[Lassaxi]

Never really leased a car before, but thinking about it for my first 3 series. I've always been a fan of buying outright, mostly because I tend to hold onto cars for 5-7 years. But the e90 residuals and MFs seem pretty enticing.

Here's the question: Does anyone else think it can make more sense to lease-to-buy, espeicially when the MFs are relatively low right now as compared to finance interest rates? Suppose I was going to put $15k down on a $46k 335i, and finance the rest over 60 months. Any reason not to do a 36 month lease instead, put $0 down, and buy a 3 year CD with my $15k returning 5%+ APY? Monthlies are close to the same either way, leasing monthly is probably slightly lower.

Seem to me this makes more sense than pouring the $$ into a depreciating asset (i.e., the car). I think the residual would be someplace around $28-29k, and it would be easy enough to save $13-14k over the next 3 years (plus the interest from the CD), and buy the thing for cash at the end of 3 years. This has sales tax advantage too since I can spread the beginnig of the tax out over the first 3 years, and pay what's left at the end- basicaly creates a sales tax-defered purchase, right?

So, I'm thinking, this seems like too easy a way to essentialy finance a car over 3 years instead of 5, saving 2 years worth of interest payments, and actually making some interest on my $15k downpayment rather than just letting it depreciate away. What am I not thinking about here?

[JSpira]

It makes sense to lease if you don't intend to keep the car.

Otherwise, you are fooling yourself with low payments.

[Lassaxi]

Originally Posted by JSpira

It makes sense to lease if you don't intend to keep the car.

Otherwise, you are fooling yourself with low payments.

Why? I don't feel fooled- I pay a lower monthly payment for 3 years, but I've paid off less of the car after 3 years than I would through traditional financing, I know that. But, in the meantime, I've earned 5% per year on my "down payment" by investing it in a CD, instead of losing it to depreciation and paying a finance company interest on top of that. At the end of 3 years, my $15k "down payment" is worth more like $17k.

I would think you are indeed correct if, at the end of 3 years, I decided to purchase the car and finance all or part of the residual payment. But if I use the 3 years of leasing to save up the difference between $17k and my residual, and pay cash for the car at the end of 3 years, didn't I just save 2 years worth of interest payments?

Come on, I'm not that good at math- someone must be able to find a flaw in my logic here...

[Neon21db]

Originally Posted by Lassaxi

Why? I don't feel fooled- I pay a lower monthly payment for 3 years, but I've paid off less of the car after 3 years than I would through traditional financing, I know that. But, in the meantime, I've earned 5% per year on my "down payment" by investing it in a CD, instead of losing it to depreciation and paying a finance company interest on top of that. At the end of 3 years, my $15k "down payment" is worth more like $17k.

I would think you are indeed correct if, at the end of 3 years, I decided to purchase the car and finance all or part of the residual payment. But if I use the 3 years of leasing to save up the difference between $17k and my residual, and pay cash for the car at the end of 3 years, didn't I just save 2 years worth of interest payments?

Come on, I'm not that good at math- someone must be able to find a flaw in my logic here...

What are the numbers? What would your monthly lease be with $0 down and putting the "down payment" in a CD? And how much would the car cost to buy out at the end of the 3 year lease, etc... Make an Excel spreadsheet and run the numbers and do a comparison. Also, is your comparison leasing to buy vs. financing to own?

[Lassaxi]

Originally Posted by Neon21db

What are the numbers? What would your monthly lease be with $0 down and putting the "down payment" in a CD? And how much would the car cost to buy out at the end of the 3 year lease, etc... Make an Excel spreadsheet and run the numbers and do a comparison. Also, is your comparison leasing to buy vs. financing to own?

That makes sense to me- here are rough numbers, using the lease calculator on bmwusa.com. I know this won't account for all costs, but I think it's a fair approximation:

335i w/ prem, PDC, step, etc... enough to add up to $46,545

Lease:
$2500 down (calculator won't let me put down $0, but that doesn't bother me that much since I'll be buying the car at the end anyway). They also don't tell me the MF in the lease calculator, which is a bummer.
10,000 mi/yr
36 months
$556/month

Finance:
$15000 down
60 months
7% APR (which I think is generous for BMW finance).
$625/mo.

