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BMW 3-Series (E90 E92) Forum > BMW E90/E92/E93 3-series General Forums > New & Preowned BMW Ordering / Pricing / Tracking Information Forum (including European Delivery) > A lesson in how to calculate a lease payment



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      06-10-2008, 03:16 PM   #1
Scarecrows25
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A lesson in how to calculate a lease payment

I thought I'd post this, since I see so many posts in the "is this a good deal on a lease?" genre. Doing this yourself requires some basic high school algebra skills, or a grasp of Excel This is not to be intended as a "leasing is better than buying" discussion -- please make your case for or against in other threads.

The other thing to note concerns sales taxes -- these vary from state to state. Where I live, Texas law says that the full sales tax on the car is still due at a lease signing, and usually included in your capitalized cost. In other states, sales tax is only added to each payment. It's best to check your local regs, or ask your dealer for sure. In the example below, I've excluded any tax calculations, but depending on where you live, you can add these in accordingly.

Some quick definitions:

Gross Capitalized Cost: In effect, the negotiated price of the car, plus the acquisition fee. Sometimes, it's MSRP, sometimes it's more, and sometimes it's less. It's in your best interest to get the lowest cap cost you can.

Cap cost reductions: Any incentives offered by the dealer, trade-ins or down payments made by you, are cap cost reductions. These serve to reduce your monthly payment. On the flip side, you can have "negative cap cost reductions" -- for example, you're upside down on your trade-in, so the dealer happily rolls this negative amount into your new lease. Obviously, you should try to avoid this. Subtract all your reductions from the gross capitalized cost, and you get your net cap cost.

Residual: A percentage of MSRP, set by the finance company, and usually, not negotiable. You can effect this yourself by changing the length of your term (shorter term = higher residual), or the number of miles you plan to drive per year (less miles = higher residual). A higher residual means cheaper lease payments for you. Remember to always calculate residual values off of the MSRP (not your cap cost).

Lease term: How long, in months, your lease is.

Money factor: A percentage that expresses the interest being charged on the money you're borrowing. In effect, since you're tying up the leasing company's money in the value of the car, they expect to be paid interest on that money. Money factors are set by the leasing company (BMWFS), and vary depending on length of the lease and your credit score. I also believe that some BMWFS money factors can very depending on the amount of security deposit you put down - check with your dealer.

Money factors can be converted to annual interest rate (APR) by multiplying by 2400 (how this works is beyond the scope of this thread, but trust me, it works all the time, regardless of the term length of the lease.) With good credit, most money factors should correspond to a good auto loan rate, and often less. If your money factor works out to something like 10%, and you have good credit, balk.

Okay, now for examples we can all work with, because everything else works off these terms. You've decided on a new 2008 E90 335i, with no options. MSRP, including destination, is $40,125. You've negotiated a $1000 discount with your dealer, and there's a $625 acquisition fee associated with that 3-year lease you want. You'll put $1500 down of your own money, just to lower the payments a smidge. Now lets figure your payment:

Gross Cap Cost: $39750 (negotiated price + acquisition fee)
Cap Cost Reductions: $1500 (your down payment)
Net Cap Cost: $38250

Residual: 64%
Residual value at 3 years: $25680 (MSRP x .64)
Depreciation charge: $12570 (net cap cost - residual value)

Money factor: .0025 (this is equivalent to a 6% APR - not a bad MF).

Monthly depreciation charge: $349.17 (depreciation charge divided by lease term of 36 months)
Monthly Rent charge: $159.83 (Net Cap Cost + Residual Value, multiplied by the money factor)
Total monthly lease payment: $509.00 (monthly depreciation charge + monthly rent charge)

And there ya go. A few notes:

Oftentimes in a lease contract, you'll only see a number for "total rent charge" (in our example above, $5753.88). If you don't know the money factor (and, by law, the lease contract doesn't have to tell you what it is), you can divide the total rent charge by the lease term, then solve for the MF with the cap cost and residual values.

Drive off costs will include your down payment, first month's payment (lease payments are made at the beginning of the due month, unlike loan payments which are due at the end of the month... you'll make your final payment, then turn the car in 30 days later), security deposit, and whatever tax, title and doc fees your dealer charges. If there's a lease disposition fee, it's collected at the end of the lease, and often can be deducted from the security deposit to be refunded.

Don't flame me for including a down-payment in this example. There are pluses and minuses for doing so in each case. Now that you can see how changing one number effects the other, it's up to the lessee if putting money down is good for their situation.

Hope this helps for those wondering about the lease deals pitched to them by their CA.
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      06-10-2008, 08:18 PM   #2
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i brought the following to my dealership when i went to negotiate my lease

#1 copy of leasewizard.com software installed on my laptop
#2 current month's bmw usa money factor and residual, plus competitive quotes from other lenders (which were worse in may08)
#3 copy of current invoice pricing sheet for the vehicle
#4 ballpark valuations of my trade in value (and private party value) from several difference pricing guides
#5 target values for my trade in and and the new car's cap cost, and the lowest value i was willing to take for my trader and the highest value i was willing to pay for the new car's cap cost

it really helps when it is 100% clear you've done your homework before you come to the table
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      06-10-2008, 10:02 PM   #3
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Quote:
Originally Posted by Nick Nazareno View Post
i brought the following to my dealership when i went to negotiate my lease

#1 copy of leasewizard.com software installed on my laptop
#2 current month's bmw usa money factor and residual, plus competitive quotes from other lenders (which were worse in may08)
#3 copy of current invoice pricing sheet for the vehicle
#4 ballpark valuations of my trade in value (and private party value) from several difference pricing guides
#5 target values for my trade in and and the new car's cap cost, and the lowest value i was willing to take for my trader and the highest value i was willing to pay for the new car's cap cost

it really helps when it is 100% clear you've done your homework before you come to the table
Most shudder when I bring my laptop in with me.. Good thing that I have sprint mob broadband and am able in real life to look up anything that might of elapsed me in my pre research phase.

Also to the OP I posted a simple Excel with easy to copy formulas. Along with an explanation on Money factors and base rates and how money factors in my opinion are the major deal maker and breaker and often overlooked.

http://www.e90post.com/forums/showthread.php?t=144295
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      06-12-2008, 02:33 PM   #4
Scarecrows25
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I've got an Excel of my own, but have never shyed from doing things the old fashioned way with calculator and a notepad at the salesman's desk

Andrew - your Excel looks a lot like mine....except I run my numbers vertically
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