| Originally posted by jwkiser2@Feb 23 2005, 09:54 AM |
Has anyone here ever leased from BMW and what are the Pro's and Con's of it?
I just leased a 325i. I think the lease is decent. I didn't go for the advertised lease, I did a no-money-down 15,000 mile lease.
I think many people misunderstand leasing. It's really just another way of financing. The problem with leases is it's very easy for the dealer to bury what's really happening in the "monthly payment."
This is only me second leased car, but here's is what I've learned so far. (The below refers only to typical manufacturer-offered closed-end leases, like BMW's.)
1. Always negotiate the starting price as if you're going to buy the car. NEVER negotiate to a montly payment.
2. The cost of leasing consists of, usually, 4 parts, that make it different from buying:
a. The agreed-upon depreciation of the car. You are paying, by the month, for the agreed decrease in value from the selling price to the time you turn it in (the "residual value.") One way a car manufacturer can move cars is by allowing a high residual value (higher than the car is likely to be worth at the end.) This is to your advantage unless you buy the car at the end, in which case you would lose the advantage.
b. The interest you are paying. This is referred to as the "rental charge" on the lease. It is based on the "money factor." For example, the money factor on my lease is .00225. You multiply that number by 2400 to get a rough idea of what the comparable interest rate is (.00225 x 2400= 5.4%). Another way a manufacturer can make a lease attractive is by allowing a lower-than-market money factor.
c. The acquisition charge, if any. This is usually buried in the fine print, but is real money. BMW leases, AFAIK
, currently have acquisition charges in the high hundreds. This is pure money out of your pocket (sort of like points on a mortgage).
d. The disposition fee, if any. This is frequently about $350, and is money you pay out at the end if you don't buy the car.
So, why is leasing said to be a bad deal? If you don't do your howework or know what you're doing, you can get ripped off without you knowing it. That's the biggest problem, IMHO. Secondly, you are paying that acquistion fee and disposition fee, that generally you won't pay if you finance. Third, you are often paying a higher interest rate than you would if you were financing (e.g., I could probably have gotten a 4.5% +/- interest rate if I had financed. Fourth, you need to be careful of mileage. If you buy too many miles up front, you lose that money. If you buy too few miles up front, then you are left with the choice of either paying an often-inflated charge at the end, or buying the car (which means you are most likely paying more for it than it is worth, but then again, you did get all those extra miles out of it without paying for them).
Why is leasing a good deal? First, you are only paying sales tax on the monthly payments (not up front, thus not financing it. Also remember, if you sell your used car privately, as opposed to trading it in, you are losing the sales tax you paid up front). Second, the risk of depreciation is shifted to the leasing company. Since you have an option to buy the car at the end of the lease at the residual value, if they underestimated what the car will be worht at the end, you can buy it and sell it at the higher value. If they overestimated, then just turn it in, and it's their problem.
(Then, of course, there are also possible tax advantages if you are using the car for business.)
That business about owning the car at the end: this is true if you intend to keep the car a long time. However, if you plan to give it up after 3 or 4 years anyway, you will have been paying more per month (let's say you pay $100 more per month to finance the car than lease it: that's $3600 over 3 years. You have to ask yourself if you will get that back if you try to sell your financed car yourself after three years. Maybe, maybe not. Conversely, though you don't own a leased car, you generally do have a an option to buy it at the end, which is like having an ownership interest in it.
Assuming you go into a lease knowing what you are doing, and assuming you get a decent money factor, then the only real cost over buying is that acquisition fee, and possibly the excess in effective interest rate compared to financing. At least part of that might be made up for in sales tax savings. In exchange, you are getting lower monthly payments plus a reduction in the risk of depreciation.
I kind of like leasing.