Money Factor Background: A Mathematical Proof
Notations 
C: 
The total loan amount. In the case of an auto lease, this is the car price. 
F: 
The residual value. 
r: 
The monthly interest rate. If the annual interest rate is R%, the monthly
interest rate r is R/1200. 
N: 
The term, or the number of months of a lease. 
P: 
The monthly payment. 


The monthly payment formula for a lease is given by:
When and , one can write:
Using the above expression, the average interest paid per month can be written as:
Since , one can rewrite the average interest payment as:
Hence, the Money Factor can be used to conveniently and reliably
estimate the average interest rate on loans.

Glossary
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