[StephanieDiane]

I had planned to buy my 2015 m235 outright. The dealer's finance guy talked me into doing a long term lease. He said when all was said and done, I would end up paying the same as if I had paid the full amount right then and there - I verified that with him multiple times, because that was the whole point for me. (Yeah, there WAS a bit of a finance charge in there but that's besides the point)

With the long term lease, basically I paid a portion of the total cost upfront, and will pay the remainder when the lease is up. If I decide I don't want to keep the car at the end of the term, I can give it back, I can order something new, etc. I decided this option gave me the freedom to enjoy the car a little more knowing if it was wrecked within the first couple of years, I could give it back, no harm no foul.

So here's where my question comes in. This is the first time I've ever done any sort of lease, and I had never heard of this type of lease before. I've seen the "residual" talked about here, and he had mentioned if what I still owe is close to or more than what the car is worth when the lease is up, I would have incentive to just give it back, walk away, get something else, etc. If I decide to order something new, the current car would NOT be considered like a trade in would it? That may be a stupid question but I just didn't know how it worked.

[Pinghacker]

No, it is not a trade-in. You will likely get a lease loyalty incentive if you decide to turn it in and lease/buy another BMW.

[StephanieDiane]

Originally Posted by Pinghacker

No, it is not a trade-in. You will likely get a lease loyalty incentive if you decide to turn it in and lease/buy another BMW.

Got it. Thanks!

[chattanooga240]

Originally Posted by Pinghacker

No, it is not a trade-in. You will likely get a lease loyalty incentive if you decide to turn it in and lease/buy another BMW.

Very much this^^

Just out of curiosity, what kind of deal are they giving you if you don't mind sharing?

[Zooks527]

Well, there's a couple of things here.

First, there's the finance charge that's in there. Sure, it's likely just a few percent, but effectively you've increased the cost of your car several percent as a result. People will sit and kick at the dealer for a while to get the car for $750 over invoice, then give another $325 to the dealer by paying 3% on $10,000 for 3 years.

Second, you're now along for the ride. Had you bought the car outright, if you decide you don't like it a year from now, you could sell it outright. To get out from under a lease, you would have to pay an early termination fee. The amount of that is buried in the fine print somewhere. You can transfer the lease, but that may not be attractive to a potential new lessee depending on the value of the car when you make that attempt.

Third, he wants you to be back in his office a few years from now. If you just buy it, you may go away for 5 - 7 years. With a lease, he can park you in a chair and play the "you know, we can just roll you into a new one at about the same cost ..." pitch.

Buy the car up front and you eat the depreciation no matter what. Lease the car and your best case situation is doing the same, plus paying some interest and likely some fees as well. "Acquisition fee" comes to mind.

Originally Posted by StephanieDiane

If I decide I don't want to keep the car at the end of the term, I can give it back, I can order something new, etc.

Assuming you haven't run over the mileage limit, in which case you'll have to put mileage fees and potentially "excess wear" fees on the table.

Originally Posted by StephanieDiane

I decided this option gave me the freedom to enjoy the car a little more knowing if it was wrecked within the first couple of years, I could give it back, no harm no foul.

Uh, no. You break it, you buy it (more correctly, you and/or your insurance company pay off the remaining value of the vehicle to BMWFS).


FWIW,
George

[StephanieDiane]

Originally Posted by nvmaddog

Very much this^^

Just out of curiosity, what kind of deal are they giving you if you don't mind sharing?

Oh there's no deal....

[StephanieDiane]

Originally Posted by Zooks527

Well, there's a couple of things here.

First, there's the finance charge that's in there. Sure, it's likely just a few percent, but effectively you've increased the cost of your car several percent as a result. People will sit and kick at the dealer for a while to get the car for $750 over invoice, then give another $325 to the dealer by paying 3% on $10,000 for 3 years.


Second, you're now along for the ride. Had you bought the car outright, if you decide you don't like it a year from now, you could sell it outright. To get out from under a lease, you would have to pay an early termination fee. The amount of that is buried in the fine print somewhere.


