Wow, it looks like the majority of this thread has been wasted arguing, not about the topic inquired upon, but whether financing makes any sense at all. I'd like set that aside for a moment, because really, there's no sense in debating it. Jacobsed is right about a lot of things. If you want to put rational finance decisions above all else, then follow his advice. For my part, I want to balance rational financial decisions with some degree of enjoyment. Fortunately, this is a free country, so we can all squander our income if we choose. Yay!
On to the matter of lease versus finance. The first thing to understand is that leasing and buying are actually very similar. When you buy a car, you're financing the entire cost of the car. If you decide to sell the car part of the way through the finance term, you get to collect the money for the sale, which may -- or may not -- be more than the remainder of your principal owed. What you "paid" for the car is actually the sum of the payments, less the amount you recovered from the sale, plus any maintenance you paid for.
When leasing you are pre-negotiating two additional factors: when you are going to "sell" it back to the finance company, and for how much.
It's that simple. Everything else about leasing is the same (more or less). There are other things to look out for though. The finance deals offered on lease and purchase are often separate. So when you go to the dealer, don't just ask for the final payment amount (which is really common with lease negotiation). Ask what your finance rate is. Have the finance department run the numbers for both lease and purchase. Most dealers will give you a term sheet that outlines the specific terms like finance rate, term, and principal amount. If you don't understand the numbers on these sheets, then talk to someone who does
before you make the purchase.
So, with that in mind, we have to raise the question: how does leasing often result in a lower payment? The answer has to do with the way lease financing is structured. Remember that with a lease, you're negotiating the future amount of the car at the same time you're buying it. This is called the residual value. Roughly speaking, you're financing the difference in the purchase price and the residual over the term of your lease; the depreciation. The finance company publishes a list of residual values for each model over a varying set of terms (measured in months).
When I financed (lease) my 135i, the residual for my car was 62% (if I recall correctly) at three years. If I were to purchase the car under typical terms (60 month financing), I would be financing 100% cost of the car over 5 years. Because I leased, I was only financing 38% of the cost of the car over 3 years. So...
less than half the principle financed over
more than half the original term. Spreading a smaller amount over a longer term results in a lower payment.
The thing is, you could do the same with purchase financing, assuming that you were able to sell the car for the same amount that you could negotiate as a residual. In this case, you would have paid more in payments, so you'd pocket some on the back end. I find that residual amounts are on the generous side though, and selling a car privately is a pain in the ass. In short, it's never worked out very well for me, so I don't want to deal with it.
The main drawbacks of leasing are that you have to agree to the terms up front, which means you need some degree of predictability in your life. Going over on your miles with a BMW is not nearly as big a deal as it is with other makes. If you finance through BMW, you can buy additional miles later (there are some restrictions near the end of term) at the same buy rate as the day you bought the car. It's also ill-advised to mod the car. If you void your warranty and break something, you're really screwed.
I hope this helps you understand leasing a little better. Leasing appears to be some kind of voodoo magic to a lot of people, so be sure that whoever you're seeking advice from really understands what's going on.