How to convert money factor to interest rate?

Financial Planning - Financial planning in general. (Moderated) 

  Yahoo!   Google   Windows Live   del.icio.us   digg   Netscape

Subject Author Date How to convert money factor to interest rate? Joe 05-03-2008  Re: How to convert money factor to interest rate? Dave Dodson 05-03-2008  Re: How to convert money factor to interest rate? camgere 05-03-2008  Re: How to convert money factor to interest rate? TechLease 05-05-2008  Re: How to convert money factor to interest rate? joeu2004 05-03-2008  Re: How to convert money factor to interest rate? joeu2004 05-04-2008
Posted by Joe on May 3, 2008, 2:39 pm I've been offered a chance to invest in funding equipment leases. While researching the field, I haven't found anyone that can (or will) explain how to convert lease rates or money factors to interest rates. I an manually plugin and change an interest rate in a mortgage program until the interest rate provides the same payment, but now I'm really curious about how lease firms determine the money factor. Is it a basic equation, or something more advanced? -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Posted by Dave Dodson on May 3, 2008, 10:59 pm > I've been offered a chance to invest in funding equipment leases. > > While researching the field, I haven't found anyone that can (or will) explain > how to convert lease rates or money factors to interest rates. > > I an manually plugin and change an interest rate in a mortgage program until the > interest rate provides the same payment, but now I'm really curious about how > lease firms determine the money factor. > > Is it a basic equation, or something more advanced? According to http://www.leaseguide.com/lease08.htm (which you should read): Interest Rate = Money Factor x 2400 Dave -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Posted by on May 3, 2008, 11:08 pm > I've been offered a chance to invest in funding equipment leases. > > While researching the field, I haven't found anyone that can (or will) explain > how to convert lease rates or money factors to interest rates. Money Factor = Interest Rate /24 P = Principle R = Annual Interest Rate N = Number of Monthly Payments L = Residual (R is already taken) M = Monthly Payment MF = Money Factor M = (P - L)/N + (P + L)*R/24 M = (P - L)/N + (P + L)*MF Oooh, that was mysterious. Happy Leasing! -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Posted by TechLease on May 5, 2008, 5:04 am On May 3, 8:08 pm, camg...@earthlink.net wrote: > > > I've been offered a chance to invest in fundingequipmentleases. > > > While researching the field, I haven't found anyone that can (or will) explain > > how to convert lease rates or money factors to interest rates. > > Money Factor = Interest Rate /24 > > P = Principle > R = Annual Interest Rate > N = Number of Monthly Payments > L = Residual (R is already taken) > M = Monthly Payment > MF = Money Factor > > M = (P - L)/N + (P + L)*R/24 > M = (P - L)/N + (P + L)*MF > > Oooh, that was mysterious. > > HappyLeasing! > > -------------------------------------- Those equations above seem mysterious to me, and the answer is not that straight forward. The Lease Rate Factor, (or Money Factor as you call it) is the month lease payment divided by the equipment cost. Lessors say they like to use it instead of interest rate because it is easy for the Lessee to determine the new monthly payment if the equipment cost changes from its original quoted value. For example, the montly payment = Lease Rate Factor * Equipment Cost Sometimes Lessors quote the Lease Rate Factor to disguise the real APR or annual percentage rate. It can be quite high as compared to a loan with a bank. To convert the Lease Rate Factor to interest rate, you need to use a program like T-Value or International Decision Systems (Info Analysis), to back out the interest rate given the lease payment, equipment cost and assumed residual value. First, calculate the Monthly payment using the calculation above. Then, solve for the interest rate by plugging in the three variables: Lease payment, equipment cost, and residual value. ======================================= MODERATOR'S COMMENT: Posters to this thread should relate comments to general financial planning. -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Posted by joeu2004 on May 3, 2008, 11:22 pm > I an manually plugin and change an interest rate in a > mortgage program until the interest rate provides the > same payment [...]. Is it a basic equation [....]? No. If you have the payment amount, total funded amount and the number of periods, there is no simple formula for determining the interest rate. It is an iterative process, much like the one that you did manually. Ostensibly, you can plug those values into the Excel RATE function to get an answer. For example: =12*RATE(60,-450,20000) 1/12th of that is the "money factor" -- that is, simply RATE(60,-450,20000). However, that is not really the interest rate (or money factor) that is used for the financed part of the lease payment. You need to factor in a number of other amounts. See the explanation on the following web pages: http://www.leaseguide.com/lease08.htm http://www.leaseguide.com/lease09.htm -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Similar Threads Posted Compare tax deductable interest rate to non-deductable interest rate March 5, 2007, 12:45 pm Formula for FV of non-interest-bearing account given annual contributions increase at x% compounded rate February 2, 2007, 1:25 pm Historical data for interest rates given by money market funds? October 18, 2008, 8:25 am Is It Possible to Convert a Roth IRA into a CRT? September 24, 2007, 5:21 pm Convert 403b to Roth 403b June 29, 2008, 6:51 am Is my marginal tax rate really 67.53%? July 25, 2008, 2:18 pm higher rate of return December 5, 2007, 6:36 am Rate of return since Aug of 1999 April 26, 2008, 7:57 pm Marginal rate definition July 28, 2008, 9:00 am Annual rate of return on 403B January 10, 2007, 4:25 pm