Uh, no. You break it, you buy it (more correctly, you and/or your insurance company pay off the remaining value of the vehicle to BMWFS).



FWIW,
George

1. I paid upfront and I noticed an additional charge in there. I wouldn't do it again for that reason.

2. There is no early termination fee. It's explicitly stated on the paperwork. As stated, I paid the full three years in advance.

3. My point is if it's in an accident and the value of the car significantly drops, I can turn it over and get another car at the end of the term. This was also explicitly stated. Obviously a totaled car is a different story.

[Zooks527]

Originally Posted by StephanieDiane

I paid upfront and I noticed an additional charge in there. I wouldn't do it again for that reason.

Snuck it into the documentation / taxes / registration / title line, no doubt.



So, it was something like this? (made-up numbers):

• $40,000 car price
• $10,500 now
• $30,000 three years from now

Interesting concept if that's what it is.

Your "value drops / no hit" scenario has to be something along the lines of there's no "diminished value" charge if you turn the car in after an accident. It would still need to be returned in good condition. I'd bet long that you can't turn it in with visible wear or damage without there being some charge.

[Lucky13]

I don't understand Zooks comments, if you buy a car vs lease you pay BMW or a bank a finance charge as well so 3% on a lease or 3% on a purchase there's no difference. The only mistake she probably made was putting money down, I've leased 6-7 BMW's and never put money down. I've purchased about 10 instead of lease (yes 16 BMW's) and I actually prefer leasing unless you are set on keeping it 6-10 years. Selling a car yourself can get you scammed real easy and can be dangerous as well. If you buy a car and sell it in a year or two you typically will lose your ass and I've never done that. On the other hand I have traded out of leases early a couple times to another BMW and they ate the costs because they were leasing me another car.

[StephanieDiane]

Originally Posted by Zooks527

Snuck it into the documentation / taxes / registration / title line, no doubt.



So, it was something like this? (made-up numbers):

• $40,000 car price
• $10,500 now
• $30,000 three years from now

Interesting concept if that's what it is.

Your "value drops / no hit" scenario has to be something along the lines of there's no "diminished value" charge if you turn the car in after an accident. It would still need to be returned in good condition. I'd bet long that you can't turn it in with visible wear or damage without there being some charge.

Yeah, I should have paid more attention to the all the numbers but again, first time doing any sort of lease and the "long term lease" phrasing was really throwing me off because it's NOT a typical lease. My mistake.

And yes, you have the basic concept. I kept going over and over how I wasn't going to do this lease if I paid more at the end when I was prepared to write the entire check that night. That made no sense. He explained he was taking the price I had right there and breaking it into 1/3 and 2/3 basically. "Keep your money in your bank for now" was his motto.

And yes again. I can't turn it in looking like we survived a drive by in LA, but otherwise, should be okay.

[StephanieDiane]

Originally Posted by Lucky13

I don't understand Zooks comments, if you buy a car vs lease you pay BMW or a bank a finance charge as well so 3% on a lease or 3% on a purchase there's no difference. The only mistake she probably made was putting money down, I've leased 6-7 BMW's and never put money down. I've purchased about 10 instead of lease (yes 16 BMW's) and I actually prefer leasing unless you are set on keeping it 6-10 years. Selling a car yourself can get you scammed real easy and can be dangerous as well. If you buy a car and sell it in a year or two you typically will lose your ass and I've never done that. On the other hand I have traded out of leases early a couple times to another BMW and they ate the costs because they were leasing me another car.

If you write a check on the spot for the entire amount of the car, you are not paying anyone a finance charge.
Don't think about "money down." It's a different kind of lease. It's confusing. I paid around 1/3 of the total cost in one chunk. I make NO payments for three years. I had every intention of buying the car at the end, so whether I paid the full amount then, or after 3 years, with it being the same price either way, didn't matter.

