Yet another person seeking advice on buy vs. lease

[instantexpert]

I'll fully admit up front that the M3 is at the top end of my "willing to spend" envelope. I could afford more but then I'd have to start making compromises elsewhere.

I've got my car ordered. MG/SO, executive package, carplay. MSRP is $69,895. Purchase price is: $68,250. I got a small discount on an ordered car when many dealers aren't budging due to the production stoppage. So, I'd consider the deal fair but not great.

Option 1. Lease ~$1060/month for 10K miles.
The kicker is that I'm in Chicago, so there is a tax on top of the lease payment which is on top of the tax paid on leasing the car. It's an awful lot of thrown away money.

Option 2: Purchase 84 months ~$991/month.
It seem that I'd reach the residual value shortly after the 3 year mark. Basically, this is an option that lets me keep the car just a bit longer if I want, not waste money on taxes and be in reasonable shape to unload it after 3 years.

The killer here is that I've never, ever, ever been a fan of more than a 60 month loan. They tend to be fiscally irresponsible but even the 72 month is about $50 over my monthly payment cap.

The February residuals are OK and this whole equation may change if the residuals go up or there are lease only incentives. I think the safe option is to lease but with my lease expiring right in the middle of a presumed period when no new M3 is available for the next generation, this could be an issue.

Thoughts?

[afadeev]

Originally Posted by instantexpert

I'll fully admit up front that the M3 is at the top end of my "willing to spend" envelope. I could afford more but then I'd have to start making compromises elsewhere.[...]

Option 1. Lease ~$1060/month for 10K miles.
The kicker is that I'm in Chicago, so there is a tax on top of the lease payment which is on top of the tax paid on leasing the car. It's an awful lot of thrown away money.

Option 2: Purchase 84 months ~$991/month.
It seem that I'd reach the residual value shortly after the 3 year mark. Basically, this is an option that lets me keep the car just a bit longer if I want, not waste money on taxes and be in reasonable shape to unload it after 3 years.

The killer here is that I've never, ever, ever been a fan of more than a 60 month loan. They tend to be fiscally irresponsible but even the 72 month is about $50 over my monthly payment cap.

Sounds like you have a real dilemma, since both financing solutions exceed your comfort zone!

Loan term length is not all that relevant, it's mostly an emotional variable.
What matters is the rate of car's depreciation, and whether or not you will be in the money throughout the loan term. Though, frankly, even that is an emotional concept.

Originally Posted by instantexpert

The February residuals are OK and this whole equation may change if the residuals go up or there are lease only incentives. I think the safe option is to lease but with my lease expiring right in the middle of a presumed period when no new M3 is available for the next generation, this could be an issue.

That would be my secondary consideration - when will I want to replace the M3, and with what?

You wont the next gen M3 until ~2021, so a lease will require to replace the car with something else. If you have a solid "plan B" for 2021 (C63S AMG? GS-F?), then it's one thing. Otherwise, if you want to have a car until the new M3 comes out, lease time-frame wont do.

a

[fatass]

Problem with me for finance vs lease is the tax on the vehicle. at 9.25% tax purchasing seems just crazy if I'm very likely to want to switch cars in 3 years. The amount of the tax is never recuperated where if I lease I only pay tax that covers the depreciation amount.

[brianeck]

That is not a very good lease rate for your negotiated price. My car is $74,500 and I'm paying $1,030 a month with NY state tax rolled into my payments plus a wheel and tire protection plan. *My deal I find to be fair, but if you dig around on here you'll find people with a much better rate than even I have.

[m3forme2016]

Who is providing an 84 month loan? What is the rate?

I actually hate loans as well, but you have look at the big economic picture. Interest rates are low right now, and it looks like they are going up. Inflation has been high for a while, and it *looks* like it will go a lot higher.

With my outlook on interest rates and inflation, it made sense to get the longest loan possible.

It also depends how much you drive and how long you plan to own it. If you drive little and own for a long time, then purchase is the way to go. If you drive 10K/year and want a new car in 3 years, then leasing is good.

I think the best thing about a lease is you have the option to buy. However, interest rates may be much higher, so it will be more expensive to finance in 3 years.

