Leasing a car better than buying or am I missing something?

[piloto]

Originally Posted by rye m3

This can be an interesting thread. I still believe most people lease because it's the only way they can get into the car. I want to see a poll asking how many people that lease their M3 have credit card debt?

Anyway, I even looked at this on a very simple basis. M3 lease 36/12k, 0 down, must be about $1000/mo. $12k per year. After 3 years, $36k. You've paid the depreciation as if the $70k car will be worth $34k. Lease residual of 60%, so your price to buy will be $42k. Buyout is an $8k loss. If you sell the car for $45k, you "make" $3k - I don't think so, you just narrowed the loss to $5k.

Leases are convenient and let you beat on a car. Leased a car for the first time. Family X3. Very low financing rate and a great residual. The family car gets beat on. Dinged, dirty, parked outside, not cleaned often enough, etc. I keep it well waxed and it looks nice, but the results are unavoidable due to negligent mothers with Suburbans. I'll see how the lease goes. Renting costs a bit more, but all those factors make it very difficult to sell or trade the car in after 3-4 years. Leasing will be very convenient. I think "renting" this rig will be the right move. Also, gets full duty in the winter, driving in snow every day. With the latest generation X3, also wanted to be sure to be able to get rid of it if they turned out to be a dog.

Another factor for owning an M3, if you treat it right, wash it every week, wax it with Zanos or whatever, you will NOT enjoy the benefit of the value at the end. Your car will be turned in and be the same as the car that was tracked 12 times a year and has 6 1" dings on each side.

Generalize much? I lease and have zero CC debt, and no other aside from my mortgage. My M3 is my daily driver, and I have two other, paid for and wholly owned cars in my garage. As my DD, my M3 accumulates and easy 20-25K miles per year (that's with limited driving, and sharing duties with my other cars). So after 3 years, I'm looking at close to 75K miles. Given how much I drive, I like for my DD to be a nice, new, reliable, and comfortable car.

Now consider this: here in socal, there are PLENTY of other M3s, and mine will be a high mileage example, so selling it will be difficult. I'll have to sell it at an extremelt low price (I've already experienced this twice before), no matter how nice and clean my car is. Fact is, in 3 years time, a dealer will be selling a CPO car for not much more than my car's blue book value, even with 75K miles on the odo. Between that and paying full tax in CA on the purchase (not on the lease, however), if I sell the car in 4 years, I'll be out more money than if I do a lease, given how well BMW's lease rates and incentives are. So, if I know that I'm going to rid of this car in 3-4 years, leasing makes total sense.

Let's not generalize and understand why some lease, and why some buy. If plan it right, and consider your habits, needs, assess your future financial state including downturns and risks that may be realized, you can make a better choice than if you just go with your heart.

And I obsess with my car, whether it's leased or not. I take as good care of it as if I was going to keep in. It's how I enjoy all of my cars. If you think that all of those who lease beat on their cars, then you're mistaken and again, are generalizing based on now tangible data.

[dmppdx]

The easiest thing for someone to convince themselves as being true is what they wish was actually true and I think this is the case with many of the people who believe leases are advantageous financially to purchasing. Many people want to get a new car every three years so they can have the latest and greatest and have convinced themselves that leasing is cheaper than owning to justify doing this.

If you think that somehow BMW is going to allow people to lease a car, which doesn't require the driver to actually incurring any of the risks associated with owning the car, for less than actually purchasing it and occuring the risk, sorry, but I'm old enough to know there is no such thing as a free lunch, particularly in the business world.

For all the leases I have seen, the numbers don't appear to support them being better financially that purchasing, and in most cases, they seem much worse, but you don't need to be Mensa member to actually run the numbers for your particular situation and figure that out for yourself.

[saeyedoc]

Originally Posted by JulieDriving

You are just paying for the depreciation of the car if you are leasing it.

Not true, you also pay for the finance charges. Since the amount you're paying interest on is based on the average amount you owe, you pay more interest than if you financed the car for the same time period at the same interest rate.
It's very similar to a balloon loan, except you have the option to just turn the car in after the loan period is up.
To me, it can be worth it to pay for this option under certain circumstances. New technology with unknown long term reliability (like DCT), potential for diminished value from an accident, unknown impact on resale values due to new model coming out, etc. That's not even taking into account potential tax advantages.
What leasing companies do that you can't do personally is having insurance against getting the residual wrong. They don't get stuck for the full loss from excessive drops in market value.
I think if you buy new and sell privately after 3-4 years the costs can be close to or better than leasing, but that can be a hassle. Compared to buying new and trading to a dealer after a few years, leasing can often save you some money.

