Leasing Experts Please Advise

[Merlin_83]

Greetings,

I've never leased a car and was searching around and found this lease take over company. I'm a dumb-dumb can someone explain something in this ad?
https://www.leasetrader.com/2017_BMW_X5_M_301081.xhtml

The details state a lease end buy out amount of $39,422 - Does that mean I could lease the car for the remaining 20 months @$890 per month and then purchase the car at the end for that amount ? Basically pay $17K and then buy the car outright for $57K - this can't be right...right?

Why could I not just purchase the car outright now for $57K and be done - put down a 1/3 and finance the balance..again I'm a dumbo


Thank you,
Merlin

[SYT_Shadow]

I believe that is exactly what it means

To get that monthly payment it's likely they had to put money down and a quick read makes it seem like they don't plan on getting it back.

[tooloud10]

Originally Posted by Merlin_83

The details state a lease end buy out amount of $39,422 - Does that mean I could lease the car for the remaining 20 months @$890 per month and then purchase the car at the end for that amount ? Basically pay $17K and then buy the car outright for $57K - this can't be right...right?

Yes, that's what it's saying.

Why could I not just purchase the car outright now for $57K and be done - put down a 1/3 and finance the balance..again I'm a dumbo

You could look at it that way, but as you would still technically be leasing the vehicle for the first 20 months, I wouldn't pay any money ahead in case the vehicle would be totaled out or something.

[wyatth]

Yes, you'd pay $890/mo and have the option to buy the car for $39K after the lease term.

Originally Posted by tooloud10

You could look at it that way, but as you would still technically be leasing the vehicle for the first 20 months, I wouldn't pay any money ahead in case the vehicle would be totaled out or something.

Unless he paid it off in full. You can always buyout a lease early with a sum equal to remaining monthly payments plus residual plus other fees (taxes, exercise fee, etc.). In that case it would be his free and clear (unless it was financed, then it's the bank's). But I agree that common wisdom is to put down as little as possible if you're going to lease.
Rarely will a lease deal like this pop up where it's cheaper to transfer the lease, exercise early, and own outright versus just buying a used car for sale. But if you look you could be surprised with a deal.

[tooloud10]

Originally Posted by wyatth

Unless he paid it off in full. You can always buyout a lease early with a sum equal to remaining monthly payments plus residual plus other fees (taxes, exercise fee, etc.). In that case it would be his free and clear (unless it was financed, then it's the bank's).

Ah, I always thought they they just considered that to be a pre-payment of the lease agreement, but that was just an assumption on my part.

Good to know--I've considered doing the same thing as the OP but just never found the right deal.

[Siajoon]

a lease is a lease... its assuming you are turning in the car at the end of the term... if you want to purchase the car right now then yeah.. finance the 57k that the car is priced at.. but then it wouldnt be a lease

[wyatth]

Originally Posted by Siajoon

a lease is a lease... its assuming you are turning in the car at the end of the term... if you want to purchase the car right now then yeah.. finance the 57k that the car is priced at.. but then it wouldnt be a lease

That assumption isn't totally true, plenty of people buyout their cars at the end of the lease and there can be financial incentives (offered by the auto manufacturer or via tax implications) to do so versus buying it up front.

Originally Posted by tooloud10

Ah, I always thought they they just considered that to be a pre-payment of the lease agreement, but that was just an assumption on my part.

Good to know--I've considered doing the same thing as the OP but just never found the right deal.

If you pay only the sum of the remaining monthlies, then it's effectively a lease prepayment (bad idea). But you if you also pay the residual, you're buying out the car early. It makes no difference for BMW, the sum is the same and they're getting paid sooner (I guess the interest rate will determine who that's a better deal for).

[Merlin_83]

Thanks everyone - I would love to own an X5M -and that lease payment for 20 months doesn't seem bad at all. And at the end, I could just purchase outright or finance (I would try and put as much cash down as possible).

Always liked the X5M - I recently saw one at the dealership for $117,000 that is cra-cra

[nrubenstein]

Here's the best way to think of a lease:

A lease is effectively a car purchase loan with a guaranteed buyback at the end of the lease period.

The residual value is the buy back.

So there are two basic costs in a lease payment:
1) The interest on the loan (which is the full value of the car)
2) The depreciation - which is the difference between your purchase price and the residual value.

Money factor is literally just a different way of stating the interest rate.

And you negotiate the price of a car that you are leasing THE EXACT SAME WAY AS IF YOU WERE BUYING IT. This is where the opportunity for nice lease deals comes in - the residual is fixed off of MSRP, so any discount on the price of the car is taken entirely our of your lease payments. Combined with a low interest rate, and an option to keep or give back the car, it generally is smart to lease any new car (always depending on terms) so that you have the option to give it back at the end of the term if it's a lemon or if it gets wrecked.

[MyUnicorn]

Sounds too good to be true? Pictures are not of an X5M. Just an M sport package. Also, VIN decoder states this has the N55 engine. Not an M.

[smyles]

Originally Posted by nrubenstein

Here's the best way to think of a lease:

A lease is effectively a car purchase loan with a guaranteed buyback at the end of the lease period.
...

One important note: it's the most expensive loan.

[wyatth]

Originally Posted by smyles

One important note: it's the most expensive loan.

That's a loaded note. I have a lease now (an Infiniti) and the money factor is a whopping zero. I also negotiated the MSRP down a lot, and it had an inflated residual to help the dealers move them (though this is of course not admitted to as the financial company sets the residual and it's non-negotiable). Thus I am paying LESS than the depreciation of the car, zero interest, and sales tax only on the depreciation. I would not have come out ahead with the "cheaper traditional financing loan," even if I buy the car for the residual. But, shopping deals and having some flexibility is more important when it comes to leasing. BMWs typically lease well, Porsches, e.g., do not. Which is funny because something like a GT3 should be nearly free to lease as they don't depreciate.

[Longboarder]

Originally Posted by smyles

One important note: it's the most expensive loan.

As a business owner, a lease typically provides better expense deductions for income tax reporting purposes. Buying a vehicle (for me) only makes sense to take advantage of section 179 deductions on qualifying vehicles.

[Merlin_83]

Originally Posted by MyUnicorn

Sounds too good to be true? Pictures are not of an X5M. Just an M sport package. Also, VIN decoder states this has the N55 engine. Not an M.

Wow ! Thank you for doing that, I knew it couldn't be real....

Thank you,
Merlin