jim Coleman dealerships located in Columbia.

We hope this article was helpful, but if you have any lingering questions please call or visit our dealerships in Bethesda, Clarksville, and Silver Spring.

Related Posts

Posted in Finance Blog