[SizzlerWA]

Hi,

My lease expires in 8 months with a residual of $32,500 USD but today's "payoff now" amount minus 8 payments is $36,500, $4k more. Why?

Also, I assume BMWFS can't refuse to sell me the car at the end of the lease right because this feels like I'm a getting a good deal and I do want to finance the purchase through them to pay off the purchase?

[wichitagreg]

How many folks actually keep a lease full term? So the owner buys or leases a new or different car and the payoff is what is used.

Residual value is set at time of lease, and might be used as an incentive for the owner to keep the car reducing the transaction costs of the lessor in disposing of the vehicle.

But I'm just guessing here, I have never considered leasing a vehicle. If you still have to pay sales tax then you are buying it. Leasing might make tax sense (cents) in some circumstances but from an economics perspective I don't get it. I paid off my used 2016 M235I in less than a year to avoid the 3.99% interest, that's how cheap I am.

[Lucky13]

I bought mine at the end of the lease. I leased it because of no down payment which I didn’t want to do and if I really liked it I could buy a used M235 with low miles in great shape or tern it back in. Simply went out and got a 3 year loan at the end of the lease, residual and pay off were close, residual maybe $1500 higher.

[mattc1176]

Payoff now factors in your remaining payments, so I assume your pay around $500/month. They can't change the purchase price so that is locked in, but always try to negotiate that. I was offered a few thousand less to buy mine and I had a pretty low payoff. Can dealer shop there too, don't have to return it to the place you bought it.

[EstorilM240]

Everyone says it's because the OP didn't subtract payments, but it sounds like OP did: "today's "payoff now" amount minus 8 payments is $36,500, $4k more." Am I missing something? Otherwise, the $500/month payment would explain it.

OP, is the sales tax amount or any other charges included in your payoff quote? My residual lines up perfectly with my payout minus X months, because BMWFS doesn't collect sales tax when you buy out a lease in CA. If you're in Seattle, it can be a 10%, $3,250 difference which would make up most of it. Most people have posted about buyout < residual (many, including deposit, incentives, etc.), the only situations I can think of residual > buyout is if you already have some additional charges or sales tax rolled in.

The payoff doc that you download is a PDF that looks like:

Payoff quote valid through through [DATE]

Balance $XX,XXX.XX
- Customer Purchase Promotion $500.00 (incentive)
+ Sales / Use Tax $0.00
+ Outstanding Late Charges $0.00
+ Other Outstanding Charges $0.00
= Total Lease Payoff $YY,YYY.YY
- Security Deposit $0.00 (Lessee's written authorization required)
= Net Payoff $ZZ,ZZZ.ZZ

Originally Posted by mattc1176

Payoff now factors in your remaining payments, so I assume your pay around $500/month. They can't change the purchase price so that is locked in, but always try to negotiate that. I was offered a few thousand less to buy mine and I had a pretty low payoff. Can dealer shop there too, don't have to return it to the place you bought it.

I'm currently trying to negotiate / work through buyout at lease end options. It appears that the negotiating on lease buyout has ended as of July 2018, unless you are really good at working the system/know someone.

Thread on another forum discussing lease buyout pricing: "In effect, this means that a center can not currently negotiate on a lease buyout, as there is nothing there for them to negotiate, when selling back to the same person."

All I get right now is a standard $500 incentive for buyout on the F22. If cars were not such an inefficient market, one could return the car, and buy another one on the open market, but at huge loss of searching for the right spec, etc.

In theory, the way around this July 2018 lease buyout stipulation is to have a family member who is not in the household purchase it from the dealership, register it, and then transfer it sales tax free to you. At this point, BMW basically can't track the vehicle anymore, and you aren't the one who would pay the penalty anyway. However in practice, based on experiences working with dealerships, unless you are willing to either wait until your own car naturally appears at a used lot somewhere, or have a salesperson willing to work through this loophole, it's not likely to work.

Family Transfers

The Sales and Use Tax Law provides an exemption from the use tax when the person selling a vehicle, vessel, or aircraft is related to the purchaser as either:

Parent
Grandparent
Grandchild
Child
Spouse
Brother or sister, if both are under age of 18 and related by blood or adoption.
…

To qualify for the exemption, the relationship between buyer and seller must be verified by marriage license, birth or adoption certificate, or any other documentation that is official and/or verifiable and confirms the qualifying relationship. (Revenue and Taxation Code section 6285.)

https://www.quora.com/Does-the-Calif...-your-daughter

https://www.cdtfa.ca.gov/taxes-and-f...usions-faq.htm

This is a time I think the separate nature of these bimmerpost forums is a little confusing and makes information sharing difficult, because most people post these in the model-specific forums, but probably 80% of this kind of information is common between cars.

[BEM-S4]

Lease buyout isn't like it used to be BMW changed the rules. Within 120 days they may or may not offer you incentive to purchase but whatever they offerA, that's it. No difference dealer to dealer. My F31 they gave me $4k, F23 $1k. There literally nothing any dealer can do better or worse than another anymore.