[Zooks527]

Originally Posted by Lucky13

I don't understand Zooks comments, if you buy a car vs lease you pay BMW or a bank a finance charge as well so 3% on a lease or 3% on a purchase there's no difference.

SD's got it in the post above. When she and I are saying "buy a car", it's just that - walk into the dealer with all the cash in hand, as opposed to financing or leasing. The only time I would finance is if there was a big enough spread between the going rate on the financing versus the going rate on a CD. That isn't the case now. I would never lease.

Originally Posted by Lucky13

If you buy a car and sell it in a year or two you typically will lose your ass and I've never done that.

Every time you've leased a car, you've done nothing BUT that. The first lessee does nothing but pay the depreciation.

Originally Posted by Lucky13

On the other hand I have traded out of leases early a couple times to another BMW and they ate the costs because they were leasing me another car.

Uh, they ate nothing. They let you eat it, but left you with the impression that they did you a favor.

Originally Posted by StephanieDiane

Yeah, I should have paid more attention to the all the numbers but again, first time doing any sort of lease and the "long term lease" phrasing was really throwing me off because it's NOT a typical lease. My mistake.

Eh, think of it as a couple of hundred dollar learning experience. Would that they all came that cheap.

[WWM]

Originally Posted by StephanieDiane

13. My point is if it's in an accident and the value of the car significantly drops, I can turn it over and get another car at the end of the term. This was also explicitly stated. Obviously a totaled car is a different story.

If you total the car, the insurance pays the bank and you are left with nothing and you've basically lost a good chunk of your down-payment. A down-payment on a lease does nothing except lower your monthly payments (and saves a tiny bit of interest). If the lease ends early, you effectively lose out on the discounted monthly payments. Example: Total car cost is $12,000, you put down $6,000 and lease for a year at $500/month. The $6,000 lowers your lease payments to $500/month so at the end of the year you pay $12,000 total. Car is totaled after 6 months. You've paid $3,000 in lease payments plus the $6,000 down-payment. Had you put nothing down you'd have paid $1,000/month for six months and been out $6,000. It's not wise to put a down-payment on a lease.

[StephanieDiane]

Originally Posted by WWM

If you total the car, the insurance pays the bank and you are left with nothing and you've basically lost a good chunk of your down-payment. A down-payment on a lease does nothing except lower your monthly payments (and saves a tiny bit of interest). If the lease ends early, you effectively lose out on the discounted monthly payments. Example: Total car cost is $12,000, you put down $6,000 and lease for a year at $500/month. The $6,000 lowers your lease payments to $500/month so at the end of the year you pay $12,000 total. Car is totaled after 6 months. You've paid $3,000 in lease payments plus the $6,000 down-payment. Had you put nothing down you'd have paid $1,000/month for six months and been out $6,000. It's not wise to put a down-payment on a lease.

Okay but see, that's NOT what I did. Totally different animal.

I think some people are missing the entire point. This is NOT a normal lease. I didn't do a normal down payment. There is no bank. The insurance company would be paying ME. I am the only one out money here. I took the money out of my own checking account. End of transaction. There are no lease "payments."

Otherwise, I would agree with you.

[Lucky13]

Originally Posted by Zooks527

SD's got it in the post above. When she and I are saying "buy a car", it's just that - walk into the dealer with all the cash in hand, as opposed to financing or leasing. The only time I would finance is if there was a big enough spread between the going rate on the financing versus the going rate on a CD. That isn't the case now. I would never lease.





Every time you've leased a car, you've done nothing BUT that. The first lessee does nothing but pay the depreciation.





Uh, they ate nothing. They let you eat it, but left you with the impression that they did you a favor.




Eh, think of it as a couple of hundred dollar learning experience. Would that they all came that cheap.