At the end of 5 years:
Lease: $556*36 = $20016 + 2500 = $22,516 spent. Then there's the $12,500 that went to the CD, which, after 3 years is basically worth $14,470.
Assuming a 61% residual, my buy-out price is $28,392. To buy that out, I'll need to come up with $13,922. So, after 3 years, I'll pay $22,516+12,500+13922= $48,938 of my "own", plus $1970 of interest earned on the CD. Total is $50,908, but again, $1970 of it is basically free money. And, I pay nothing in years 4 and 5, because I bought the car for cash.

Buy: $625*60 = 37,500 + $15,000 down payment = $52,500 total.

After 5 years, the car is worth the same regardless of whether I leased or bought. I don't make any payments in years 5-7 either way.

So, am I missing something here? I mean, obviously I'm missing things like inception fees on the lease, tags/registration, etc... But then again, I'm basing my calcs on full MSRP, and I'd probably actually pay a bit less than full MSRP anyway, so my estimate should be close, shouldn't it?

Seriously, I'm no good at math, and I'm sure I'm leaving something out here. My gut reaction is the same as everyone else's- it should be cheaper to buy, right? What am I doing wrong?

[soma4u]

i actually changed my mind just today to finance instead of lease on my 335i coupe, ordered a month ago. Never leased before, but was trying to lower my monthly payment and out of pocket expense. For some reason I just got a bad feeling knowing in 24 months, I would have paid all that money and really have nothing to show for it. The depreciated value of the car would equal approx. $35,500 plus the $20,000 or so I would have paid getting a lease, meaning if I were to buy at the end of the term I would have ended up paying about $55,500 for a car that is worth only $47,500. $4000 per year interest does not appeal to me. I don't believe that the out of pocket money ($22,000 trade + $8,000down) would earn enough interest to offset that $4,000 per year. That's just way I see...I could be way off mark here but, oh well.

[Lassaxi]

Originally Posted by Neon21db

What are the numbers? What would your monthly lease be with $0 down and putting the "down payment" in a CD? And how much would the car cost to buy out at the end of the 3 year lease, etc... Make an Excel spreadsheet and run the numbers and do a comparison. Also, is your comparison leasing to buy vs. financing to own?

By the way, yes, the comparison is lease to buy vs. financing to own- I will keep the car for 5-7 years regardless of which option I pick (unless, for instance, I have an accident or a major mechanical problem or something similar in the first 3 years that would SUBSTANTIALLY lower the long-term reliability of the car).

[Lassaxi]

Originally Posted by soma4u

i actually changed my mind just today to finance instead of lease on my 335i coupe, ordered a month ago. Never leased before, but was trying to lower my monthly payment and out of pocket expense. For some reason I just got a bad feeling knowing in 24 months, I would have paid all that money and really have nothing to show for it. The depreciated value of the car would equal approx. $35,500 plus the $20,000 or so I would have paid getting a lease, meaning if I were to buy at the end of the term I would have ended up paying about $55,500 for a car that is worth only $47,500. $4000 per year interest does not appeal to me. I don't believe that the out of pocket money ($22,000 trade + $8,000down) would earn enough interest to offset that $4,000 per year. That's just way I see...I could be way off mark here but, oh well.

How long do you plan to keep the car?

And I'm confused here- is $35,500 your residual, or what you estimate the car would actually be worth after 2 years?

How much will you have paid at the end of 2 years under your financing arrangement?

[soma4u]

Originally Posted by Lassaxi

That makes sense to me- here are rough numbers, using the lease calculator on bmwusa.com. I know this won't account for all costs, but I think it's a fair approximation:

335i w/ prem, PDC, step, etc... enough to add up to $46,545

Lease:
$2500 down (calculator won't let me put down $0, but that doesn't bother me that much since I'll be buying the car at the end anyway). They also don't tell me the MF in the lease calculator, which is a bummer.
10,000 mi/yr
36 months
$556/month

Finance:
$15000 down
60 months
7% APR (which I think is generous for BMW finance).
$625/mo.

