# BMW Leasing 101 - Learn about leasing, get the best deal



## tim330i (Dec 18, 2001)

Leasing can be a financially advantageous way of driving a BMW. Perhaps that's why more than half of BMW drivers lease. Leasing does not require the same cash commitment as you only pay for the value of the vehicle you use during its lease. And, at the end of lease term, you have the flexibility to turn in your BMW for another, re-lease for additional term, buy at set agreement price, or turn in and walk away.

Many people are confused by lease and how they work. This thread is about what leasing really is, common terms, and how to calculate the monthly pricing. Please feel free to ask questions below about your lease deal, how to get the best least deal or any general leasing questions. If you want someone to rate your deal you will need to include MSRP, negotiated price (cap cost), money factor, years, allowed mileage, cap cost reductions, number of MSDs, and monthly cost. Please note this is not a lease vs buy discussion.

Big thanks to Bimmerfest.com member OneRib for putting this together for the BMW community.

*Leasing a BMW*
Leasing in simple terms is paying for the amount of car you are using plus interest and fees. The financing company wants you to pay for the anticipated depreciation of the car and it also takes interest while this happens so they can make a profit.

Most leases are 2-4 years with 3 being the sweet spot. This is because the most depreciation happens in year one, making it unfriendly to the buyer and too many years makes it unattractive to the finance company to take back and unfriendly to the buyer who wants to change cars more frequently.

*Main Components of Leasing*
There are a lot of terms related to leasing that can be confusing. Here is a description of the common BMW leasing terms.

*MSRP*
This is the amount on the window sticker and is used for the residual calculation. Note this also includes the destination fee.

*Money factor*
Basically a fancy way of saying interest rate. Lease factor should be in decimal form and should be a small number. Whatever the money factor is, multiply by 2400 and that will tell you the interest rate. This number can be manipulated and the dealer will not always disclose it, but if you want to make sure you aren't taken advantage of, you need this number. The money factor can change monthly. Also BMW allows a dealer to mark up lease rates up to 0.0004. This may sound small but equates to 0.96% over the course of a lease and is pure dealer profit. Always find out the base money factor before you start negotiating lease terms. The smaller money factor number the better.

IMPORTANT MONEY FACTOR NOTE - If you are buying via BMW European Delivery, BMWFS automatically adds 0.0003 to the base money rate. In exchange they pay one months payment while the car is in transport. This is a losing equation for the buyer as the interest rate surpasses the one months payment.

_Example_
In April 2015, BMW is charged 0.00129 (0.00159 for European Delivery) lease rate for the F80/82/83 M3/M4.
Money factor X 2400 = interest rate
.00129 x 2400 = 3.096%.

*Residual rate*
The residual, or remaining value of the vehicle at lease end. The residual rate is expressed as a percentage and varies by number of years, mileage, and model. It is based of the MSRP of the vehicle you are buying/ordering. This number can change every month. Obviously the more years and miles added to the lease the lower the residual because the car won't be worth as much when you turn it in. Higher residual rates are obviously better.

Please note there has been some misinformation from some CA's about the residual on a European delivery car. The residual is still based off of the US MSRP NOT the ED MSRP. BMWFS has officially confirmed that for ED leases the residual value is calculated off of the US MSRP. Please DO NOT let dealers try and convince you otherwise. If they are insistent, I recommend you call BMWFS yourself while at the dealer and clear it up or have BMWFS send you written confirmation to show the dealer.

_Example_
MSRP is $50000
Residual of 50% means you will finance $25000 over the term of your lease
Residual of 60% means you finance $20000 over the term of the lease.

*Cap cost*
This is the price you have negotiated on the car. Yes that's right, you can negotiate the price on a leased car.

*Cap cost reduction*
This is any money used to reduce the total cap cost. It can be incentives, trade in, or cash. This is generally something to avoid because you CAN lose that money if you total the car. It is also money spent on something you are renting. You would be better off using it for something else. It is possible to get cap cost back if the insurance company pays more than payoff amount left on the car. It's a risk and only you can decide if it's worth it.

