Quote:
Originally Posted by doug_999
First off, leasing is pretty simple. You are doing two things
1. Paying off a loan balance equal to the amount financed minus the residual value of the vehicle.
2. Paying interest only on the residual (since you are never paying that back)
The lease contract is well documented and the dealer can't "trick" you any more than he/she could on a regular purchase. The MSRP is defined, the Selling Price is defined, the interest rate is defined, and finally the residual value is defined.
There are lease calculators out there that can help you do this, but there are a couple of caveats. 1) states like IL and TX require you to pay tax on the full "purchase price" of the car. So you either write them a check for that amount or roll it into your lease (remember it is on the full purchase price, not the lease payment).
2) there are some lease initiation and termination fees that the leasing company charges. I think it is $795 and $495 for BMW but I could be wrong. They tend to waive one or more if you re-lease.
3) Re-leasing a car through the same Financial company often will save you the sales tax (just like a trade in if you will).
Here is a quick simple sample
1. Car is $100,000 (MSRP)
2. Selling price is $90,000 (what they would sell it to you for)
3. Residual is 50% of the MSRP ($50,000)
4. Money factor is .00135 (this is your interest rate, multiply by 2,400 for the percentage = 3.24%)
You are borrowing (and paying off) $40,000 here which is your selling price minus the residual.
You are borrowing $50,000 but not paying off (this is the residual)
So take a loan calculator and run $40,000 over 3 years at 3.24%, then add in 3.24% per year on $50,000. You have your lease payment*
*plus tax title, lease inception fee, dealer fee, etc.
Note some dealers will mark up the money factor (just like they do on a loan). I use ridewithg.com to get the "base" money factor and negotiate from there.
So in summary
1. Leasing can be beneficial. You ultimately a) have to know how many miles you drive per year, b) take reasonable care of the vehicle, c) be willing to keep the car for the period. But remember, the main difference with a lease is you are guaranteed something. That can work FOR you or AGAINST you. Take my 1M, that has not depreciated much. Had I leased it, I would have wasted my money. Smart Money** says you purchase something like that.
2. ** The comments about "Smart Money" only buying cars and not financing them or leasing them is bunk. "Smart Money" does not buy a BMW, they buy a Toyota Camry or Honda Accord and they keep it for 10 years.
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Your scenario is just to demonstrate how leases worked. Let simplify your numbers, and back up your claim that leasing saved more money than purchase.
Let say i'm in the market for a purchase financing, and let base on your figures.
Selling price 90,000
Down payment 10,000
Interest @ 3.24
Term 60
Lease:
Cap cost 90,000
Money factor .00135
Term 36
Mileage 12,000
Residual 50,000
I'm using same interest rates so we can compare apple to apple here. Explain how i can financially benifit from leasing/purchasing.
Leases are designed to custom tailor fit for the individual wants and needs, without long term commitment, not financial gain for consumer.
P.S Ask Suze Orman if anyone should lease any vehicle? She will say this to you, "Are you nuts?"