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      01-11-2007, 08:15 PM   #1
rmorin49
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Leasing 101, I Need Some Help

I have bought probably 50 cars in my lifetime and have never really considered leasing but might this time around. I have always believed that it is always cheaper to pay cash for something and leasing amounts to nothing more than a rental agreement. Is it true that IF you plan to keep a car, that is beyond say a 3 year timeframe, it is probably better to buy? I tried to do some simple comparisons by taking the up front cost of a lease plus the total of the monthly lease payments plus the residual value at the end of the lease and compare that total to the total cost of the car outright buying it cash. The lease is always more expensive. On the other hand, if I took the cash and put it in an interest bearing account and leased the car, it comes out pretty close. I don't understand MF, I think it is basically the interest rate, am I correct? If someone can guide me toward a source that is written for a first timer I would be grateful.
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      01-11-2007, 08:21 PM   #2
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hey, lease offers from BMW are very good. if i want to ever buy a car - i will buy the thing in one go cash down. your paying interest on a depreciating asset. real estate is an investment that appreciates. cars dont, hence you pay around 45% of the cars worth in 3 years and get out of the contract. on the other side, you could pay 115% over a period of 5 years, and pay for your wear and tear after, once your warranty expires.
just my thought process.
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      01-11-2007, 09:27 PM   #3
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I have the cash to pay for it, but want to make sure I wouldn't come out better leasing and leaving the cash in an investment. I am planning to keep the car beyond the lease term so I would be looking at a buy out at the end of the lease. Is this a better alternative?
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      01-11-2007, 09:45 PM   #4
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I don't think so.... if you plan on keeping the car for 5 to 6 years then you should finance. But then again there's a lot of factors involved.... finance rate and the rate of return on your investment accounts... It's pretty complicated. If you think you can get a really really good return on your investments, then you COULD take the money you save each month and invest that and offset the fact that you will have less actual equity in the car and make the lower cost per month work in your favor.

Surely someone else has some info on this? I've never run the #'s on this, so it's hard to say if one way is better than the other. There's probably more to this than I can think of since I've never really researched this.

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      01-11-2007, 10:00 PM   #5
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all good points raised both you. its one of those arguements that will be around for a long time. if your paying cash down, the whole amount. sell your car in six years, you should still get around 45% of the cars value back. i can be wrong on this one. but there is no interest involved here, so it does make sense.

buy outs at the end of leases, depends, i must say. sometimes the residuals are too high. while others, it turns out to be 2-3k more if you had financed the car in the first place. but it extends the decision making time to 3 years after you have driven the car, whether you want to buy it or not. i can be wrong too....
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      01-11-2007, 10:17 PM   #6
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Quote:
Originally Posted by beemah
all good points raised both you. its one of those arguements that will be around for a long time. if your paying cash down, the whole amount. sell your car in six years, you should still get around 45% of the cars value back. i can be wrong on this one. but there is no interest involved here, so it does make sense.

buy outs at the end of leases, depends, i must say. sometimes the residuals are too high. while others, it turns out to be 2-3k more if you had financed the car in the first place. but it extends the decision making time to 3 years after you have driven the car, whether you want to buy it or not. i can be wrong too....
True... true.... the good thing about leases now is that it's basically a finance with a balloon payment at the end if you don't plan on turning back in. With my 1998 Prelude the initial residual was set low and I actually sold the car myself when it was close to lease end and paid the lease off and made almost $2000.

Some people would say lease and invest the leftover money and then pay the car off with the investment return you earned on the $ you saved by having the lower payments and some would probably would say pay cash and don't pay any interest at all and save $ that way.... lot's of factors involved.

As for me, I don't have enough $ to pay for it outright and I only plan on keeping a car for around 3 years and probably won't mod all that much so a lease is best for me because of the lower payments. If the resale is higher at lease end then I will sell myself and make some of the $ back... if not I'll give it back to em and let them take the hit.
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      01-11-2007, 10:31 PM   #7
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yus

Quote:
Originally Posted by ismithnc
True... true.... the good thing about leases now is that it's basically a finance with a balloon payment at the end if you don't plan on turning back in. With my 1998 Prelude the initial residual was set low and I actually sold the car myself when it was close to lease end and paid the lease off and made almost $2000.

Some people would say lease and invest the leftover money and then pay the car off with the investment return you earned on the $ you saved by having the lower payments and some would probably would say pay cash and don't pay any interest at all and save $ that way.... lot's of factors involved.

As for me, I don't have enough $ to pay for it outright and I only plan on keeping a car for around 3 years and probably won't mod all that much so a lease is best for me because of the lower payments. If the resale is higher at lease end then I will sell myself and make some of the $ back... if not I'll give it back to em and let them take the hit.


a true leaser mate. agree. think you can make money if your residual is high, more during your monthly payments.

leasing and financing reminds me of a structured product sometimes. your car associate can structure a deal just for you, thats the beauty of it. you need to know your persona finance forecasts for the next 5 years to get the right deal for yourself
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      01-12-2007, 07:57 AM   #8
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What I really prefer is a one payment lease - stroke a check for the lease up front and either buy the car in 3 years or give it back. Kind of like paying cash - one big advantage to this strategy is when it's time to turn it in and I decide to keep it, I turn it in and buy it back as a certified used car so I extend the warranty to 100k miles. The last time I did this was on an 01 X5.