The other big issue with cap cost reduction is transferring the lease or pull ahead lease end. It's hard to recoup the money in a lease transfer. The other party is not likely to give you any of that money back (no one wants to give you cash that you spent to make your payment lower).  If a lower monthly payment is needed, makes you feel better, or gets it past the gatekeeper (aka spouse/parent/significant other) then you are better off using MSDs (explained below). You could also take the money (that was going to be used as cap cost reduction) and put it into a separate account. You then transfer a small amount over every month to make the payment lower.

*Multiple Security Deposits (MSDs)*

*UPDATE: As of May 2nd 2017 BMW is discontinuing the Multiple Security Deposit Program - Read more*

This is a BMW tool to bring down the money factor which in turn will reduce your monthly payment. A maximum of 7 MSDs can be applied. Each one reduces the money factor 0.00007. Each MSD costs the monthly payment rounded up to the nearest $50. The deposit(s) are returned at the end of the lease and is a good tool to lower your payment, but there are a few caveats.

You will not get it back if you fail to make good on your end of the lease (don't pay the monthly payment)
Again difficult to get someone to give you that money when transferring the lease.
End of lease charges are taken first before money is paid (damage, over mileage, etc.)

_Example_
Original money factor is 0.0013
0.0013 x 2400 = 3.12
You buy 5 MSDs
0.0013 - (0.00007 x 5)= 0.00095
0.00095 x 2400 = 2.28

You reduced your interest rate from 3.12 to 2.28 with money you get back at the end of the lease. Why does BMW do this?. Mostly because they can invest it and it gives them cash in hand to take for damage without having to chase after money at lease turn in.[/I]

*GAP insurance*
GAP stands for "Guaranteed Auto Protection." Such insurance is indeed important when leasing, since you don't actually own the car and usually don't put down a large down payment. If you have an accident, your insurance will pay you the current market value of the car, but not the total amount of what you owe the finance company. This leaves a gap in your coverage, and an amount that you still have to pay. BMW Financial automatically includes GAP insurance. This is a nice touch because you don't need to get it yourself.

*Acquisition fee*
Basically a loan origination fee. Right now base fee is $925 for BMW as of 8/1/2015 and can no longer be raised by the dealer.

*Disposition fee*
Its a fee BMW charges so the dealer can "dispose" of the car at lease end. The fee is usually for prepping and transporting for the next buyer. This fee is waived if you go into another lease or buy a new car through BMWFS, buy the currently leased car, transfer the lease, or sell it (you still need to pay BMWFS what you still owe them). The current BMW disposition fee is $350.

*Taxes*
This can differ from state to state and even within a state. Some states require the full purchase price be taxed up front, some counties within a state add an additional tax, and some states tax at a different rate for lease than buying. Check with your state as this topic is too broad to tackle in this post.

*Lease End*
BMW expects the car returned in the condition it was picked up. This means any mods must be reversible. Don't bolt on a wing to the trunk, paint the car a different color, change the interior material, etc. Mods like springs, wheels, grill changes are fine as long as you change it back when you turn it in. Some dealers will work with you on this and will let you add OEM parts. As with anything, check first before modding. Some mods can be rolled into the lease if they are added during the original order (BMW M Performance Parts for example). Other mods can be sold after you turn the car in (ex. Bavsound speakers).

One special topic is tires. Most tires will need to be replaced before end of lease. You are allowed to by any tire as long as it is of the same rating/size/performance. If the car came with Pilot Super Sports, Bridgestone Potenza will be fine. IF YOUR CAR CAME WITH RUNFLATS IT HAS TO BE RETURNED WITH RUNFLATS. Many people forget this and get dinged at lease turn in. Tread depth must be 4/32" or greater. One way to get around this would be to shorten the lease to 24 months. You may still have enough tread to turn it in without buying more tires and the increased monthly payment may be negated by avoiding the tire cost.

BMW requires a lease end inspection that usually is setup up about 75 days from the lease maturity date. This is done by an independent company, or the dealership. The BMW dealership tends to be more friendly on the inspection because they want your business on a future car. When completed you will receive a report and it will detail any repairs that are needed. You can fix it or still just turn it in and be billed by BMW later. BMW provides a "ding-o-meter" which shows how much damage is acceptable. This makes it easy to get an idea if you are going to need to fix certain defects.

