Money Factor in Car Finance: What Australians Need to Know (2025 Guide)

When you’re shopping for a new car in Australia, you’ll see plenty of numbers thrown around—interest rates, repayments, balloon payments. But there’s another figure quietly shaping your monthly cost: the money factor. It’s a key element in car leasing, and understanding how it works can put you in the driver’s seat when it comes to negotiating your next vehicle finance deal.

What Is the Money Factor?

The money factor is essentially the hidden interest rate on a car lease, often presented as a small decimal (e.g., 0.0025) rather than a percentage. It’s a crucial number because it determines how much interest you’ll pay over the term of your lease or novated lease.

• Formula: Money factor x 2400 = annual interest rate (%)
• Example: A money factor of 0.0025 equals a 6% interest rate (0.0025 x 2400 = 6)

Many Australians overlook the money factor, focusing instead on the monthly repayment. But a lower money factor can mean hundreds or thousands in savings over the life of a lease.

How Does the Money Factor Affect Car Leasing?

In Australia, car leasing remains popular for both businesses and individuals, especially with novated leases and operating leases on the rise in 2025 due to continued support for electric vehicles (EVs) and salary packaging tax incentives.

Here’s how the money factor comes into play:

• Monthly Lease Payments: The money factor, along with the car’s price and residual value, determines your monthly outlay.
• Interest Cost Transparency: Leasing companies sometimes quote only the money factor, not the equivalent interest rate. Knowing the conversion helps you compare offers fairly.
• Negotiation Leverage: Understanding the money factor gives you room to negotiate, just as you would with a standard loan interest rate.

For instance, in 2025, with the RBA holding rates steady and competition heating up among lenders, money factors for EV novated leases have dropped as low as 0.0017 (equivalent to 4.08%). For luxury vehicles or those with higher risk profiles, money factors can rise above 0.0030 (7.2%).

2025 Policy Updates and Market Trends

This year, several developments have reshaped the Australian car finance landscape:

• Electric Vehicle Incentives: The federal government’s FBT exemption for eligible EVs continues, driving demand for salary-packaged leases. Lenders are offering lower money factors for green vehicles, reflecting lower risk and government backing.
• ASIC Scrutiny: In late 2024, the Australian Securities and Investments Commission (ASIC) reminded lenders to clearly disclose all finance charges. As a result, more providers are now stating both the money factor and the effective interest rate.
• Digital Leasing Platforms: Online brokers and fintechs, like Plenti and Stratton, have made it easier to compare money factors across lenders, empowering consumers with transparent data.

With inflation moderating and the RBA expected to hold or potentially cut rates in late 2025, borrowers with strong credit can expect competitive money factors—especially for low-emission vehicles and popular models with high resale value.

How to Use the Money Factor to Your Advantage

If you’re considering a car lease or novated lease, here’s how to turn the money factor into a money-saver:

• Ask for the Money Factor: Don’t settle for a monthly repayment quote. Ask dealers or brokers to disclose the money factor and convert it to an interest rate for easy comparison.
• Negotiate Based on Your Credit: Strong credit? Push for a lower money factor. Lenders have more flexibility than you might think, especially with competition in 2025.
• Compare Offers, Not Just Rates: Some deals with lower money factors may come with higher fees or stricter terms. Always look at the total cost over the lease period.
• Factor in Policy Benefits: If you’re considering an EV or hybrid, mention FBT exemptions and ask for any promotional money factor rates available.

Real-world example: Olivia, a Melbourne professional, compared two novated lease offers on a Hyundai Ioniq 5 in early 2025. One broker quoted a money factor of 0.0024 (5.76%), while another offered 0.0018 (4.32%)—a difference of $1,200 in total lease costs over four years.

The Bottom Line

The money factor might sound technical, but it’s a powerful lever when you’re financing a car. As Australia’s vehicle finance market evolves, being savvy about the money factor can help you drive away with a better deal—especially as EVs and novated leases gain traction in 2025. Next time you’re reviewing car finance offers, crunch the numbers and make the money factor work for you.