[john16443]

My lease expires in November on my M240i. I knew I was going to buy it for some time, and with the current $500 additional incentive, my total cash outlay is less than if I waited until November and made my normal payments. The money I saved by not making the last 3 payment more than covers the small difference in Sales Tax due. For whatever reason, the numbers worked out in my favor.

[EstorilM240]

Originally Posted by john16443

My lease expires in November on my M240i. I knew I was going to buy it for some time, and with the current $500 additional incentive, my total cash outlay is less than if I waited until November and made my normal payments. The money I saved by not making the last 3 payment more than covers the small difference in Sales Tax due. For whatever reason, the numbers worked out in my favor.

The $500 incentive applies no matter when you buy out the lease, including at the end, right (at the end, you'd pay residual - $500)? So the main difference is that you save on interest. You also come out ahead on sales tax, because in CA your lease payment is taxed anyway, including the interest portion of it.

[aerostar]

Dealers used to be able to buy the price from BMW at a much lower price and sell it back to you for a profit while still charging you less than your residual.

BMW doesn't allow it anymore. There's a freeze period.

[john16443]

Originally Posted by EstorilM240

The $500 incentive applies no matter when you buy out the lease, including at the end, right (at the end, you'd pay residual - $500)? So the main difference is that you save on interest. You also come out ahead on sales tax, because in CA your lease payment is taxed anyway, including the interest portion of it.

Not a big deal, but I have to disagree that the $500 is/was always there. When I checked my lease documents in July, no $500, just the $2400 deposit I paid. Come August 1st, the paperwork said an additional $500 and the $2400 with the pay by date remaining the same at August 19th in both cases. Got the verification today that they received my payment.

[EstorilM240]

Originally Posted by john16443

Not a big deal, but I have to disagree that the $500 is/was always there. When I checked my lease documents in July, no $500, just the $2400 deposit I paid. Come August 1st, the paperwork said an additional $500 and the $2400 with the pay by date remaining the same at August 19th in both cases. Got the verification today that they received my payment.

Whoops, I meant to say the $500 lease buyout incentive will be there until the end, so if you waited until November you would also get it. It only starts appearing at 120 days before lease end, but isn't supposed to go away. But you came out ahead by waiting for the incentive, and paying now rather than paying interest in the last 4 months.

[john16443]

Originally Posted by EstorilM240

Whoops, I meant to say the $500 lease buyout incentive will be there until the end, so if you waited until November you would also get it. It only starts appearing at 120 days before lease end, but isn't supposed to go away. But you came out ahead by waiting for the incentive, and paying now rather than paying interest in the last 4 months.

Now that explains it, thank you. This is my first lease in 49 years of car ownership, and I took it over on Swapalease, I didn't know that the $500 incentive would be there until the end. Yes, as you indicated, I came out ahead overall. Just got notification this week that my title will arrive Monday.

[seansurfn2]

i never understood leases either... it sounds like renting as to owning a house in real estate lol.. except no equity except negative equity. tbh cars are one of the worst things to spend money on. i bought mine all cash no payments its great..

[Luftwaffe1O1]

Originally Posted by seansurfn2

i never understood leases either... it sounds like renting as to owning a house in real estate lol.. except no equity except negative equity. tbh cars are one of the worst things to spend money on. i bought mine all cash no payments its great..

A lease is a loan on the depreciation. It makes sense in several scenarios. For instance, lets
Say you use it as a work car, the lease payment can be written off. Another aspect is that when the residual value is HIGHER than real world depreciation, you pay less on the depreciation than if you bought. Lets take 100k 7 series, after 3 years that car is worth probably around 50-55k, but if BMW has a special rate, residual might be like 68%, you will have taken a smaller hit, than if you bought it.

[sethwas]

Originally Posted by seansurfn2

i never understood leases either... it sounds like renting as to owning a house in real estate lol.. except no equity except negative equity. tbh cars are one of the worst things to spend money on. i bought mine all cash no payments its great..

The purpose of a lease for the lessee is to treat a car like a cell phone plan. You (ideally) put little to nothing down and then just have a car payment. You always have a warranty, and sometimes maintenance included, and you always have the latest and greatest. To some people having something shiny and new that is the dealers headache is worth more than 'ownership'.

The purpose of leases for the lessor is to double dip. You 'sell' the car to the lease company first, which sometimes is your own company so you get interest payments, and then sell it again (ideally higher than market because its CPO or whatever) after it comes back to you for the second sale.

The only time leasing used to be financially advisable is (aside from tax write-offs and putting funds saved in investments in lieu of a car purchase), is where you are in a place where you 'must' get a new car and not used, and your total lease payments over the term would be less than the cost of buying and selling the car over the same term. (in other words the lease company eats the depreciation more than you).

Seth

[samlarson]

Hi,

My lease expires in 8 months with a residual of $32,500 USD but today's "payoff now" amount minus 8 payments is $36,500, $4k more. Here are good pay per lead affiliate programs Why?

Also, I assume BMWFS can't refuse to sell me the car at the end of the lease right because this feels like I'm a getting a good deal and I do want to finance the purchase through them to pay off the purchase?

SO how everything worked out in the end?

[keylime503]

Originally Posted by seansurfn2

i never understood leases either... it sounds like renting as to owning a house in real estate lol.. except no equity except negative equity. tbh cars are one of the worst things to spend money on. i bought mine all cash no payments its great..

