disadvantage of leasing

Some people’s response to leasing is that it’s always a bad decision, but ask those people to explain how leasing works and the pros and cons and they rarely can.

The truth is that leasing is a great alternative to buying IF you know where to look for good deals and how to tell how good of a deal something is just by looking at all of those ‘weird’ numbers they throw around. The other huge caveat is that leasing really only makes sense on certain vehicles with low depreciation, high manufacturer backing, and if you are the kind of person who can predict their yearly mileage within a reasonable range, and are the kind of person who can be happy with a car for 2-3 years and then be ready to get into something new anyway.

OK, this is a great forum to find all of the vital stats you need on leasing the car of your choice. If you don’t see it, search for it, or request it.
http://forums.roadfly.com/forums/fin…num=504&page=1

Here’s a thread discussing BMW’s January rates:
http://forums.roadfly.com/forums/fin…8186473-1.html

Here’s a lease calculator:
http://www.leaseguide.com/calc.htm
Click on the above link and follow through the below math and explanations with me.

Here’s how it works. I’ll use a 335i sedan as an example as the rates are pretty good on it at the moment.
Let’s just say I’m getting it as stands… no options, really. Just the standard equipment. And we want to hop to a new car after 2 years - within those 2 years we expect to drive say no more than 33k miles and no less than 27k which makes 15k/miles a year cost effective anywhere in that range.
Here’s the rates per that site:
BMW 335i Sedan - 24 mo/15k mi – Residual Value 71% of MSRP – .00150 Money Factor Buy Rate

OK so the first thing in question is the MSRP which is 39,395 with destination. Your residual value, stated at 71%, means the car will be worth 71% of that MSRP after 2 years. The key to saving a lot of money here is to negotiate the actual selling price as low as possible because that’s effectively 100% profit to them and 100% loss to you. Invoice is $36,300.

What you have to understand here is that despite whatever they may try to tell you, the price “Base Capital Cost” - aka the negotiated lease price, IS negotiable JUST like the purchase of a vehicle. If you could buy a 3-series for 700 over invoice, then you can lease a 3-series for 700 over invoice, and they will make the same amount of money on it just as though you had bought it for 700 over. As far as the dealer is concerned it’s the exact same value of transaction.

So let’s say that’s what has been negotiated. $37,000 (700 over invoice)

Next comes the downpayment. I suggest you NEVER make a downpayment because of two reasons: if the car is wrecked and totalled out, your insurance company will often times pay off the remaining balance of the lease and call it even. Thus if you total the car after 2 months of owning it and you had put 2500 bucks down… you lose that 2500 bucks - it just vanishes with the exception of the slightly lower payment you achieved for the first 2 months. The second reason is typically they do not give you any ‘interest credit’ for the money. In other words, the interest amount they charge you (called the money factor) doesn’t change a single penny if you put money down. You’d think if you put money down, you are “borrowing” less so it’d save you some money. Nope. Granted, there are some exceptions - some insurance companies will reimburse you for down payments (check with yours), and some dealerships will allow you to benefit from down payments. I know Lexus, for example, has a way for people to get around paying interest by basically putting the entire value of the car down as a ’safety deposit’ on the car… so basically you lease a 40k dollar Lexus, put 40k in as a safety deposit (not toward the value of the car, though) and they don’t charge you any interest… then you get the 40 grand back at the end of the term.

Next comes the residual value - again, in this example, it’s 71% of the MSRP for 24 months and 30k total miles. The MSRP here is 39,395, and 71% of that is 28 thousand dollars. So your payments will basically be your negotiated purchase price of 37,000, minus 28,000 = 9,000 dollars in depreciation for 2 years. Now spread that out over 24 months.
28,000 is also what your buyout will be at the lease end if you decide you want to keep the car. The car will likely be worth quite a bit less, though, so you’d be better off not buying it at the end since this residual value is artificially inflated by BMW financial to make it more appealing to lease (the equivalent of cash rebates for purchases).

Next comes the money factor. The money factor is hard to explain and kinda stupid that they give it as a number like .00150, but effectively that translates to them charging you 3.6% interest on the entire value of the car. Why the entire value? Because you are “borrowing” a 40k dollar car, even if your lease payments and sales tax are only based on the next 2 years worth of depreciation.

Now go through the last few steps of the calculator, enter sales tax if you know what it is, and if you punched in all of the numbers you should have a final payment of $473.71/month for 24 months with zero down, plus whatever you punched in for your tax rate (and remember tax is only being charged to you for the depreciated value - the 9 grand, not the 37 or 39 grand.!)

Now have lots of fun, beat the snot out of the car, don’t worry about maintenance because it’s not your car (and in the case of the BMW they do it for free anyway) and hand ‘em back the keys 2 years later having spent only ~11.5k bucks assuming you didn’t damage it substantially or try to turn it back in with bald tires or something.

Thanks Threxx

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1. low interest transfer credit cards
2. Tax Relief Checks

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