[iroc86]

I used to be a huge fan of leasing--I honestly can't think of a more unpleasant thing than selling a car to a private party--but I think I've changed my opinion after running some detailed lease vs. finance cost models. I know this thread is asking about paying cash, which isn't quite the same thing as financing, but the obvious similarity is the equity you have in the vehicle compared to leasing.

The great thing about leasing is that the disposition terms are known upfront (ha, or not, see here--dealing with this issue myself) and there is no obligation to keep the car after the lease period. Leasing is generally more expensive, but I think it's a great option if you go into the deal knowing that you're paying for the privilege of not taking on loan debt, absolving yourself of financial liability (within the terms of the lease agreement, of course), and not having to deal with selling a car. Plus, you always have a relatively new vehicle if you keep up the cadence every 36 months. Key factor: use the car to the allotted miles! My '20 230i has 6500 miles on it and the lease is up in April. I did a terrible job of getting my money's worth. But I ordered it in December 2019 when the world was normal and I thought I might actually be driving places, so...

I recently built a cost model to analyze the expense of leasing compared to financing, including all aspects of the lifecycle: trade-in equity, dealer incentives, down payments, taxes, residual, disposition fees, etc. I verified the numbers against previous transactions to ensure the math worked out correctly.

What I found was that for my particular scenario (a $40k-$50k MSRP with a ~55% residual), it was consistently about $2000 more expensive to lease than to finance. In the analysis, I assumed that the car would be turned in (if leased) or sold (if financed) 36 months after delivery. The sale price was equal to the lease residual for an apples-to-apples comparison, but that's admittedly very conservative in the private party market. There's likely an even greater spread between leasing and financing if the car retains value above its calculated residual.

There are a couple factors here, so YMMV:

• Higher taxes on leases vs. purchases (7.3% vs. 4% in my location)
• Money factor for leasing usually equates to a higher APR compared to financing
• Lease acquisition fee ($925 for BMWs)
• Lease disposition fee ($350 for BMWs)
• Residuals that do not reflect reality, even before the upturn in used car prices

If you're paying cash, the gains are even higher due to the lack of interest payments. Although, it would make sense to see if that wad of cash could work harder in a higher-yielding investment to offset a low interest rate on an auto loan. Considering today's market, I think it's kind of a wash with rising interest rates and a vacillating stock market. I'd never pay cash for any large investment if I could earn more across the loan period by investing the money elsewhere.

I agree with others in this thread about not putting more money down on a lease than what's absolutely necessary. A couple thousand dollars upfront might only save a hundred dollars over the course of a 36-month lease, even if it "feels" cheaper because the monthly payments are lower. Not worth it. I would apply any trade-in equity to a lease, though, because you usually can't get a dealer to write you a check for the equity in your old car when you're getting a new one.

[Hap]

Your findings of :
"What I found was that for my particular scenario (a $40k-$50k MSRP with a ~55% residual), it was consistently about $2000 more expensive to lease than to finance. "

Is about what I found running the numbers.
SO $2K more over life of lease 24months is $85 a month more.
$21 a week.
Keeping my $50K in the bank that can earn 3% is $1500 a year.

To me I find this acceptable for what the lease gives me:
Walking away or early lease termination at time to get another car.
I can always buy out lease at end if it makes sense.
Trying to use the residual stated in the calculation of what is the total this car will cost me in the end isn't exact? In 2 years are used car values going to be average or worse with economy coming our way.
A lease gives the future value you know from the start.

Hap

[zipstic]

It sounds like you've made your decision. Now the question is when are you getting your car??

[iroc86]

Originally Posted by Hap

To me I find this acceptable for what the lease gives me:
Walking away or early lease termination at time to get another car.
I can always buy out lease at end if it makes sense.
Trying to use the residual stated in the calculation of what is the total this car will cost me in the end isn't exact? In 2 years are used car values going to be average or worse with economy coming our way.
A lease gives the future value you know from the start.

I agree. ~$2k isn't much of a premium to pay for the assurances that a lease can give. I think where things turned south, for me at least, is related to the post I linked above.

I was planning to buy my car at the end of my lease and keep it for a few years. When I contacted BMWFS to discuss the details, I was told that a "recent law" enacted in mid-2022 prohibits lessees from executing a direct payoff with the lender. I was never able to ascertain what "law" BMWFS was referring to, but apparently sixteen states across the country are affected. Something about dealerships lobbying for licensing qualifications to sell vehicles. See here for more info.