You are also allowed to return your BMW to any authorized dealer (likely any US dealer) but they usually need to be notified (about 90 days). You can't just show up at a random dealer and drop of the car without expecting a huge hassle.

BMW has a nice interactive page to help you with the lease end process - http://www.bmwusa.com/Standard/Content/FinancialServices/LeaseReturnInformationFlash.aspx

BMW also makes it fairly painless to transfer a lease. This is nice because it reduces your financial exposure should you need to get out of the payments. It also makes it important to make a good deal as it will make your transfer more desirable. See the lease transfer section further down that covers lease transfers in more detail.

*Additional Fees*
Additional fees vary by state but shouldn't be much different than buying a car. These fees include the doc fee, admin fee, title, etc. Watch for dummy fees a dealer tries to tack on, it is up to you to spot bogus or marked up fees. The fees can be paid upfront or rolled into the monthly cost. Some like to pay them upfront and not deal with the interest of them over three years. Some like to pay as little as possible at signing. Usually the rule of thumb is to pay these upfront because they most are mandatory and why pay interest on them if you don't have to.

*Buying Additional Miles*
BMW does provide the option to buy additional mileage before the lease ends. Its usually at a reduced rate compared to turn in, but higher than the mileage cost of adding it in at the beginning of the lease. You can crunch the numbers if you believe you will be in between mileage at lease end. Generally you want enough mileage so you aren't constantly looking for excuses not to drive it.

*Details about buying excess miles*

BMWFS will refunded purchased miles you do not use, but they don't specify how much you are refunded.
You can pay for extra miles in increments or in lump sum payment if buying them outside of 120 days of lease end
Within 120 days up to the day before lease maturity, you can buy miles in lump sum payment
Payment is subject to sales tax
Miles are currently $0.18 per mile before lease end
After lease end miles are $0.25 for all models except the 6 Series, 7 Series and M models
Be realistic with yourself about the mileage and its probably better to slightly underestimate than over, because the rebate on unused miles is embarrassingly low

*Lease Buy Out*
You are always allowed to buy out the lease or sell the car whenever you want. As long as BMWFS gets the money they are owed, they don't care. This can be helpful if the car is worth more than the residual. This can happen at any time and some dealers (esp BMW) will gladly take your lease early if the car is in demand. Many forum members have taken advantage of this little known fact to get into new cars sooner than their lease term. Also since you can drop off at any dealer, you could shop your car around to multiple dealers and see if anyone will buy for more than the residual. If the dealer buys your leased car from BMWFS, they should be taking it as is (make sure they do). Now you won't have to worry about any lease inspection charges.

_Example_
2013 M3 with a residual of 55% after 3 years (MSRP $75000) Buy out is $41,250. You go to turn the BMW in and ask if they want to buy it. They say yes and offer $43,000. You get $1,650 in cash or towards the next car.
This works prior to lease end, you just need to have them offer more than the current buy out.

*Lease Transfers*
BMW typically has one of the most painless lease transfer policies. Basically any lease further out than 6 months to maturity can be transferred. Exceptions are made for cars within 6 months. Also the lease must be current with no other liens/parking tickets/etch. The process usually takes about 4 weeks. If you think you will want to transfer a lease, it is best to completely avoid cap cost reduction and MSDs. It makes it harder to do the lease transfer if you expect some or all of that money back. Most times the accepting party will not have any interest in paying you that money.

One huge point that must be made is when you transfer a lease with BMWFS they also transfer over responsibility to the new lessee. The original person leasing walks away free and clear. This is a big time perk.

Also note that MY2015 or later cars leased after 7/1/14 no longer transfer their free maintenance coverage. Though the warranty will still transfer. Other than getting new brakes, it doesn't have a huge effect on lease transfers.

*Lease transfer first stage*
The current lessee needs to find a person willing to take it over. How they find said person is up to them. Many will use this forum, some other lease swapping sites, etc.

Once you find a potential trading partner. You must notify BMWFS of you intention to transfer the lease and the lease assumer must submit a credit application with BMWFS along with $500. $100 is a nonrefundable credit application and $400 is the lease transfer fee (refunded if the credit check fails),

If approved, both parties are sent paperwork to complete. Approval decision is completed in 48 hours or less. The current lease holder will not know the credit decision until the assumed lets them know. It is key that whoever you are dealing with needs to be accessible. If you can't get in contact with them the prices can drag out or you could miss out on another candidate while you play telephone tag.