Renting vs owning a house is a completely different argument because houses aren't guaranteed to depreciate like cars are.

Buying cars all cash sounds great in theory. But with today's interest rates are stock market returns you'd be foolish to pay for a car with cash instead of using 0.9% financing and investing the rest...

[shovell242]

I'll give some insight into what's happening behind the scenes if this is helpful for forum members.

1. BMW Financial Services (BMW has its own bank) sets a higher than normal residual to subsidize the lease payment (they can do this because of maintenance and finance fees offset the lack of payment income)
2. BMW FS pays the dealer the price you negotiated and BMW AG books the revenue
3. BMW FS now owns the loan, they wrap that loan into a Asset Backed Security (ABS), issue it to investors and get instant cash in return to....make more BMWs and keep the plant running
4. Your lease payments funnel through BMW FS to investors as coupon payments
5. MATURITY: Someone needs to pay investors the par value of the security, this is achieved from the residual. The dealer can buy the vehicle from BMW FS at the residual price (or maybe something lower?). It's up to the dealer at this point whether they can CPO your car and earn a profit. If the market takes a turn for the worse...the dealer can opt out of this, which would mean BMW FS needs to go to a wholesale auction to sell the car (investors monitor this...because if its sold below residual, the payoff will be below par and impact the ABS price).

I'm guessing the 'pay off now' option is higher because BMW FS is not going to be able to make the remaining coupon payments to investors with your loan being paid off early on residual. This is known as 'pre payment' risk in the market, and there might be wonky legal reasons included in the lease that allow them to upcharge for prepayment.

[Sportstick]

Originally Posted by shovell242

I'll give some insight into what's happening behind the scenes if this is helpful for forum members.

1. BMW Financial Services (BMW has its own bank) sets a higher than normal residual to subsidize the lease payment (they can do this because of maintenance and finance fees offset the lack of payment income)
2. BMW FS pays the dealer the price you negotiated and BMW AG books the revenue
3. BMW FS now owns the loan, they wrap that loan into a Asset Backed Security (ABS), issue it to investors and get instant cash in return to....make more BMWs and keep the plant running
4. Your lease payments funnel through BMW FS to investors as coupon payments
5. MATURITY: Someone needs to pay investors the par value of the security, this is achieved from the residual. The dealer can buy the vehicle from BMW FS at the residual price (or maybe something lower?). It's up to the dealer at this point whether they can CPO your car and earn a profit. If the market takes a turn for the worse...the dealer can opt out of this, which would mean BMW FS needs to go to a wholesale auction to sell the car (investors monitor this...because if its sold below residual, the payoff will be below par and impact the ABS price).

I'm guessing the 'pay off now' option is higher because BMW FS is not going to be able to make the remaining coupon payments to investors with your loan being paid off early on residual. This is known as 'pre payment' risk in the market, and there might be wonky legal reasons included in the lease that allow them to upcharge for prepayment.

Thank you for this interesting and informative discussion. I've read many posts about BMWFS offering incentives to buy one's own lease car at the 60-90 day timeframe before turn in. Incentives on some 3 Series have been reported in the $4,000 range below the residual. This would be in advance of any particular dealer knowing they have confirmed access to the vehicle, so I am not clear on how a dealer opts-out ahead of time causing BMWFS to default to wholesale auction. I am assuming that any incentive offered to the lessee is in comparison to what they believe a dealer or the auction would provide. However, at that early time, FS doesn't know for sure if a dealer wants it or not....or somehow, do they query the dealers "behind the scenes"?

I am very interested how this works as I am facing the end of my first-ever lease with my 2018 330i GT in January. For an "orphan" model that did not sell well when new, I assume the actual market value will be below the residual and am trying to anticipate what BMWFS will offer.

[shovell242]

Originally Posted by Sportstick

Thank you for this interesting and informative discussion. I've read many posts about BMWFS offering incentives to buy one's own lease car at the 60-90 day timeframe before turn in. Incentives on some 3 Series have been reported in the $4,000 range below the residual. This would be in advance of any particular dealer knowing they have confirmed access to the vehicle, so I am not clear on how a dealer opts-out ahead of time causing BMWFS to default to wholesale auction. I am assuming that any incentive offered to the lessee is in comparison to what they believe a dealer or the auction would provide. However, at that early time, FS doesn't know for sure if a dealer wants it or not....or somehow, do they query the dealers "behind the scenes"?

I am very interested how this works as I am facing the end of my first-ever lease with my 2018 330i GT in January. For an "orphan" model that did not sell well when new, I assume the actual market value will be below the residual and am trying to anticipate what BMWFS will offer.

That is a great question, and something I've wondered as well. Fundamentally all BMW needs to do is make the coupon payments and pay the residual to keep investors happy. I'm guessing there is some dynamic formulas etc. that make calculations on whether an early termination makes sense as getting the customer into a new lease is another ABS issuance, which is more cash flow for BMW.

I'm linking a profile to a security that would package such a loan. Super interesting stuff.

https://www.spratings.com/documents/...e-8b303bb9db44