Sorry to be a pain... I need help understanding LEASING

[GUINNESS]

I know it's been discussed numerous times. I know if I search I'll probably find something. But I was hoping someone can explain in basic terms to help me understand leasing and what is involved. I think it's the risidual value or %'s that throw me off.

For a lease, there's the term 2 - 3 yrs, mileage allowance (12 - 15k), cash due at signing, then there's everything else. Maybe it's everything else that throws me off cause the other three things are pretty basic.

Please help

[rebound]

Yeah - I'd like to know too!

(sharpens pencil, waits patiently)

[Chris F.]

I'd like to know why the term 'money factor' is used instead of interest rate....that always threw me

With cars becoming so expensive leasing is becoming an option for me.

[GUINNESS]

Ok, here's what I learned in the little bit of time from posting....

Leasing pays the appreciation(depreciation) + interest carry.
Right now BMW has some 4.8% interest lease offers
My bank has 4.74% finance and lease offers up to 60mo
BMW offers approx 60% residual

Lease has the security deposit (refundable), acquisition fee, sales tax, and disposition fee at termination. If you want to buy, you pay tax again.

To lease $45k right now after 36mo residual will be $27k
To finance for 72mo, after the same period of time, the loan balance will be $25k

Is it really possible to have equity in a vehicle???? :dunno

I guess the biggest questions which remain unanswered are, will the 335i be around for a looooong time, will it be traded in for an e90 M3, or will it be traded for an X5? Those questions haven't been answered because right now, my lilbit just wants the damn thing I'm so mean.

Maybe I'll tie a sparkley ring to the rearview mirror or keys when she finally gets it... or I'll set it on top of the steering wheel or stick it on the Roundel. This dealer does NOT want to budge from MSRP.

[China Man]

Generally you'll find residual rates are higher than the car is actually worth (unless you get a really low residual, like 760Li's carry a 48% residual after 36 months). What leasing is, like you said, is paying the depreciation of the car, plus interest. Your stealer is probably going to hit you with terms such as cap cost reduction (which is, in reality, the down payment), residual (what the buyout will be after the lease term), money factor (which if you multiply by 2400 you will get your interest rate percentage), acquisition fee (which is just an added fee), disposition fee (the fee that the company charges to "take your car back"), allowed mileage. The allowed mileage part is pretty self explanatory. If you end up buying your car out at the end of the lease term, there will be no disposition fee. The amount of sales tax you pay is based on your residual.

Say, for example, you decide to lease a 750Li sedan for 36 months. If the MSRP is $88,000, and the residual is 62%, that leaves you with a buyout of $54,560 at the end of the lease term. Your monthly payment will be $33,440 divided by 36 plus interest. Since you most probably will have negative equity in the car for the duration of the lease, make sure your insurance company has GAP insurance. That way, if God forbid your car gets stolen, or totalled, you won't have to pay the difference between your payoff and what your car is worth to the insurance company (which is usually less than your payoff) BMW has an option for multiple security deposits (up to 9), that will lower your money factor. Your cash due at signing is your downpayment, bank fee (acquisition fee), registration and plates fee, and taxes. In some states you can choose to roll the taxes into the payment if you wish.

In regards to yearly mileage allowance; if you choose a lease with 15,000 miles allotted per year for 3 years, and at the end of the lease term you have 50,000 miles on your car, you'll have to pay a penalty (I believe it's 20 cents per mile). However, if you're under your allowed mileage, you cannot get 20 cents per mile back.

Unless you really need to be at a number for your monthly payment, I would not recommend putting too much of a downpayment on a lease; reason being that if your car gets stolen or totalled, your down payment goes down the tubes, you never get that back.

I hope that explains most of it! If I missed anything please let me know

Good luck!!

[GUINNESS]

Definitely helps, especially since I didn't know residuals will be set higher than the actual value. The local dealer seems to think the 335i is going to retain value very well and after 3 yrs with avg miles, you could probably still get $30k for something that was originally $45. Thank you.

[B-Line]

Guiness let me help with some additional information.

First, in my opinion, LEASE your daily car UNLESS:
1) You put EXCESSIVE mileage on your car
2) You put very little mileage on your car
3) You plan to mod
4) You don't like being commited to a predetermined contract.

The formula I use is,
BUY my Garage queen and LEASE the daily driver.

Second, the "MONEY FACTOR", is just a bullshit way of saying, INTEREST RATE. But the sales people use it as a way to confuse people. They say something like, the money factor is only 3.2, making people think the interest rate is only 3.2%. But that's a hook. Like Chinaman said, multiply that by 2400 and you get the REAL rate, which at 3.2 (or .0032) it really is a 7.68% interest rate. And in my experience, if you let a salesperson know, you caught him trying to bullshit you with a 3.2 lie, you can beat the hell out of them by letting them know they tried to deceive you.