[JulieDriving]

Originally Posted by dmppdx

The easiest thing for someone to convince themselves as being true is what they wish was actually true and I think this is the case with many of the people who believe leases are advantageous financially to purchasing. Many people want to get a new car every three years so they can have the latest and greatest and have convinced themselves that leasing is cheaper than owning to justify doing this.

If you think that somehow BMW is going to allow people to lease a car, which doesn't require the driver to actually incurring any of the risks associated with owning the car, for less than actually purchasing it and occuring the risk, sorry, but I'm old enough to know there is no such thing as a free lunch, particularly in the business world.

For all the leases I have seen, the numbers don't appear to support them being better financially that purchasing, and in most cases, they seem much worse, but you don't need to be Mensa member to actually run the numbers for your particular situation and figure that out for yourself.

Leasing a new car every 2-4 years or such is definitely spending a lot more than keeping the same car for a longer time. The first few years are the worst in terms of depreciation.

Leasing is an option. It is no better or worse, intrinsically, than financing is as an option. It depends on the circumstances. Personally I prefer to keep cars a long time, but there are myths out there that leasing = automatically throwing your money away. I also bought into that until I read more into leasing.

[piloto]

Originally Posted by JulieDriving

Leasing a new car every 2-4 years or such is definitely spending a lot more than keeping the same car for a longer time. The first few years are the worst in terms of depreciation.

Leasing is an option. It is no better or worse, intrinsically, than financing is as an option. It depends on the circumstances. Personally I prefer to keep cars a long time, but there are myths out there that leasing = automatically throwing your money away. I also bought into that until I read more into leasing.

Well said. Buying a new car that you know you will sell after 2-4 years, is in many cases, worse than leasing the same car, when the lease rates and Ts&Cs are as good as those of BMW.

No one is justifying that leasing is cheaper in general, however, in certain circumstances it is cheaper, and if that circumstance is inline with your needs, then why not? Again, most of those posting against leasing, are generalizing as to the motives behind the choice to lease.

[JulieDriving]

Originally Posted by saeyedoc

Not true, you also pay for the finance charges. Since the amount you're paying interest on is based on the average amount you owe, you pay more interest than if you financed the car for the same time period at the same interest rate.

Sorry, not getting this but interested in understanding. Could you explain more?

[piloto]

Originally Posted by saeyedoc

I think if you buy new and sell privately after 3-4 years the costs can be close to or better than leasing, but that can be a hassle. Compared to buying new and trading to a dealer after a few years, leasing can often save you some money.

This only true is your car is low mileage and your local market is not saturated with similar cars. For instance, as I saod in an earlier post, if 'm putting 20-25K miles/yr, and live in socal, where there are countless M3s, and the majority have much lower miles, it can be very hard to sell the car used. In addition, as you've said, it's a hassle, as not many are going to be paying you cash.

I went through the calcs numerous times before I settled on leasing, and the biggest persuading factor was BMW's low $0.15/mi fee for miles over 15K/yr. That made it a no brainer.

Let's not forget the tax either. Here in CA, TTL is about 10% in total. So, in my car's case, the cap cost was just over $60K. Had I purchased it, it would have been $66K OTD. Let's assume I paid cash and have no interest to be paid.

If I sell it after 3 years, with 60K miles, I'd have to compete, in 2014 no less, when the new F80 is out, with countless other low mileage (<40K miles) M3s, C63s, etc. Realistically, I'm going to sell it at best for the low $30Ks, if not lower.

My lease payments now are $850, with the extra miles. That's with zero down, and includes tax. It does include 7 MSDs however, but that's like getting a great return from your bank. So $850*35 (I did ED)=$29,750. I will have spent a total of $29,750 over 3 years for driving this car, and assume no risk in an accident impacting its depreciated value.

Now, assuming the $66K OTD, I would have to sell my 60K mile car, in 2014 for at least $36,250 to be as the same point as a lease.