*Second stage*
BMWFS creates transfer documents within 1-2 days and sends them to each party. They must be completed and sent back with original signatures. Again one party dragging their feet really slows down the process. Also the vehicle must be added to the transferee's policy at this point.

*Third stage*
BMW mails out final paperwork to both parties. The transferor gets a confirmation letter that the process is complete and the transferee gets all the documents necessary to register the vehicle. At this point the parties meet and the car is exchanged. The transferor needs to remove their plate and cancel the registration.

The whole process takes about 3-4 weeks, but can be faster if both parties are diligent. If the entire process takes longer than 60 days then the whole things goes back to square 1, including the fees.

Lease transfer while convenient, is one scenario where MSD's are not a great idea. Any MSD money is transferred over to the assumed. This is why you will see some try and recoup that money. Most times you have take the loss as assumes have no incentive to give you that money.

*Calculating Lease Prices*
You can use the Bimmerfest pen and pencil lease payment form if you like to have the numbers on paper in front of you. There are also a good number of smartphone apps and websites that will let you calculate lease prices. Having an phone app lets you plug the numbers in right along with the dealer to make sure it all adds up properly. By having you number in hand ready the dealer is less likely to mess around with you. This takes some of the stress off of you because you don't have to have every aspect memorized.

A quick search through Google Play Store or IPhone App Store will give you some choices. There is enough reviews out there of the apps that you can make an informed decision on what to use. Whatever program/app you choose, double check it with posted deals in this forum first to verify it's working properly.

*Lease Payment Formula*
This is the formula that dealers use to calculate the lease payment. Thanks to M6-Coupe for putting this part of the BMW Leasing 101 guide together. 

If the residual value is "R" ; R = MSRP x Residual (%)
The Capital cost (sales price) is "C"
Money Factor is "MF"
Down payment is "D"
Lease term is "N" ; number of months (ie 36 or 39)
Monthly depreciation fee "MD" = (C-D-R)/N
Monthly lease fee "ML" = MF * ([C-D]+R)
Then the monthly lease payment= MD +ML + tax 
Drive off : The upfront money including all other fees ( bank fee , acquisition fee, license fee, etc) + first month payment

_Example_
MSRP = $100,000
Capital cost (sales price after 10k discount) = $90,000
MF = 0.0013 
Residual = 60% = $60,000
Lease term = 36 months
Down payment = $0
Other fees = $2,000
Tax = 8%

MD = $30,000 / 36 = $833.33
ML = 195
Tax = 0.08 * ($833.33 + $195) = $82.20
Monthly lease payment = $833.3 + $195 + $82.20 = $1110.50
Drive off = $2000 + $1110.5 = $3110.5

Note: Tax- this calculation is based on CA tax which is a tax on lease cost. Some states calculate the tax based on whole capital cost.


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## Dennisis (Oct 1, 2013)

Excellent post! This will be helpful to many I'm sure. I believe dealers can still do the lease end inspection though - my local one does.


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## EatonZ26 (Jun 27, 2014)

I checked my lease account and the price for buying miles early is now 18 cents not 16 cents per mile.


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## tim330i (Dec 18, 2001)

Dennisis said:


> Excellent post! This will be helpful to many I'm sure. I believe dealers can still do the lease end inspection though - my local one does.





EatonZ26 said:


> I checked my lease account and the price for buying miles early is now 18 cents not 16 cents per mile.


Thanks for the feedback! I've updated the post to reflect these changes.


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## Ninong (May 20, 2014)

Tim,

The lease-end mileage penalties were increased effective Jan. 5, 2016. Instead of 20 cents and 25 cents, it's now 25 cents and 30 cents. The 6-er and 7-er are both 30 cents. Everything else, including the X6, is 25 cents. I found that by looking at the lease special offers on BMWUSA.com. I can't tell you for sure about any of the M cars because there are no lease special offers published on those but I assume that it's just the M6 that is 30 cents. Even the 2015 i3 is now 25 cents. 

