[chattanooga240]

Originally Posted by 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.

You didn't ask a dumb question at all, some people really don't mind sharing info and being decent. Others well, you can read through the posts and see for yourself.

Hopefully you got everything answered that you needed, if not please don't hesitate to reach back out, ton of car buying/leasing experience here. Vert Lover gave you the run down on the specifics.

[Deutsche-Broke]

Originally Posted by vert_lover

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")

Very nicely explained and detailed. Tip of the hat to you sir..

All along in this thread I kept looking around, asking myself, "Am I missing something obvious here? Or is there some new, marginally pre-paid, magical financial product I have yet to be confused by?"

[Zooks527]

Originally Posted by StephanieDiane

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."

Well, there is the last big payment at the end.

The answer to where insurance payments go would be settled by determining who currently holds the title. If you haven't paid the entire balance on the car, it's either in some other entity's name (BMWFS, the dealer, etc.) or it's in your name with a lien holder.

If it's in your name, the insurance company will pay off the lien holder first, with the balance going to you. If it's in some other name, the full insurance payment will go to them, with any excess above the remaining value of the final payment being distributed per the lease agreement. Depending on the agreement, you may be compensated in this situation or not. In any event, having the car totaled, while not uncommon, isn't something that comes along to most drivers on a regular basis.

The same thing could happen in the event of an accident that does damage without totaling the car. If you own the car outright, you could always decide to accept payment in lieu of repairs and drive around in a car with body damage (or have it fixed at cost by a friend while pocketing the difference). In a lease situation, it may require the car to be repaired, with all payments going to a shop.

Now, in most cases, you would want to do what the lease would drive you towards anyways. Not having a totally free title just restricts some of your "edge case" situations.

[WWM]

Originally Posted by Deutsche-Broke

Very nicely explained and detailed. Tip of the hat to you sir..

All along in this thread I kept looking around, asking myself, "Am I missing something obvious here? Or is there some new, marginally pre-paid, magical financial product I have yet to be confused by?"

I'm kind of in the same boat.

Is it possible that it's an "Owner's Choice" loan in which a lump-sum down-payment was made in lieu of the monthly payments? Is that even an option? It would explain the "lump sum now, lump sum at the end, I'm still the real owner of the car" idea.

[StephanieDiane]

Originally Posted by vert_lover

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...

Valid points. I did not have any experience with a lease prior to this, and with the bit of understanding I do have now, knowing the pros and cons, as you have pointed out, I don't know that I would do it again.

I should have phrased a few things differently. My deficient fund of knowledge regarding leases is second only to my inability to explain myself. My husband can attest to the number of arguments stemming from this.

[StephanieDiane]

Originally Posted by Zooks527

Well, there is the last big payment at the end.

The answer to where insurance payments go would be settled by determining who currently holds the title. If you haven't paid the entire balance on the car, it's either in some other entity's name (BMWFS, the dealer, etc.) or it's in your name with a lien holder.

If it's in your name, the insurance company will pay off the lien holder first, with the balance going to you. If it's in some other name, the full insurance payment will go to them, with any excess above the remaining value of the final payment being distributed per the lease agreement. Depending on the agreement, you may be compensated in this situation or not. In any event, having the car totaled, while not uncommon, isn't something that comes along to most drivers on a regular basis.

The same thing could happen in the event of an accident that does damage without totaling the car. If you own the car outright, you could always decide to accept payment in lieu of repairs and drive around in a car with body damage (or have it fixed at cost by a friend while pocketing the difference). In a lease situation, it may require the car to be repaired, with all payments going to a shop.

Now, in most cases, you would want to do what the lease would drive you towards anyways. Not having a totally free title just restricts some of your "edge case" situations.

Yes, I wasn't thinking that through. I was thinking more on the banking and availability of funds and should not have lumped insurance in with that train of thought. Sometimes the train leaves the station without an attendant.

[Tpeterson]

Originally Posted by StephanieDiane

Valid points. I did not have any experience with a lease prior to this, and with the bit of understanding I do have now, knowing the pros and cons, as you have pointed out, I don't know that I would do it again.

I should have phrased a few things differently. My deficient fund of knowledge regarding leases is second only to my inability to explain myself. My husband can attest to the number of arguments stemming from this.

You're not alone.My brain is locking up just reading this thread while trying to understand all the financial ramifications. And I'm comfortable using and understanding numbers.

[StephanieDiane]

Originally Posted by Tpeterson

You're not alone.My brain is locking up just reading this thread while trying to understand all the financial ramifications. And I'm comfortable using and understanding numbers.

Anything higher than 2+2 is verified with a calculator. My brain understands some things very well; I'm usually an intelligent person, but I don't process financial information, and I don't like dealing in areas where I feel deficient. It makes me uncomfortable.

You may as well speak Latin to me while I try to read Greek.

[chattanooga240]

Originally Posted by StephanieDiane

Anything higher than 2+2 is verified with a calculator. My brain understands some things very well; I'm usually an intelligent person, but I don't process financial information, and I don't like dealing in areas where I feel deficient. It makes me uncomfortable.

You may as well speak Latin to me while I try to read Greek.

My wife is smarter than I am, but she leaves the finances up to me for a reason, everything else we intelligently leave up to her.

[pz619]

Originally Posted by vert_lover

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...

This, +1.

Keep in mind the dealership can really tell you anything. They can tell you it's not a standard lease (technically true because normally you wouldn't pay the entirety upfront) even though it's a stretch of the truth. In college I used to sell car and you wouldn't believe what my co-workers got away saying. Conversation for a different time, but this is exactly why I think dealerships need to go extinct.

Based on the feedback I'm reading this really looks like a standard lease with a residual buyout at the end, unless I missed a major plot point. To Vert_Lover's point, this could also be a dealership lease, meaning the dealership owns the car and is acting as the bank. In that case who knows what is going on. There is probably higher risk here. If you really want some horror/weird stories check out Steve Lehto's blog. He's a lawyer in Michigan that often writes for Jalopnik that regularly sues dealerships for shady deals. If the lease is through BMW Financial, then we can probably assume that it's really just a standard lease that was paid upfront. Those contracts are fairly well known and for the most part those contracts/programs and public information.

This is not to say you made a bad deal. There are some things you might be able to do better for next time, but same could be said for virtually anything. Reality is that the deal is done. Now get out there and enjoy that car

[Transfer]

Sounds like a standard lease that they conned you into paying fully up front. Any lease has the option to pay all payments up front and have a residual buy-out option at the end. Some people do this, but it carries no advantage to the buyer and many potential risks. I'm still confused why this would be called a long term lease. Makes no sense unless the initial term is >40 months.

Make sure you have GAP/new car replacement with your insurance so if the car is totaled, it will at least be replaced back in your driveway vs just cashed out to the "bank".

Sorry to hear if they did con you and it's easy to have happen with leases. Leases are specifically designed to confuse the buyer and cost more. Bottom line, 1) leasing can be ok if you understand what you're getting into. 2) I wouldn't ever go back to this dealership.