This is prior to any additional tax advantages for a small business owner, and doesn't take into account the convenience of just turning the car in and getting something else at lease end.

The fact is, I never went into buying or leasing an M3 because it made financial sense. It's definitely something that I want, and as much as drive, I'm going to want a nice, new daily driver, for as long as I can afford to do so. Leasing, in my case, was a great choice, and BMW's rates and terms/conditions made it a no brainer.

[saeyedoc]

Originally Posted by JulieDriving

Sorry, not getting this but interested in understanding. Could you explain more?

Here's an explanation from an online leasing guide:

Finance Fee

The finance fee portion of your monthly lease payment is like interest on a loan and pays the leasing company for the use of their money. It's calculated as follows:

Finance Fee = ( Net Cap Cost + Residual ) × Money Factor

Yes, you add Net Cap Cost and Residual — this is not a mistake. It's not double-counting as it may appear. It's simply a way of calculating the average amount financed without using complicated constant-yield annuity business formulas (for more details, click here). This is the method used by all lease companies and banks.

Also be aware that you're paying finance charges on both the depreciation and residual (the total of which is the negotiated selling price of the car). Remember, you're tying up the leasing company's money while you're driving their car (they used their money to buy the car that you will drive while you lease). Technically, you're paying finance charges on half the depreciation (the average value) and all of the residual for the term of the lease.

[Ateam]

No matter how you want to play with the numbers, the bottom line is that in a lease you end up paying about the same cash as the cars depreciation ends up being over that 3 year period.

So in the example a 75k m3 at 1k a month lease, you pay 36k over 3 years. If you bought the 75k dollar car, in 3 years the depcreciation will be very close to 36k. Probably a bit less. However with the lease you get the benefit of not having to sell it, not having to take a further hit if you get in any accident or have some other damage.

So usually buying will save you a bit of money if you sell it every 3 years as long as you
1-do not get into an accident or have damage on the car that would lower its resale value below the average resale value for the same car
2-you don't mind the hassle of selling the car at the end


Makes sense to me-I pay a bit more for a lease but I like the convenience and am willing to pay for it.

Also as far as people waxing and babying their leased car even though you do not get to "keep" it. I think 99 percent of people baby the car and keep it waxed and pretty to enjoy it for the here and now, not for the longevity of it. I know I keep mine nice to enjoy now. An added feature is the guy that buys my leased car when I am done will get a mint car. Win-win

[rye m3]

Originally Posted by piloto

This only true is your car is low mileage and your local market is not saturated with similar cars. For instance, as I saod in an earlier post, if 'm putting 20-25K miles/yr, and live in socal, where there are countless M3s, and the majority have much lower miles, it can be very hard to sell the car used. In addition, as you've said, it's a hassle, as not many are going to be paying you cash.

I went through the calcs numerous times before I settled on leasing, and the biggest persuading factor was BMW's low $0.15/mi fee for miles over 15K/yr. That made it a no brainer.

Let's not forget the tax either. Here in CA, TTL is about 10% in total. So, in my car's case, the cap cost was just over $60K. Had I purchased it, it would have been $66K OTD. Let's assume I paid cash and have no interest to be paid.

If I sell it after 3 years, with 60K miles, I'd have to compete, in 2014 no less, when the new F80 is out, with countless other low mileage (<40K miles) M3s, C63s, etc. Realistically, I'm going to sell it at best for the low $30Ks, if not lower.

My lease payments now are $850, with the extra miles. That's with zero down, and includes tax. It does include 7 MSDs however, but that's like getting a great return from your bank. So $850*35 (I did ED)=$29,750. I will have spent a total of $29,750 over 3 years for driving this car, and assume no risk in an accident impacting its depreciated value.

Now, assuming the $66K OTD, I would have to sell my 60K mile car, in 2014 for at least $36,250 to be as the same point as a lease.

This is prior to any additional tax advantages for a small business owner, and doesn't take into account the convenience of just turning the car in and getting something else at lease end.

The fact is, I never went into buying or leasing an M3 because it made financial sense. It's definitely something that I want, and as much as drive, I'm going to want a nice, new daily driver, for as long as I can afford to do so. Leasing, in my case, was a great choice, and BMW's rates and terms/conditions made it a no brainer.

