Lease Rate Factor Explained

The quick definition

A lease rate factor (LRF) is a shortcut used in equipment leasing to estimate your monthly payment. It’s expressed as a small decimal (e.g., 0.0225) and multiplied by the financed amount of the asset.
Monthly payment ≈ LRF × financed amount.

Example: If the factor is 0.022 and the financed amount is $100,000, the estimated monthly payment is $2,200 (taxes/fees extra).

Leasing is one option within our broader Equipment Financing toolkit alongside Equipment Loans, an Equipment Line of Credit, and Refinancing & Sale-Leaseback. If you prefer ownership-style paperwork, compare Conditional Sales Contracts.

What the lease rate factor does (and doesn’t) tell you

• Does: Give a fast way to estimate payments for a specific structure (term, residual/buyout, assumed fees).
  
  
• Doesn’t: Equal an APR. Two deals can share the same LRF but have different APR-equivalents if residuals or fees differ.
  
  

Factor vs. money factor vs. APR

How the factor translates into payments

Most Canadian SME leases quote the factor against the financed amount, which often includes:

• Equipment price (confirm on Eligible Equipment or buy from Mehmi’s inventory),
  
  
• Plus soft costs you choose to roll in (delivery, install, taxes),
  
  
• Minus any upfront payment or security deposit.
  
  

Quick reference for payments per $100,000 financed:

Want exact math? Use our Equipment Financing Calculator to model term, residual, and structure.

Why two identical factors can mean different costs

The factor you’re quoted already assumes a structure. Change the structure and the same factor can imply a very different APR and total cost.

• Residual/buyout: Higher residuals lower the monthly (factor can look “cheap”) but leave a buyout at the end.
  
  
• Term: Longer terms reduce monthly cost but may increase total paid.
  
  
• Fees & taxes: Rolling more into the financed amount helps cash flow but nudges the payment up.
  
  
• Asset profile: Newer, liquid assets (e.g., tractors, popular excavators) price better than older specialty gear.
  
  

Explore structures: Equipment Leases and Conditional Sales Contracts; compare with Equipment Loans if you want ownership from day one.

Converting a lease factor to APR (the honest way)

There’s no universal one-step formula to convert LRF → APR because LRF bakes in residuals and fees. To estimate APR you need:

1. Structure: term (months) and end-of-term residual/buyout.
   
   
2. Cash flows: upfronts (first/last, security deposit, fees), monthly payment from the factor, and any buyout.
   
   
3. Solve the internal rate of return (IRR) of the payment stream.
   
   

If that sounds heavy, just use the calculator or ask us for both a factor and an APR-equivalent on the same quote so you’re truly comparing apples to apples.

How to negotiate a better factor (or lower monthly)

• Choose newer, liquid equipment with strong resale.
  
  
• Right-size residuals: higher residual lowers the factor’s monthly but ensure you can handle the buyout (cash or financing).
  
  
• Match term to cash flow (48 vs 60 months); avoid stretching longer than the asset’s productive life.
  
  
• Consider a modest upfront (first/last, small down) to improve approval and pricing.
  
  
• Bundle smartly: roll installation and taxes if it avoids cash spikes, but watch the financed amount.
  
  
• If you purchase often, an Equipment Line of Credit can reduce repeat underwriting and carry competitive pricing.
  
  

If you already own gear and need liquidity, Refinancing & Sale-Leaseback can unlock cash while the unit stays in service.

Industry snapshots: where factors tend to be sharper

• Transportation & Trucking: Mainstream tractors and trailers often price well due to strong resale. See Transportation & Trucking.
  
  
• Construction & Contractors: Popular construction equipment (excavators, skid steers) benefits from broad secondary markets. See Construction & Contractors.
  
  
• Manufacturing & Wholesale: CNC and material handling can fit fixed-buyout structures aligned to depreciation. See Manufacturing & Wholesale.
  
  
• Hospitality & Food Service: FMV structures or Rent-to-Own (Hospitality) smooth cash during fit-outs. See Hospitality & Food Service.
  
  
• Medical, Dental & Wellness: FMV or low fixed residuals align with tech refresh. See Medical, Dental & Wellness.
  
  

Case study: One factor, two very different outcomes

Situation: A GTA hauler evaluated two $100,000 day cabs, both quoted around 0.022.

• Quote A: 60-month FMV structure (no fixed buyout), most soft costs rolled in. Payment ~$2,200; FMV decision later.
  
  
• Quote B: 60-month 10% fixed residual; fewer soft costs financed. Payment ~$1,980; known $10,000 buyout.
  
  

Result: The operator picked Quote B to lock in ownership economics and a lower monthly. They pre-arranged to finance the residual with an equipment loan if cash was tight at term end.

FAQs: Lease rate factors in Canada

Is the lease rate factor my interest rate?
No. It’s a payment shortcut that reflects a specific structure. Ask for an APR-equivalent if you want a pure rate.

What’s a “good” factor?
It depends on term, residual, asset, and credit. A lower factor with a high residual isn’t automatically cheaper than a slightly higher factor with a modest buyout.

How do taxes affect the factor?
Sales tax isn’t part of the factor itself but influences your monthly if taxes are financed. Clarify whether taxes are due monthly or upfront in your province.

Can I lower my factor without a longer term?
Possibly—by improving collateral quality, adding a small upfront, or choosing a residual structure aligned with your end-of-term plan.

Does the factor include maintenance?
Not typically. Maintenance responsibilities are set in the lease. Some programs can bundle service add-ons; ask before signing.

How do I compare two factors fairly?
Normalize term, residual/buyout, and what’s financed (equipment only vs. equipment + soft costs). Then request an APR-equivalent or use our calculator.

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Are you looking for a truck? Look at our used inventory.
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If you want us to price the same asset as an FMV lease, a fixed-residual lease, and a loan—so you can see factor, monthly, and APR side-by-side—feel free to contact our credit analysts via Contact Us.