You are so wrong I don't know where to start. I'll just say that I will come out about the same or better on the lease than a purchase. My residual is around $30K and after 2 years (now) its showing its worth about $36 so its probably going to be dead on the $30K residual or I could come out slightly ahead with the lease and zero down. Dude, I ran a $180M Sporting Goods company that I built from a $16M Sporting Goods company and was an executive for Lego toys. You are not going to school me in finance. I wrote 18 business plans and obtained a 16% EBITDA so enough with the smartass you know it all tone. You don't know shit if you think you know more about finance.

[Zooks527]

Originally Posted by Lucky13

You are so wrong I don't know where to start. I'll just say that I will come out about the same or better on the lease than a purchase. My residual is around $30K and after 2 years (now) its showing its worth about $36 so its probably going to be dead on the $30K residual or I could come out slightly ahead with the lease and zero down.

Yes, BMW is quite proficient at determining how much to charge to match a car's depreciation over the life of a lease. As a result, you've managed to pay all the depreciation on someone else's car. Do it 3 times in succession, and you've paid enough upfront depreciation on other people's cars that instead of owning one outright and having equity therein, you have nothing. Shrewd.

Shame there's no emoticon for a slow clap.

Originally Posted by Lucky13

Dude, I ran a $180M Sporting Goods company that I built from a $16M Sporting Goods company and was an executive for Lego toys.

And I am Marie of Romania.

Originally Posted by Lucky13

You are not going to school me in finance.

I will absolutely agree that neither I nor anyone else is likely capable of teaching you anything.

Originally Posted by Lucky13

I wrote 18 business plans and obtained a 16% EBITDA

Then you certainly realize that out of context, that's meaningless. Opening our bookkeeping system just now and running last year shows our EBITDA over 23%. As you don't know the industry in which my company operates, there's no way to evaluate whether that's great or dismal, and even then only if you choose to believe the unsubstantiated statements of a stranger on the Internet.

Originally Posted by Lucky13

so enough with the smartass you know it all tone. You don't know shit if you think you know more about finance.

Yes, there's that level of grammar, punctuation, rational argument, and overall tone that one would expect from someone who's been an executive for a large Europe-based multinational. I can't for the life of me see how I missed it in your prior posts.

[kz1000]

[chattanooga240]

Originally Posted by Lucky13

Dude, I ran a $180M Sporting Goods company that I built from a $16M Sporting Goods company and was an executive for Lego toys.

Then you are either:

A. A an simpleton for squandering your money and not being able to afford several better cars than you have currently. (Or that embarrassing little list of yours in your signature.)
B. Not able to add, divide, or judge the used car market properly.
C. A douche.
D. All of the above.

This is not to say leasing a car is a horrible idea, leases exist for people that like to get in an out of their cars every couple of years with no hassle, and easily right into something else. You rarely make any money on a lease, and 80% of the time the residual is higher than what people would pay for the car if they just went and bought it used so they turn it right back in.

People like you that try to throw their "credibility" out there with past work experience/"look at how much money I've made" are always the biggest douchebags on the planet, and 9 times out of 10 are straight up full of shit.

[chattanooga240]

Originally Posted by Zooks527

Yes, there's that level of grammar, punctuation, rational argument, and overall tone that one would expect from someone who's been an executive for a large Europe-based multinational. I can't for the life of me see how I missed it in your prior posts.

Funny, I was thinking that very thing.

[chattanooga240]

Originally Posted by Lucky13

Selling a car yourself can get you scammed real easy and can be dangerous as well.

For someone like you, I can see this as being a real issue.

For the rest of us, you have to actively try to get scammed or for something "dangerous" to happen to you while selling your car.

[StephanieDiane]

Here I thought I might get a snarky response for asking a dumb question. Thank you sir, for taking this post to a whole new level.

[SMB F83]

Originally Posted by StephanieDiane

Okay but see, that's NOT what I did. Totally different animal.

I think some people are missing the entire point. This is NOT a normal lease. I didn't do a normal down payment. There is no bank. The insurance company would be paying ME. I am the only one out money here. I took the money out of my own checking account. End of transaction. There are no lease "payments."

Otherwise, I would agree with you.