I'd like to understand this a bit better, rather than instigate a flame war.

You compared the cost OTD at $66k to your cap cost of $60k. Isn't that apples and oranges? I thought tax alone in CA was 10%, but no matter. If you don't pay the tax upfront on the lease, you role it into your payments. So, you're paying interest on the tax. I forget if you pay the tax only on the amount of the payments, so you still pay $3k in tax. I agree with the MSD's, did it on my X3 with a great return.

Your payment was really only $850, with zero down AND 25k miles a year? That really seems like a phenomenal payment.

I agree, I wouldn't want to try to sell a 75k mile M3 that is 3 years old. I find it pretty amazing you are paying only $10k a year to drive 25k miles. You will actually be paying more than that since you will be out of warranty and need to pay for the 60k service on your own at $1k plus. I'm sure that will be a condition to the lease return. Certainly this is also convenient, but it is simply expensive. Gotta pay to play. If I were driving a car into the ground, I'd probably lease as well. You make an extraordinary case.

To lease a car and return it pristine, well that's fine. You have a fixed return value though, so it is only pride of ownership, which we all have. I have purchased a few lease return cars, now I have the feeling how they were maintained. The minimum. I enjoy the pride of ownership and have gotten top dollar for my cars, mostly privately, but also on trade in.

[JulieDriving]

Originally Posted by saeyedoc

Here's an explanation from an online leasing guide:

Finance Fee

The finance fee portion of your monthly lease payment is like interest on a loan and pays the leasing company for the use of their money. It's calculated as follows:

Finance Fee = ( Net Cap Cost + Residual ) × Money Factor

Yes, you add Net Cap Cost and Residual — this is not a mistake. It's not double-counting as it may appear. It's simply a way of calculating the average amount financed without using complicated constant-yield annuity business formulas (for more details, click here). This is the method used by all lease companies and banks.

Also be aware that you're paying finance charges on both the depreciation and residual (the total of which is the negotiated selling price of the car). Remember, you're tying up the leasing company's money while you're driving their car (they used their money to buy the car that you will drive while you lease). Technically, you're paying finance charges on half the depreciation (the average value) and all of the residual for the term of the lease.

Thanks saeyedoc.

I have leased and bought out a car once. (This was after one of my cars was hit by teenager and I had to assume the depreciated value myself). The lease rate was attractive (and much better than the finance rate) and bought out the car. Since I did not finance the buy-out, I assumed I did not pay any more than if I had financed it. Maybe even a little less? (because of the lower lease rate)

With the information you provided above.... if someone buys out the car at the end of the lease, without further financing... will they have paid more over someone who has financed the entire car? Assuming same term and same rates.

By the way, Cayman S + M3 = waaay

[rye m3]

Originally Posted by Ateam

No matter how you want to play with the numbers, the bottom line is that in a lease you end up paying about the same cash as the cars depreciation ends up being over that 3 year period.

So in the example a 75k m3 at 1k a month lease, you pay 36k over 3 years. If you bought the 75k dollar car, in 3 years the depreciation will be very close to 36k. Probably a bit less.

This suggests that the 3 year old car will be $39k. Can you find an '09 loaded car for $39k? Not even considering that the '09 car was actually less than that? Friend of mine had an '08 with 40k miles and traded it in on an '11 a few months ago. He got $42k on a 4 year old car. It was pristine.

Let us also recognize the simple fact that unless it is a subvened lease (i.e. a lease subsidized by the mfg), the mfg needs to make money. Therefor the rate you pay exceeds the expected depreciation by a significant margin. BMW has no reason to subvene the M3. The GT, maybe, but not the M3. You exceed the expected depreciation for the convenience. It is simply not cheaper. It can be more convenient and 20% down is $14k+, that many think they "save" by not paying. It is all about the cost of ownership.

[Ateam]

Originally Posted by rye m3

This suggests that the 3 year old car will be $39k. Can you find an '09 loaded car for $39k? Not even considering that the '09 car was actually less than that? Friend of mine had an '08 with 40k miles and traded it in on an '11 a few months ago. He got $42k on a 4 year old car. It was pristine.