I can't tell you what the price is for buying early miles but I'm sure there are two prices depending on whether the mileage penalty is 25 cents or 30 cents. You will have to check on that.


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## the kidd (Jun 20, 2010)

there seems to be too many numbers and equations there for me personally to know if i would be getting a good deal. quite intimidating.


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## tim330i (Dec 18, 2001)

Ninong said:


> Tim,
> 
> The lease-end mileage penalties were increased effective Jan. 5, 2016. Instead of 20 cents and 25 cents, it's now 25 cents and 30 cents. The 6-er and 7-er are both 30 cents. Everything else, including the X6, is 25 cents. I found that by looking at the lease special offers on BMWUSA.com. I can't tell you for sure about any of the M cars because there are no lease special offers published on those but I assume that it's just the M6 that is 30 cents. Even the 2015 i3 is now 25 cents.
> 
> I can't tell you what the price is for buying early miles but I'm sure there are two prices depending on whether the mileage penalty is 25 cents or 30 cents. You will have to check on that.


Thanks for that, I've updated the info.



the kidd said:


> there seems to be too many numbers and equations there for me personally to know if i would be getting a good deal. quite intimidating.


If you read over the info a few times I think it will take the intimidation factor out of it.


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## Mwagner07 (Jan 28, 2015)

Omg this is an awesome post. Thanks. I can check it against my own excel lease calculator.. info is great...


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## vip93330 (Mar 20, 2013)

*Find a good CA (Client Advisor)*

This thread is great and i am sure it will help many.

I would like to add one more important point, select a good CA (Client Advisor).

Since you will be spending so much time researching models, then calculating invoice price, residuals, etc..
Set aside some time to pick a good and reputable CA, because at the end of the day you can do all the research you want, if you do not have a CA that is willing to work with you, you will not get the deal you think you should get.

Here is an example, i reached out to my CA here in NJ to work on an ED deal for an 2016 M6 in early January, i was looking at either a Coupe, Gran Coupe or Convertible.

I had a great experience with my previous ED with him almost 3 years ago.

We agreed on an invoice +$1500 deal, before incentives, i went in with my numbers and somehow we were always off by $500-$1000 on each model. I tried to get him to tell me where the difference came from but he couldn't really pinpoint it for me, i spent two afternoons with him and left decided to find a car here in the US (he had none in stock).

Late January i found a dealer in TN offering a 2016 M6 Convertible at $19000 off sticker (listed on their website). I reached out to them and told them i am interested in leasing the vehicle and asked for a price quote, after 3 days of emails and phone calls where i was told they were too busy to give me a price, their Finance Manager gets on the phone and tells me $2100 per month! I proceeded to tell the gentleman that if i would pay full MSRP on the car the monthly payment would not reach $2100 per month and to please give me the breakdown, his response was "that's what the computer says". This back and forth continued for the rest of that day with their final price coming around $1450, which was still off as i was doing MSD and paying for taxes upfront, it should have been closer to $1250, again no explanation for any of the pricing besides that's what the computer says.

Late that night, i decided to check the stock of some of the board sponsors and CA's that help out on the forum here. I decided to check David Padgalskas from BMW of Portland first since i always see him answering questions here on the board and sure enough he had a 2016 M6 Convertible with the same MSRP as the dealer in TN, so i send David a PM and asked him if he would match the price, again it was late night but David answered and said once he is back in the office the next day it would see if it is possible.

Fast forward to the next day, i get a PM from David saying he can do the deal, i gave him a call, he was straight with the numbers, let me use the UDE cert, BMW loyalty credits and just gave me a great deal. Within 2 days we had all paperwork done (overnight back and forth) and he helped me find a carrier to transport the vehicle to NJ.

Within 2 weeks of contacting David i had the car delivered cross country to NJ.

The deal he gave me was so good that paying to ship the car was not an issue.

While the car was waiting to be picked up, i asked David if he would be able to install black grilles on the car for me, he did it at an incredible price and sent me pictures once they were installed, he also sent me pictures when the car was getting loaded on the truck.

He even emailed after the car was delivered to make sure everything was fine.

Overall a great guy and a straight shooter. Which is what you should look for in a CA.

Good luck out there.