At the end of 5 years:
Lease: $556*36 = $20016 + 2500 = $22,516 spent. Then there's the $12,500 that went to the CD, which, after 3 years is basically worth $14,470.
Assuming a 61% residual, my buy-out price is $28,392. To buy that out, I'll need to come up with $13,922. So, after 3 years, I'll pay $22,516+12,500+13922= $48,938 of my "own", plus $1970 of interest earned on the CD. Total is $50,908, but again, $1970 of it is basically free money. And, I pay nothing in years 4 and 5, because I bought the car for cash.

Buy: $625*60 = 37,500 + $15,000 down payment = $52,500 total.

After 5 years, the car is worth the same regardless of whether I leased or bought. I don't make any payments in years 5-7 either way.

So, am I missing something here? I mean, obviously I'm missing things like inception fees on the lease, tags/registration, etc... But then again, I'm basing my calcs on full MSRP, and I'd probably actually pay a bit less than full MSRP anyway, so my estimate should be close, shouldn't it?

Seriously, I'm no good at math, and I'm sure I'm leaving something out here. My gut reaction is the same as everyone else's- it should be cheaper to buy, right? What am I doing wrong?

not sure how much tax you will be paying, but on mine it was like an extra $125/month+processing fee+destination fee ...obviuosly if it is more spread out if you have alonger lease.BTW money factor was dropped today to.000175

[soma4u]

Originally Posted by Lassaxi

How long do you plan to keep the car?

And I'm confused here- is $35,500 your residual, or what you estimate the car would actually be worth after 2 years?

How much will you have paid at the end of 2 years under your financing arrangement?

that is the actual residual given to me from dealer (i think 71%)
the deal that I got today (5.2% finance on $20,000) will cost me $3952 in interest over a 4 year period(988/year)...granted the amount taking interest is far less. After all is said and done my car will probably be closer to $50000 of the lot (2.5 times more money than $20000) take the $988 x 2.5 =$2470, far less than the $4000 that the lease cost me in interest. So a savings of $3060 over a two year period i don't think would be offset by any cd or money market etc

[Lassaxi]

Originally Posted by soma4u

that is the actual residual given to me from dealer (i think 71%)
the deal that I got today (5.2% finance on $20,000) will cost me $3952 in interest over a 4 year period(988/year)...granted the amount taking interest is far less. After all is said and done my car will probably be closer to $50000 of the lot (2.5 times more money than $20000) take the $988 x 2.5 =$2470, far less than the $4000 that the lease cost me in interest. So a savings of $3060 over a two year period i don't think would be offset by any cd or money market etc

Ok, you got me here, I'm not sure I understand what you're saying. First off, the residual is not the depreciated value of the car- it's just an agreed-on end of lease value used for calculating your payments. Your car's actual value, particualrly if you are talking about a trade, it likely several thousand less than your quoted residual.

If you bought your car for $47,500, and put $8,000 down, your payment on a 4-year finance plan should be around $910 per month. That should cost you about $4,000 in interest over 4 years, as you suggest. Total cost is $51,680.

A 24 month lease on the same numbers, but this time figuring a $2500 down payment (since that's what the bmwusa.com calculator is making me use), would give you a monthly payment of about $595 (10,000 miles/yr). Over 2 years, you pay a total of about $16780. If your residual is $35,500, and you paid full residual to buy the car, you'd owe a total of $52,280.

However, if you invested your $5500 (the difference between the $8,000 down payment you made and the $2,500 assumed in my lease calculator scenario) in a CD earning 5% per year, you'd make an extra $1,063.74 in 2 years. This means your actually only would spend $51,216 out of pocket to buy the car if you leased for 2 years, and then bought, rather than paying $51,680 in a four-year financing plan at 5.2%.

Of course, none of this includes taxes or other fees, which could tip the scales in the other direction, but I'm still not sure how you get to saving $3060 over a two-year period by financing instead of leasing. I think I must have misunderstood something you said.