Let us also recognize the simple fact that unless it is a subvened lease (i.e. a lease subsidized by the mfg), the mfg needs to make money. Therefor the rate you pay exceeds the expected depreciation by a significant margin. BMW has no reason to subvene the M3. The GT, maybe, but not the M3. You exceed the expected depreciation for the convenience. It is simply not cheaper. It can be more convenient and 20% down is $14k+, that many think they "save" by not paying. It is all about the cost of ownership.

As I said it does not quite equal depreciation since it is a bit more but you also pay a few grand for convenience and "insurance" against getting in an accident and having to own that severely compromised asset.

It makes sense to me

1-you get a lower payment. If you keep buying a car and selling it every 3 years than you end up with a high payment all the time instead of a lower payment. If you keep your car and pay it off that is a different story
2-I do not want a car past 3 years
3.I like convenience and just giving it back with no hassle
4-The write off is nice but for most of use a write off of 12k a year or so is really good for a few hundred bucks in tax savings so its not like that is the primary reason which is why I never understand why people lease exclusively for the "tax benefits" there are not many!

[rye m3]

Originally Posted by Ateam

1-you get a lower payment. If you keep buying a car and selling it every 3 years than you end up with a high payment all the time instead of a lower payment. If you keep your car and pay it off that is a different story

1) - The cost of ownership is not completely linked to the payment. Cost of ownership is depreciation, finance cost, and maintenance. For the "lower payment", you actually pay MORE.
All the convenience of leasing costs MORE than owning. If you can't afford to own, then leasing lets you drive it, for a "lower payment".

PS - no flaming necessary about special cases of tax deductions. Leasing still makes sense in some cases and even the extra cost can be worth it. Leased one of my cars just for those other reasons.

[Nutinup]

Whoa...after all this discussion, I am GLAD I am buying my 2012 vert through military sales for $58k w/cash (dont bash me Leasers). I can at least have solice in the fact that in 3 years I can take the M3 into BMW San Antonio and discuss the F80 vert with confidence (so this COULD be like a lease to me). I simply say, since I can, I do (pay cash)...if I couldnt but wanted the car anyway, I would lease. I dont have a mortgage, so paying on "things" makes me nervous! Great discussion though...

[piloto]

Originally Posted by rye m3

I'd like to understand this a bit better, rather than instigate a flame war.

You compared the cost OTD at $66k to your cap cost of $60k. Isn't that apples and oranges? I thought tax alone in CA was 10%, but no matter. If you don't pay the tax upfront on the lease, you role it into your payments. So, you're paying interest on the tax. I forget if you pay the tax only on the amount of the payments, so you still pay $3k in tax. I agree with the MSD's, did it on my X3 with a great return.

Your payment was really only $850, with zero down AND 25k miles a year? That really seems like a phenomenal payment.

I agree, I wouldn't want to try to sell a 75k mile M3 that is 3 years old. I find it pretty amazing you are paying only $10k a year to drive 25k miles. You will actually be paying more than that since you will be out of warranty and need to pay for the 60k service on your own at $1k plus. I'm sure that will be a condition to the lease return. Certainly this is also convenient, but it is simply expensive. Gotta pay to play. If I were driving a car into the ground, I'd probably lease as well. You make an extraordinary case.

To lease a car and return it pristine, well that's fine. You have a fixed return value though, so it is only pride of ownership, which we all have. I have purchased a few lease return cars, now I have the feeling how they were maintained. The minimum. I enjoy the pride of ownership and have gotten top dollar for my cars, mostly privately, but also on trade in.

It's $850 with 20K/mi. I got it at ED wholesale plus $600 from Ryan at Steve Thomas BMW. I cannot recall the MF off the top of my head, but the residual was 60% and based on US MSRP, which was something close to $70K. So the residual was valued $42K, and my cap cost was $60K. Add tax and MF (interest), lease fee ($750), 5000 extra miles per year at $0.15/mi (total of $2250), and you're at $29,750. This is not an extraordinary deal. Look at the Pricing forum and you'll see the dealer.

Almost exactly a year ago, the E93 M3 had a residual of around 70% and a super low MF. Those that did ED and got the same wholesale pricing are paying around $650/mo for a 36 month, 15K miles/yr lease on a car that retails for close to $80K. Not bad.