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## soheilk (Feb 23, 2015)

This is a perfect post Tim and OneRib, I'm sure it will become really useful to many future buyers (leasers!)


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## tim330i (Dec 18, 2001)

vip93330 said:


> This thread is great and i am sure it will help many.
> 
> I would like to add one more important point, select a good CA (Client Advisor).
> 
> ...


Great to hear, please leave your review in our BMW dealer rater system here - http://www.bimmerfest.com/bmw-dealers/


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## malenky77 (Apr 24, 2013)

*Calculating Residual Amount.*

I forgot, when you calculate the residual, is it percentage off the MSRP including Destination or not? 
Example: 50% residual off $50,000 + $995 MSRP is $25K or $25,497.50?


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## Ninong (May 20, 2014)

malenky77 said:


> I forgot, when you calculate the residual, is it percentage off the MSRP including Destination or not?
> Example: 50% residual off $50,000 + $995 MSRP is $25K or $25,497.50?


The residual is a percentage of the total US MSRP sticker just as it would appear on a car sitting on the showroom floor. The MSRP sticker includes the $995 destination and handling charge.


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## cantstopdriving (May 6, 2016)

This is extremely helpful! I've been considering the leasing option for some time now, but haven't had much time to research into it. Thanks!


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## topcat915 (Apr 16, 2013)

*Bank fee?*

Quote "My best lease cap price on that unit would be 46,115 plus the $925 bank"

What is the bank lease fee these days? Is this inflated? My CA has tried to do this in the past after giving me the MF buy in rate.


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## Ninong (May 20, 2014)

topcat915 said:


> Quote "My best lease cap price on that unit would be 46,115 plus the $925 bank"
> 
> What is the bank lease fee these days? Is this inflated? My CA has tried to do this in the past after giving me the MF buy in rate.


The current BMWFS lease acquisition fee is $925. It cannot be marked up by the dealership. It is not subject to negotiation.


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## topcat915 (Apr 16, 2013)

Thanks for that info. I am in Central PA and these dealers are not willing to negotiate much, so every dollar counts. I am going to expand my search to Northern VA.


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## MRCW (Nov 4, 2009)

Wow...acquisition fee is $925? Just for BMWFS to process some paperwork? That's $25 per month or about 7% of the entry level payment of $369/mo...

All that just for the privilege of renting someone else's car...


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## mikemac (Apr 7, 2004)

> Example
> In April 2015, BMW is charged 0.00129 lease rate for the F80/82/83 M3/M4.
> Money factor X 2400 = interest rate
> .00129 x 2400 = 3.096%.
> ...


I was confused why the residual is added to the initial capital cost before multiplying by the Money Factor? Isn't that charging me twice? And I wondered where does the magic number 2400 come from?

It turns out there are straightforward answers. It involves answering 3 successive questions:

what is the average loan amount?
what is the annual interest charge?
what is the monthly interest charge?

1) Average Loan: When you start your lease it is equivalent to a loan (using the terminology above) of the capital cost less any down payment. When you return the car it is equivalent to a lump sum payment of the residual. You had use of the value of the residual the entire life of the loan. The average value of the loan is the sum of these divided by 2.

Avg Loan = ( [C-D]+R ) / 2

2) The Annual Interest is the Average Loan times the interest rate. To convert a percentage to a decimal simply divide it by 100. So the Annual Interest is

(Interest Rate / 100) * Avg Loan = (Interest Rate / 100) * ( [C-D]+R ) / 2

which can be rewritten as

Interest Rate * ( [C-D]+R ) 
---------------------------
100 * 2

3) To calculate the monthly interest, divide the Annual Interest by 12. Dividing the previous equation by 12

Interest Rate * ( [C-D]+R ) 
----------------------
100 * 2 * 12

Group the terms on the left and call them the Money Factor

Interest Rate 
---------------------- = Money Factor MF
100 * 2 * 12

which lets us rewrite the monthly interest equation as MF * ( [C-D]+R )

And now the magic number 2400 is explained. It is 100 * 2 * 12


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## zolabmw (Sep 12, 2010)

*Residual and MF in March 2017 for M240*

Can anyone tell me or tell me where to look to establish money factor and residual for a M240?

Many thanks! Will be doing ED In early June.


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