[Neon21db]

This is what I suggest. Get the actual numbers from the dealer; selling price of car with all options, tax, fees, residual percentage, APR if financing (try a bank like capital one), etc... then run the numbers again with "real" data.

[Neon21db]

Also, you chose 10,000 miles per year in your lease. If you finance to own, there is no limit. With 10k miles, you can only drive your car about 27.4 miles a day (assuming you drive everday with constant mileage). If you go over 10k miles on the lease, the penalty fees can be quite considerable. So take that into account as well.

[speedyj88]

I find that you can usually lease a car for much lower than what BMW's calculator shows. And obviously, you also won't pay MSRP on the car either. Another thing to factor in is E90 vs. E92. While the leasing deals/prices won't be attractive on the E92 because it's a new body style, you can get a great deal on an E90 because the E92 has stolen a lot of its spotlight.

[Lassaxi]

Originally Posted by Neon21db

This is what I suggest. Get the actual numbers from the dealer; selling price of car with all options, tax, fees, residual percentage, APR if financing (try a bank like capital one), etc... then run the numbers again with "real" data.

Yuo're right, of couse. I guess what I was really wondering is whether anyone else out there has already done this themselves, or can point out some of the things I'm not accounting for in my calculations. I can re-run my calcs using "real" data, but if I'm doing something fundamentally wrong in how I'm thinking about this or setting up the calc, the real data is still going to give me the wrong answer.

[Lassaxi]

Originally Posted by Neon21db

Also, you chose 10,000 miles per year in your lease. If you finance to own, there is no limit. With 10k miles, you can only drive your car about 27.4 miles a day (assuming you drive everday with constant mileage). If you go over 10k miles on the lease, the penalty fees can be quite considerable. So take that into account as well.

Well, I think assuming 10,000 mi/yr actually does make sense for two reasons: First, I only drive about 7,000 mi/yr, so I'd actually take a lower mileage amount if it were allowed. I know that's shockingly low to most people here, but I commute to work by train so I basically don't drive mon-fri. Second, if I'm leasing to buy, things like mileage and wear and tear don't matter because I won't be turning the car in at the end of the lease.

[Lassaxi]

Originally Posted by speedyj88

I find that you can usually lease a car for much lower than what BMW's calculator shows. And obviously, you also won't pay MSRP on the car either. Another thing to factor in is E90 vs. E92. While the leasing deals/prices won't be attractive on the E92 because it's a new body style, you can get a great deal on an E90 because the E92 has stolen a lot of its spotlight.

Good point- I am thinking of an E90 335i, not E92. You're right that I won't pay MSRP, but I'm using it in the calculations in part to offset the fact that I'm not including all the misc fees, and in part because I want to try to err on the conservative side.

[soma4u]

Originally Posted by Lassaxi

Ok, you got me here, I'm not sure I understand what you're saying. First off, the residual is not the depreciated value of the car- it's just an agreed-on end of lease value used for calculating your payments. Your car's actual value, particualrly if you are talking about a trade, it likely several thousand less than your quoted residual.

If you bought your car for $47,500, and put $8,000 down, your payment on a 4-year finance plan should be around $910 per month. That should cost you about $4,000 in interest over 4 years, as you suggest. Total cost is $51,680.

A 24 month lease on the same numbers, but this time figuring a $2500 down payment (since that's what the bmwusa.com calculator is making me use), would give you a monthly payment of about $595 (10,000 miles/yr). Over 2 years, you pay a total of about $16780. If your residual is $35,500, and you paid full residual to buy the car, you'd owe a total of $52,280.

However, if you invested your $5500 (the difference between the $8,000 down payment you made and the $2,500 assumed in my lease calculator scenario) in a CD earning 5% per year, you'd make an extra $1,063.74 in 2 years. This means your actually only would spend $51,216 out of pocket to buy the car if you leased for 2 years, and then bought, rather than paying $51,680 in a four-year financing plan at 5.2%.