If I had any hope that I would keep the car for longer than 3 maybe 4 years, I would have bought it, and either paid cash or financed it if the rates were ideal. But as it stands, the lease is cheaper for me when considering a 3 year period, and the amount of driving I'll be doing in that time.

Again, a major factor is the saturated market here in socal. It's very hard to sell a high mileage car (relatively speaking in reference to "high mileage"), no matter how clean it is, as there are countless others as clean but with much lower miles for marginally more. So to move it, you have to either wait a long time (makes it even worse), or price it low.

And as for comparing the $66K OTD to the capcost, I think I didn't clearly state my point earlier. Since the tax isn't direcly on the cap cost, I simply stated that the tax was included in my payment. The fact that on a purchase the OTD price would $66K means that is what I would either be paying or financing, and had I financed it, I'd be paying interest on the tax as well, just like in the lease. But in CA, I pay tax only on the portion that I'm using, so in this case, it comes out to about $2,000, versus $6,000.

Tax in CA varies by county, and even then by city. In Orange County, it's now back to 7.75%. LA is 1% more usually, with a couple of cities as high as 9.75%. Our DMW fees are a bitch though. We pay a LOT to register our cars every year, although that registration fee is deductible from your state income tax.

[saeyedoc]

Originally Posted by JulieDriving

Thanks saeyedoc.

With the information you provided above.... if someone buys out the car at the end of the lease, without further financing... will they have paid more over someone who has financed the entire car? Assuming same term and same rates.

By the way, Cayman S + M3 = waaay

Let's assume the car lists for $70k and you buy it for $65k. I'll leave tax out of this. 3 year residual of 60% and interest rate of 3%=MF .00125.

If you finance for 6 years, you pay $6105 in interest.
If you lease for 3 years, you pay $4856 in interest, you then finance the residual for 3 years and pay another $2017 in interest for a total of $6873 in interest.
It's not that far off, you pay $768 more to lease then buy vs buying.

[dagolfpro]

Originally Posted by saeyedoc

Let's assume the car lists for $70k and you buy it for $65k. I'll leave tax out of this. 3 year residual of 60% and interest rate of 3%=MF .00125.

If you finance for 6 years, you pay $6105 in interest.
If you lease for 3 years, you pay $4856 in interest, you then finance the residual for 3 years and pay another $2017 in interest for a total of $6873 in interest.
It's not that far off, you pay $768 more to lease then buy vs buying.

That's pretty good comparison. I know some guys are going to mention this:

Lease Assumption Fee of $700-900 to the dealer at signing of the lease needs to be added to the $6873.

Another reason to lease: You can get the car CPO at the end of the 3 year lease to extend the factory warranty without having to pay 3rd party. Had you bought the car at the beginning, that was also an option. But many don't want to due to the fact they don't know how their car is prone to issues or not. I think after driving it for 3 years, you'll get a better sense of how your car is.

I'm not sure if BMWCCA will do this with their membership rebate. When you buy/lease the car at the start, they'll give you $500 rebate. If you leased and purchased the car 3 years later, they'll give you a $500 rebate as well. I just don't know if you can double dip on this offer from BMWCCA. Anyone else try this?

[saeyedoc]

True about the lease assumption fee. The BMWCCA rebate is only for CPO cars, not sure if it would apply if you got the dealer to CPO the car after the lease is up, I doubt they'd let you double dip though.

[dagolfpro]

Originally Posted by saeyedoc

True about the lease assumption fee. The BMWCCA rebate is only for CPO cars, not sure if it would apply if you got the dealer to CPO the car after the lease is up, I doubt they'd let you double dip though.

I just checked their site, no double dipping.

http://www.bmwcca.org/vehicle_rebate

I didn't get the rebate as I didn't have my membership for 12 months prior. I plan on buying my car from BMW after my lease expires and planning to have the dealership CPO my car when I buy it. So, I'm hoping I qualify for the $500 rebate then.

[derric]

Originally Posted by DBH

Please let us know where you get 7%+ on your money. When everyone gets <1% on their MMF, paying cash up front sounds pretty good vs >3% on an auto loan.

Never said anything about a MMF. Comparing to investing in the market with a apx long term return of 7%. If you can swallow the risk premium between 7% and your loan than from a finance perspective you should take the loan and then invest the capital you have. Same reason you don't pay cash for a house.