If I don't want it I just give it back - Porsche has true one payment leases, on a BMW I put as much down as they'll let me which on the 335xi will be about $18k then pay the other $3k or so up front to BMW financial- basically paying the lease off.

If I decide to keep it I pay cash for the car - and I negotiate the price, I've paid less than the residual on the lease this way. The dealer can be overloaded with used stock and they don't really want the car, so I get a deal on it.

I've never done a cost analysis on this strategy - I don't like car payments, I feel I'm going to lose the $$ in depreciation regardless so I just pay it up front and I'm able to have a what feels like a paid off car for three years with no payments. If I decide to keep it I pay a balloon payment in 3 years - simple.

On the X5 it worked out to almost exactly as if I'd paid cash for it up front dollar wise - I basically made two payments on it - approx. two $25k installments three years apart.
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      01-12-2007, 08:52 AM   #9
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Quote:
Originally Posted by ORL335i
What I really prefer is a one payment lease - stroke a check for the lease up front and either buy the car in 3 years or give it back. Kind of like paying cash - one big advantage to this strategy is when it's time to turn it in and I decide to keep it, I turn it in and buy it back as a certified used car so I extend the warranty to 100k miles. The last time I did this was on an 01 X5.

If I don't want it I just give it back - Porsche has true one payment leases, on a BMW I put as much down as they'll let me which on the 335xi will be about $18k then pay the other $3k or so up front to BMW financial- basically paying the lease off.

If I decide to keep it I pay cash for the car - and I negotiate the price, I've paid less than the residual on the lease this way. The dealer can be overloaded with used stock and they don't really want the car, so I get a deal on it.

I've never done a cost analysis on this strategy - I don't like car payments, I feel I'm going to lose the $$ in depreciation regardless so I just pay it up front and I'm able to have a what feels like a paid off car for three years with no payments. If I decide to keep it I pay a balloon payment in 3 years - simple.

On the X5 it worked out to almost exactly as if I'd paid cash for it up front dollar wise - I basically made two payments on it - approx. two $25k installments three years apart.


uh, and what happens if the car gets totalled or stolen?? You would be out some or all of your down payment.

most folks who know anything about leasing would say this is a terrible gameplan.


just my 2 cents
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      01-12-2007, 02:20 PM   #10
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I figure I lose it either way - no difference if I pay cash and total it - I don't ever sweat it. I hate car payments more than the possibility of totaling it and losing ten grand.

Definately not a good route for someone who doesn't have the resources to move on if something like that happens - it wouldn't be the end of the world for me.
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      01-12-2007, 05:02 PM   #11
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Buy the car if you want to keep it for a long time.

Remember though, you will have to cover the costs of repair at that point, and it can get costly.


BMW offers great lease programs, why not take advantage of them and use the car for 3 years and hop into a new one after!?


The most important thing when leasing, try to put as little down payment as possible!


Americans will always have a car payment and house payment. It's just the way of life here.
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      01-12-2007, 05:48 PM   #12
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Thanks for all the advice. I will wait and see what the numbers look like when I meet with my SA in a few weeks to write up the order. Any guess what the deal will look like on a car with an MSRP around $60K, E93 335i? I used the BMW website and a 5 series that listed for $58K and got a payment on a 36 month, 12K lease at $692/month.
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      01-12-2007, 06:35 PM   #13
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Quote:
Originally Posted by beemah
hey, lease offers from BMW are very good. if i want to ever buy a car - i will buy the thing in one go cash down. your paying interest on a depreciating asset. real estate is an investment that appreciates. cars dont, hence you pay around 45% of the cars worth in 3 years and get out of the contract. on the other side, you could pay 115% over a period of 5 years, and pay for your wear and tear after, once your warranty expires.
just my thought process.
My thought process is that if discretionary income is used to buy a car, leasing is not justifiable. Leasing lowers the cash flow, there is no doubt about it. But why lease a BMW? Why not buy outright a Honda Accord if one is looking to minimize cash flow on a car, which yes, everyone acknowledges keeps going down in value over time? Or better yet, why not take money that is discretionary and buy a BMW if one deems it appropriate?