To buy out my lease, I would need to have my local BMW Center facilitate the transaction. They'd buy it from BMWFS and sell it back to me, obviously making a profit in the process. Their profit isn't reflected in the payoff amount, which would stay the same, but rather exceptional fees, "safety inspections," and other miscellaneous charges... to the tune of about $1200 in my case. Nowhere was this documented on my lease agreement--indeed, the licensing restrictions didn't exist back then--but yet there's some kind of loophole in the contract where these dealer payoff fees retroactively fall under a generic "official fees" category even though the specific charges and amounts aren't disclosed. (Oh, and my dealer also lumped those fees into the payoff price, which means I'm paying tax on them.)

I refused to pay such fees just to assume ownership of a three-year-old car, so I explored trading in the lease (negotiating a slightly higher trade-in value compared to the payoff) and getting a new BMW. To add insult to injury, my dealer treats the payoff as a separate transaction, which means the trade can't reduce the tax basis on the new car. And the aforementioned payoff fees still apply.

The agent at BMWFS agreed that this process is unfair and actually suggested some other options, including trading the car out of state, which is what I'm doing. Not only is the out-of-state dealer giving me more money for the lease trade, but the fees and taxes end up being $3000 lower for the complete transaction.

Of course, I could certainly just turn in the car at lease-end and pay a $350 disposition fee as agreed, but then I'd be giving away a car with 6500 miles and $20k payoff to a dealer who will probably sell it for $30k. Perhaps I'm trying to have my cake and eat it too, but the consumer had a lot more options in years past.

I guess my TL;DR summary echoes what others have been saying: owning/financing is more flexible in a changing market, now more than ever.

[Hapbob]

I didn’t read the links you included. Until now. This seems like Bull s—t
And if true your dealer should have worked with you to keep customer happy. I will check it out before I make a move. That would change things.

When am I getting my car?
It has been a ridiculous process as I think back on it. And it’s worse now with a built car somewhere? I sat at the dealer desk and gave my deposit may 20th…..still nothing.

Now I am in a bad mood.
Good night

[iroc86]

I hear you--it's frustrating for sure. Really messes up one's plans at the end of a lease when you think you know how things are supposed to work... because, you know, contracts and all.

And nope, my local dealer had no interest trying to keep my business. They gave me an excuse about their dealership being "corporate owned" and therefore inflexible.

BMWFS was willing to share the names of a few states in my locale that are now subject to the mandated dealer payoff process. I'm in the Southwest, so I'm not sure if your state is affected. You might try calling them to ask. I had to escalate to a second-tier support person because the first agent I spoke to had no idea what I was asking about.

Really hope you get your car soon. It sounds like you've been through a lot.

[PP3121]

Originally Posted by Hapbob

I didn’t read the links you included. Until now. This seems like Bull s—t
And if true your dealer should have worked with you to keep customer happy. I will check it out before I make a move. That would change things.

When am I getting my car?
It has been a ridiculous process as I think back on it. And it’s worse now with a built car somewhere? I sat at the dealer desk and gave my deposit may 20th…..still nothing.

Now I am in a bad mood.
Good night

I am not sure if this would have been any different with another manufacturer (the waiting and subsequent frustrations). That said, I found the process very frustrating as well. It was around 7 months as well; a very long process. Just hang in there.

I am really happy with the car (still getting things set up as I want), and I do not think about those days anymore - only when reflecting like I am now, which is okay.

[Hap]

I thought I was leasing. I told the CA yesterday I was going with lease.
0 down 24 months $1190 a month.
$2600 due at signing. Acq fee, plates, and docs fees. (May be 1st lease pmt included in that).
Residual is $31653.
He says car will be here by end of year. Trying to get those year-end sales, I guess.

With the cash out the door price he gave me I think I save about $4200 paying cash vs this lease. If the residual is in the ball park ?

This is double the $2000 I had estimated before I got the real numbers.
That is an extra $175 a month.
Keeping my 50K in bank may not earn that extra $175 a month.

Any of these numbers make sense to you experienced lease people ?

Hap

[KJ10]

Originally Posted by Hap

I thought I was leasing. I told the CA yesterday I was going with lease.
0 down 24 months $1190 a month.
$2600 due at signing. Acq fee, plates, and docs fees. (May be 1st lease pmt included in that).
Residual is $31653.
He says car will be here by end of year. Trying to get those year-end sales, I guess.