Know, lets talk about the most important thing: COST OF OWNERSHIP.. In my experience, the best COI depending on factors, is the lease. As said, in part 1, if you fall under those paramaters, it costs less to lease then to finance. The number one reason being, you are only paying sales tax on the part of the car you actually borrow, rather than on the full purchase price, and that's thousands of dollars on a high priced car.

Do not do CAP reductions, it's a waste. As Chinaman said, you don't get it back if car is stolen.

Generally, with a lease, you are paying about .15-.17 mile. If you go over mileage, you pay .20. It's really not a big diffenece in price if you do the math. See, people get upset because they think, if I go over, I'm being raped at .20 mile. But if you buy 15000 miles vs. 12000 miles, those 3000 miles are costing approximately .16 cents. So if you go over, your paying a .3 cent penalty per mile. NOT A .20 cent per mile penalty.
So if you put on 3000 extral miles, it's going to cost you $600. Which is only about a $90 difference if you had prebought those miles.
And even if you owned the car, you would be penalized on over miles when you tried to sell it. So one way or the other, you pay for what you drive.

Also, when you go to negotiate a lease, there are certain things you can and can not negotiate. The purchase price of the car is the first and most important thing. Don't tell your salesman you plan to lease until after you have agreed on the purchase price. You do not want to lease a car based off MSRP when you can get them down $4k on the price. If you get them down $4k, you save, approximately $1800 on the lease payments (figure 1/2 of the discount, is savings in your pocket.)
Now, the money factor is another area you can negotiate. You usually can't beat the "FACTORY DEAL", but what the finance managers don't tell you is, they are not always offering you the best "Factory Deal." - Often, they try to "Tax" you with points, that they put in their pocket.
So it's important to know exactly the best deal the factory offers based on good credit. You can usually find the information on the net, on www.leasecompare.com or something of that nature. I have found, almost every time I have gone to lease, some dealer has tried to throw on extra points.
So what I do now is, when I go to buy the car, is, I LAY OUT THE TERMS for the dealership. Very simply I say, I am willing to pay X for this car. I know the residual is preset by factory at 62%, and I also know that BMW is offering a money factor of 7.25%. Since the purchase price I am willing to pay is ($500 over invoice), I hav e broken down the numbers on 3 different lease calculators on the internet, and here are the figures.... This is the most I am willing to pay, or I will take my business to your competitior.

It always works.... I always find a car at the price I reasonably want.
There are two types of customers. 1) The customer who overpays on everything. 2) The customer who gets everything at near cost and is considered a "VOLUME" sale. They know they are not going to make hords of money on every car, but they still need to sell a monthly quota. I am happy to know, I am always a VOLUME customer. As such, I sometimes have to take my business a few towns over, but that's ok with me.

Just one small point, the numbers you get from a lease calculator can sometimes vary 10-15 month depending on how people factor reg fee, acq fee, title, etc. So don't be surprised if the numbers are a little off, they just need to be within a couple bucks of another.

Again, I can't state this loud enough. When you go to buy a car, YOU SET THE REASONABLE TERMS. Tell them, that's what you want, it's what you'll pay, or go elsewhere. I get outrageous deals on cars and I do this for my friends and family all the time. Sometimes I have to drive 45. min to get the car, but who cares if I save $5K.

Also, negotiate EVERYTHING over the phone. Fax the numbers, do NOT GO IN. Unless it is for your initial test drive. Have your computer, your calculator in front of you and make sure there are no surprises by having all your numbers, papers and calculations in front of you.
I will not step foot into a finance managers office until ALL the terms are set to my approval. If they want to play with me, they have to play on my terms, not on theirs. NEVER try to set terms at the dealership.. DO IT AT HOME, at your computer, it's much easier to hang up a phone than to walk out.


Hope this helps.
B

[jwilburn]

This is great to learn. My friend and I were discussing this the other day. So if you are getting a high ticket car, drive a moderate amount, and plan on getting rid of it in a few years anyway, you might as well lease.

Also, take for example a Range Rover where you know the service is going to be hell later on. Why not lease for 3 years, get the free services, then its a guaranteed way of unloading the car with out getting hit too much for costs in the end. Does that sound about right?

[Blue Mountain Raider]

hmmm... thanks for all the info. im planning on leasing a 328xi coupe and this definitely helped. i was planning on putting 12k down but now i will put less.

just curious though, some of you say the dealer sales people will try to confuse people with money factor to conceal the real interest rate. however doesnt the bmw site already give you the rate when you finish building you car? for bmw.ca its 7.75%

[B-Line]

Yes, exactly right...