Comparing a car to real estate is just one of those woulda, coulda, shoulda perspective. Yep, I shoulda taken all my money out of stocks in late 2000, bought a Carerra (why not on paper many of us lost 2 of them easily), and then bought a house in LA, and sold it in 2k4 for double the initial investment, we could go on forever. Just buy a BMW and enjoy!
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      01-12-2007, 06:58 PM   #14
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The only reason I would go the lease to own option is that you get three years to check the car out. Also new cars always seem to be magnets for accidents. The thought of having $40K in cash car in an accident and then worth 10-15K less is not comforting. With the lease you can spread the risk and if you car gets banged up and is repaired and you just dont like the way it drives anymore you just ride the time to lease end and turn it in. If you car is still in mint condition after three years then buy it, even if it gets into an accident after that you would have three good years and less cash into that car.
I never leased before and always scoffed at people who do but I would do it just to deffer some of the risk to the leasor.
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      01-12-2007, 07:07 PM   #15
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This is a great argument.

if i had cash down to buy a car - i would have done it

if i had to finance - the payments are just too high monthly because the interest rates unrock

if i had to lease - ideal for me

the probability of totalling or getting stolen is very low

insurance agencies cover most of your car in that case

and it really comes down to financial budgeting or forcasts of ones finances

so in the end....figure out how best you can pay for the car, and let you sales assiciate write up a deal for you......

what say you folks?
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      01-12-2007, 08:07 PM   #16
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This is a tough one. Always growing up my family had 2 cars. 1 was always financed and 1 was always leased. My dad seemed to never get stuck in a hard place with the leased car. He always just turned it in and got a nice new one again in 2-4 years. So he knew how both worked and filled me in.

I recently just got my first car on my own out of school. I have the income to put a big enough down payment to finance a BMW with a payment I could live with. Yet I was unsure of what I wanted in 3-5 years. So I went with a lease. The payments aren't harsh, nor am I stuck with the car. I also knew I wanted the upcoming M3. So far I'm thrilled with my decision. Why you ask? I was rear-ended by a bus a month ago. It wasn't a bad accident, but now I know with near certainty I will be giving it back. That is unless they give me a killer deal I can't turn down. Overall I'm happy with leasing, and still feel a sense of accomplishment paying for my own BMW at 23.

Overall I wouldn't have a problem leasing again. It comes down to pay me now pay me later. You prolly lose a couple grand by buying the car at the end of a lease, but you also didn't have to throw a ton down at the beginning. You also were capable of saving the extra cash over the term of your lease to prepare for the buyout and able to investing in more wise decisions. For me it was take my money and put almost all into financing the car, or save a few more months and put I really nice down payment on a lot nicer house then most people buy as their first house? I think the house is the wiser decision.
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      01-12-2007, 09:34 PM   #17
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yes true - well said.

lesing also helps you work up the BMW series, i had a 325, then another 325, now a 335 on its way, and then.........live a BMW
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      01-13-2007, 12:17 AM   #18
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so what happens when you get into an accident with a leased car? do you report to the dealer and fix it? can you goto any autobody or they make you goto a BMW certified bodyshop and rip you off?

another question I had was tires. I have 12k miles 2 year lease. do I have to replace the tires before giving back?

my first time leasing... any info will be appreciated!
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      01-13-2007, 12:31 AM   #19
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Quote:
Originally Posted by E90RWC
Buy the car if you want to keep it for a long time.

Remember though, you will have to cover the costs of repair at that point, and it can get costly.
I Have to agree on this one. I spent more than 6k with repairs and maintenance in 2.5 years after warranty expired (E46). That's why I chose to lease this time.

Here's something I wanted to know for a while and someone should know... do dealers make more money with lease, finance, or just cash? If BMW offers great lease deals, do they make lots? this is a subsidized lease right?
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      01-13-2007, 12:38 AM   #20
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answers

Quote:
Originally Posted by blingbling
so what happens when you get into an accident with a leased car? do you report to the dealer and fix it? can you goto any autobody or they make you goto a BMW certified bodyshop and rip you off?

another question I had was tires. I have 12k miles 2 year lease. do I have to replace the tires before giving back?

my first time leasing... any info will be appreciated!

you fix the car with your insurance policy. give it to any body shop. bmw only has service and parts. they outsource their body work. hence, its the same as you picking your body shop. or you can always use one bmw tells you about. ive had cases where bmw dealership suggested body shop painted one of my doors and the color did not match. so i go to mine...

your tyre tread has to meet a certain depth or length. good to change around 15-20 k miles if they are bold.
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      01-13-2007, 12:40 AM   #21
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Quote:
Originally Posted by blingbling
I Have to agree on this one. I spent more than 6k with repairs and maintenance in 2.5 years after warranty expired (E46). That's why I chose to lease this time.

Here's something I wanted to know for a while and someone should know... do dealers make more money with lease, finance, or just cash? If BMW offers great lease deals, do they make lots? this is a subsidized lease right?

yes, BMW full maintenance - awesome.

dealers are smart, they can find ways to make money. they have too keep volume going. the way the bmw products sells...its not tough sometimes..reason its a subsidized lease, these cars have awesome certified preowned buy value. hence its a program they run. from lease to a certified cycle.
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      01-13-2007, 12:46 AM   #22
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ORL335i. I did the same exact thing with my e90. I hate having a car payment and figured I would get either an M3 or 335 after the lease anyway. Although, I have grown to love the e90 so I will try to talk my wife into keeping it for her daily driver....
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