With the cash out the door price he gave me I think I save about $4200 paying cash vs this lease. If the residual is in the ball park ?

This is double the $2000 I had estimated before I got the real numbers.
That is an extra $175 a month.
Keeping my 50K in bank may not earn that extra $175 a month.

Any of these numbers make sense to you experienced lease people ?

Hap

I would pay cash, especially with those savings. I would never do a 24 month lease unless it was through a business. I don't recall if you've ever posted your spec but if you want to own that car at the end of the lease you will be into it almost 63k. Buy it and sell it whenever you please.

[iroc86]

If you can provide some extra info, I can try to run your scenario through the cost model I made for the 230i that I have on order. The car type doesn't really matter, just the transaction details:

• MSRP including destination charge
• Trade-in value (if applicable)
• Dealer rebates and incentives
• Dealer fees
• Leasing: money factor
• Leasing: residual (we can back-calculate that from the $ amount you gave)
• Financing: term
• Financing: interest rate

To break even with $175 earnings on your $50k, you'd need to find an investment with an interest rate providing just over 4% for 24 months. Who knows what the stock market is going to do, but CDs are inching towards 5% at that time scale. If it were me, though, I'm not sure I'd want to have that much cash locked up in something like a CD. Don't forget about taxes on those earnings, too. It might end up being a wash.

[Hap]

Originally Posted by iroc86

If you can provide some extra info, I can try to run your scenario through the cost model I made for the 230i that I have on order. The car type doesn't really matter, just the transaction details:

• MSRP including destination charge
• Trade-in value (if applicable)
• Dealer rebates and incentives
• Dealer fees
• Leasing: money factor
• Leasing: residual (we can back-calculate that from the $ amount you gave)
• Financing: term
• Financing: interest rate

To break even with $175 earnings on your $50k, you'd need to find an investment with an interest rate providing just over 4% for 24 months. Who knows what the stock market is going to do, but CDs are inching towards 5% at that time scale. If it were me, though, I'm not sure I'd want to have that much cash locked up in something like a CD. Don't forget about taxes on those earnings, too. It might end up being a wash.

I don't have all those numbers for your model.
But some in the ball park info :
No trade in
No rebates incentives
Plenty of dealer fees $995 Acq fee !
larger than usual Money factor
Residual $31500
term 24 months
Interest rate high.

Cash price over $4K less in the end is the only factor I need to make this decision.

Hap

[Skeeter44]

My logic is this - my brokerage account is going down - even though I am in conservative investments. It went down today by 5K. I think a slowly deprecating usable asset is better than having my money erode in a declining market. And no, I am not prepared to sell everything and put it in fixed income investments returning 3%

[TargaM2]

If i can’t afford to pay cash for a car I don’t buy it.

[RockCrusher]

Originally Posted by Skeeter44

My logic is this - my brokerage account is going down - even though I am in conservative investments. It went down today by 5K. I think a slowly deprecating usable asset is better than having my money erode in a declining market. And no, I am not prepared to sell everything and put it in fixed income investments returning 3%

Selling stock in a down market is a bad way to finance the lease/purchase of a depreciating asset like a car.

And if you sell stock in a down market there is less shares to go back up in value when the market improves.

[RockCrusher]

Originally Posted by TargaM2

If i can’t afford to pay cash for a car I don’t buy it.

While I prefer to buy my cars and pay cash which I have done since 2001 leasing has some advantages to some people.

Financing is not necessarily bad either but in financing (or leasing) one has to have sufficient cash reserves in case of a layoff that one can continue to make finance/lease payments until a new job is found.

And the finance interest rate must be reasonable. With interest rates up now is not the time to finance or lease a vehicle unless one is in dire need of a vehicle and paying cash is for whatever reason reason not a viable alternative.

[KevinC]

[Hap]

Bring this thread up to current market
Checking to see how lease market is going.
Checking with anyone who wants to share Lease specifics on the BMW!

Hap

[Baldilocks73]

I'm leasing this time around.

With the same "down payment / trade", my payments will be almost $250 a month less, lease vs. finance and that's with the 15,000 mile lease for 24 months.

[Hap]

Originally Posted by Baldilocks73

I'm leasing this time around.

With the same "down payment / trade", my payments will be almost $250 a month less, lease vs. finance and that's with the 15,000 mile lease for 24 months.

What Car are these terms? I like it