How to Compare Car Leasing Interest Rates

January 22, 2025 Mitch Hills

Car leasing is an excellent option for those who want to drive a new car without committing to a full purchase. However, one of the most important factors to consider when leasing a car is the interest rate. Understanding how to compare car leasing interest rates can help you save money and find the best deal for your financial situation.

This guide breaks down the essentials in an easy-to-understand way, so you can make an informed decision.

What Are Car Leasing Interest Rates?

Car leasing interest rates, often referred to as the "money factor," determine how much you'll pay to finance the lease. While not identical to car loan interest rates, the principle is the same: the lower the rate, the less you'll pay over the lease term.

Quick Tip: To convert a money factor into an equivalent annual interest rate, multiply the money factor by 2,400. For example, a money factor of 0.0025 equals a 6% annual interest rate.

Why Comparing Car Leasing Interest Rates is Important

Comparing car leasing interest rates allows you to:

Save Money: A lower interest rate can significantly reduce your monthly payments.
Understand Your Options: By comparing, you gain a clearer picture of what’s available in the market.
Negotiate Effectively: Knowing the average rates gives you leverage when discussing terms with dealers or leasing companies.

How to Compare Car Leasing Interest Rates

1. Understand the Money Factor vs Interest Rate

Many leasing companies present interest as a money factor, which can seem confusing. Use the conversion formula mentioned earlier to compare it to a traditional interest rate. This makes it easier to evaluate offers side by side.

A leasing company quotes a money factor of 0.00175. Multiply it by 2,400 to see it equals a 4.2% annual interest rate.

2. Ask for the Annual Percentage Rate (APR)

Some dealers provide the APR directly, which includes both the interest rate and certain fees associated with the lease. The APR gives a more comprehensive view of the total cost of financing, making it a valuable figure for comparison.

3. Compare Lease Terms

Leasing terms often range from 24 to 60 months. The interest rate may vary depending on the length of the lease:

Shorter Terms: Typically higher monthly payments but less interest paid overall.
Longer Terms: Lower monthly payments but potentially more total interest due to the extended term.

When comparing rates, ensure you're looking at similar lease durations for a fair comparison.

4. Factor in Additional Costs

Interest rates aren’t the only expense to consider. Some leasing agreements include extra fees that can impact the total cost:

Acquisition Fees: Upfront charges to initiate the lease.
Disposition Fees: Fees for returning the car at the end of the lease.
Early Termination Fees: Costs for ending the lease before the agreed term.

Always ask for a breakdown of these costs to avoid surprises.

5. Compare Quotes from Multiple Leasing Companies

Different leasing companies and dealers offer varying interest rates. Get quotes from several sources, including banks, credit unions, and independent leasing companies, to find the most competitive rate.

Leasing the same car from two companies might result in different rates due to their individual financing policies.

Tip: Naked Loans can do all this work for you, for free! We get paid by the provider you end up choosing, meaning we do all the research and paperwork at no cost to you (making life a whole lot easier).

What Affects Car Leasing Interest Rates?

1. Credit Score

Your credit score plays a big role in determining the interest rate you're offered. Higher scores often result in lower rates, while lower scores may lead to higher costs.

Tip: If your credit score is less than ideal, consider improving it before applying for a lease.

2. Vehicle Type

The car you choose can also impact the interest rate. Popular, high-demand models might have different rates than older or less sought-after vehicles.

3. Market Conditions

Interest rates can fluctuate based on broader economic conditions, such as changes in the Reserve Bank of Australia’s cash rate. Timing your application can help you take advantage of favourable market conditions.

Why Use a Broker to Compare Rates?

Car loan brokers have access to a network of lenders and leasing companies, making it easier for them to find competitive interest rates tailored to your financial situation. They handle the hard work, so you don’t have to spend hours comparing offers or negotiating terms.

Comparing car leasing interest rates is crucial to finding a deal that fits your budget. By understanding the money factor, factoring in fees, and exploring multiple options, you can make an informed decision and save money over the lease term.

At Naked Loans, we specialise in finding the best leasing options for you. Our expert brokers compare rates, handle the paperwork, and provide tailored advice to ensure you get the best deal possible.