Of course, none of this includes taxes or other fees, which could tip the scales in the other direction, but I'm still not sure how you get to saving $3060 over a two-year period by financing instead of leasing. I think I must have misunderstood something you said.

ok...your probably right and i have my math screwed up...regardless of which way you do it, it will be around the same dollar value in the end, however when you have a lease there are WAY more restrictions that are put on you...a $600 difference either way on a $50,000 car really isn't going to sway me in any direction, but the limitations of a lease over my head will sway me.

[mercury26]

I have to agree with the original poster and that I have run the numbers also on a "lease then buy". As your intent is buy at the end of the lease, mileage really should not factor into the equation. In addition, sinse the intent is to buy making modifications to the car as a typical owner would do should not factor. An advantage of the lease first is that you can see if you like the car and want to keep it long term. For instance, if it is a lemon, you would have the opportunity to return it end of lease and wipe your hands clean.

One concern that I have is additional taxes due on a lease, I know that taxes are compounded differently so it is something to consider. My previous lease I ended up buying since I did exceed the mileage allotment. My current car is a lease, but I will probably look at getting something different when it expires. Right now, I am in an Audi and while I love the car, I wish it was a slightly different car. I am hoping to get a white wagon when I get my next car. I like the 328xi Sports Wagon but I am hoping the 335xi Wagon will make it to the states by the time my current lease expires.

Cheers,

Chuck

[gohawks23]

Originally Posted by Lassaxi

That makes sense to me- here are rough numbers, using the lease calculator on bmwusa.com. I know this won't account for all costs, but I think it's a fair approximation:

335i w/ prem, PDC, step, etc... enough to add up to $46,545

Lease:
$2500 down (calculator won't let me put down $0, but that doesn't bother me that much since I'll be buying the car at the end anyway). They also don't tell me the MF in the lease calculator, which is a bummer.
10,000 mi/yr
36 months
$556/month

Finance:
$15000 down
60 months
7% APR (which I think is generous for BMW finance).
$625/mo.

At the end of 5 years:
Lease: $556*36 = $20016 + 2500 = $22,516 spent. Then there's the $12,500 that went to the CD, which, after 3 years is basically worth $14,470.
Assuming a 61% residual, my buy-out price is $28,392. To buy that out, I'll need to come up with $13,922. So, after 3 years, I'll pay $22,516+12,500+13922= $48,938 of my "own", plus $1970 of interest earned on the CD. Total is $50,908, but again, $1970 of it is basically free money. And, I pay nothing in years 4 and 5, because I bought the car for cash.

Buy: $625*60 = 37,500 + $15,000 down payment = $52,500 total.

After 5 years, the car is worth the same regardless of whether I leased or bought. I don't make any payments in years 5-7 either way.

So, am I missing something here? I mean, obviously I'm missing things like inception fees on the lease, tags/registration, etc... But then again, I'm basing my calcs on full MSRP, and I'd probably actually pay a bit less than full MSRP anyway, so my estimate should be close, shouldn't it?

Seriously, I'm no good at math, and I'm sure I'm leaving something out here. My gut reaction is the same as everyone else's- it should be cheaper to buy, right? What am I doing wrong?

In my particular case (24 month lease, 40K miles with the new MF rates) the lease vs. buy costs pretty much are a wash after the two year period.

2 year

Cash price: 41,334.0000
Tax+doc+lic: 4,536.0040
Cash cost at 5% minus tax: 3,669.6003
Total: 49,539.6043

Lease Out of pocket plus 5%: 7,338.7409
23 payments plus 2.5%: 16,671.7792
SD return (5,250.0000)
Payoff 28,298.7000
Tax plus disposition 2,642.1947
30,940.8947
Total: 49,701.4148

Diff: 161.8105 (so, in theory the lease costs this much more)

[urkiller]

lease always cost more. PERIOD
Keeping the car 6+ then just buy it now

[gohawks23]

Originally Posted by urkiller

lease always cost more. PERIOD
Keeping the car 6+ then just buy it now

It isn't that black and white during the short term (3 years or less) because good leases offer inflated residual values, very low interest rates (MF's) and a guaranteed 'out' at term end.