But there has to be a "bank." BMW won't let you drive a car off the lot without you:

1. Paying Cash in full (either out of pocket, or external financing)
2. Signing a BMW Financial Services lease agreement
3. Signing a BMW Financial Services Owners Choice purchase agreement (loan with balloon payment to get around tax situations for leases in a couple of states)
4. Signing a BMWFS convential loan agreement
5. some completely bizarre self-financing that the dealer is doing (in which case the dealer is the "bank")

I'm going to guess that it's case #2 since you keep using the word "Lease," and that you paid either full or near MSRP for the car. And that the Finance guy then adjusted the numbers to give you a slight Cap cost discount in the paperwork from the sale price you agreed on to bring the lease number total close to your cash purchase price, staying within range of your "I don't want to pay more with a lease and 1/3 now and 2/3rds later than I'd pay writing a check now" requirement.

Why would they do this? Because the F&I guy (or gal) has quotas for leases signed for that month? (the sales manager is probably pissed at him for shifting some of his profit from a full MSRP cash sale into the F&I profit column away from sales) Or because now they know you have to come back and deal with them in 3 years? It's a pretty shady thought, but considering they were able to convince you to do this, I can just imagine the "but now your car is worth 20-30% less than the residual buy-out amount, are you sure you really want to do that with your cash right now? You can just turn it in and we can get you into a newer car..." spiel you're going to get hammered with in 36 months.

In case 2 (a lease) you don't own the car even if you paid for all the lease fees up front. You are renting it from BMW Financial Services for 3 years, with an option to purchase it at the end of the term for a pre-agreed price (the residual as documented in your paperwork) or turn it back in for a $350 disposition fee. (and other fees if your mileage is over the limit, there's damage, the tires are wrong or worn, etc) This probably isn't a "different kind of lease." You just chose to pay the entire cost of the lease/rental agreement up front with a single check instead of monthly. (a 100% down payment on the leasing costs) Paying it early doesn't change the finance charge for the lease for the 3 year term. This is fine from a lot of financial angles related to keeping 2/3'rds of your cash free for that term, having an option to walk away for a known sunk cost after 3 years if something in life changes, etc. (BMWFS Lease interest rates right now range from 3.25% to 4.2% depending on which MF they used for your deal. In fact thinking about it, they should have given you the full MSD discounted rate since you pre-paid the entire lease cost, but I doubt they did)

But you would have paid exactly the same amount over 3 years to put zero down and make monthly payments on the lease contract, and per your being convinced to pay the lease fees in order to keep 2/3rds of your money why not keep all your money up front and just pay the monthly fee each month for 3 years, then decide if you want to buy it for the residual?

If you had to write a check each month by hand and mail it I could understand, but with auto-pay, there's basically zero gain from paying up front.

And it does expose you to one possible hassle. No, the insurance company would not be paying you. If it's totaled, some insurance company (yours or the at fault driver's) will come up with an Actual Cash Value for the car at it's age/mileage of the accident. Since BMWFS is the owner (you're just the renter/leasee) you may or may not have less leverage to influence the acceptance of the ACV offer. The check will go straight to BMWFS as the sole owner of the car. At least BMWFS is nice enough to send you a check for any $ amount over their lease buyout calculation that the insurance company decides to pay out to them. So you will most likely get some $ back.

Also, some of the lease fee you paid was for Gap Insurance as part of the lease agreement. So you're not at risk of being upside down during a "total" even with monthly lease payments. And you won't be at risk of being upside down near the end of the 3 year term when the ACV is far lower than the buyout amount because of the artificially inflated residuals BMW uses to support lease sales. (even with your 100% payment of the lease cost)

This is all of course assuming it's a standard BMWFS Lease that you pre-paid.

Did the paperwork that you signed say:

BMW Financial Services
Motor Vehicle Lease Agreement (Closed end)

at the top? If so, then everything I said above is in play.

If it's BMWFS Owners Choice, or some funky Dealer self-financed deal, who knows what the numbers are and why they did it...