Originally Posted by instantexpert

I'll fully admit up front that the M3 is at the top end of my "willing to spend" envelope. I could afford more but then I'd have to start making compromises elsewhere.

I've got my car ordered. MG/SO, executive package, carplay. MSRP is $69,895. Purchase price is: $68,250. I got a small discount on an ordered car when many dealers aren't budging due to the production stoppage. So, I'd consider the deal fair but not great.

Option 1. Lease ~$1060/month for 10K miles.
The kicker is that I'm in Chicago, so there is a tax on top of the lease payment which is on top of the tax paid on leasing the car. It's an awful lot of thrown away money.

Option 2: Purchase 84 months ~$991/month.
It seem that I'd reach the residual value shortly after the 3 year mark. Basically, this is an option that lets me keep the car just a bit longer if I want, not waste money on taxes and be in reasonable shape to unload it after 3 years.

The killer here is that I've never, ever, ever been a fan of more than a 60 month loan. They tend to be fiscally irresponsible but even the 72 month is about $50 over my monthly payment cap.

The February residuals are OK and this whole equation may change if the residuals go up or there are lease only incentives. I think the safe option is to lease but with my lease expiring right in the middle of a presumed period when no new M3 is available for the next generation, this could be an issue.

Thoughts?

[instantexpert]

Thank you everyone!

Lots of good advice and questions here. I'll answer them without cluttering the response up with a bunch of quotes.

-----------------
Yes, that lease rate sucks. That's because I have to pay 9.25% on 0.48% of the car and I get a lease of $970 but then living in the city of Chicago gives me a 9% lease payment tax. It's absolutely brutal.

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The reason I had been switching to leasing (my current car is my first leased (owner's choice) car) was because I've determined that I don't have the emotional fortitude to make good vehicular decisions on longer than a 2.5 - 3 year span. The lease this time forced me to be a good boy and not start trading in after 2 years.

The modifier here is that there isn't a car I'm thinking "I wish I could have purchased X instead". For my purposes, there is no competition for the M3 due to balance of cost/aesthetics/performance/brand so my (possibly flawed) expectation is that I won't be having the itch to replace until the new M3 comes out.

I'm much more worried about being out of warranty on a 7 year loan than I am about the loan itself.

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Pentagon Federal Credit Union currently has 2.99% APR on 84 month loans. The depreciation curve is exceptionally close to lease terms with the crossover point being around 36 months.

With the lack of a car at that 3 year mark and no great lust for something else, I'd be buying out my lease or picking up a used M3. My expectation is that continuing another year on my loan would be better than buying out the lease.

----------------
I'm starting to be convinced that an 84 month loan may not be as stupid as I would have initially thought.

[///M4ster Yoda]

My M4 was $68,000 give or take with discounts. I'm paying $750 a month. That lease rate is beyond ridiculous. Would it be more financially viable to lease from a dealer outside Chicago/Illinois for a better deal?

[jjrandorin]

Just to be clear, Leasing and owners choice are NOT the same thing.... you mentioned "this is my first car leased (owners choice)" thats NOT a lease.

Owners choice is a loan with a balloon payment that you can walk away from, not a lease. Might sound like a small difference but the main thing is who actually owns the car.

On a lease, BMW FS is the owner. A lease comes with free gap insurance. If you want to own the car at the end of the deal, you can pay the residual, or re negotiate the purchase with a dealer, or just turn it in. If there is a recall on the car where BMW cant sell it for some reason (see : Airbag recall), you CANT buy it. Plenty were / Are in that situation recently.

On owners choice, YOU are the owner of the car. I am fairly certain GAP insurance is an extra purchase. It is a LOAN, not a lease. Its a loan with a balloon payment at the end, and the car has an agreed upon value at the end like a lease.

Like a lease, you can walk away.

Owners choice is only available in Lease unfriendly states that tax the entire value of the car, rather than the part you rent while you drive. I believe its only available in 3 states right now.

A Sales Person / Client Advisor may not make the differences clear, because leasing can be confusing enough for some, so they might not want to confuse it more but they are not the same.

[instantexpert]

@jjrandorin My apologies, I was unclear.

My first "lease" was an Owner's Choice because Illinois used to tax full value of the vehicle until 2015 and OC was the only realistic way to lease. Now that they only tax the leased value, leasing is a better option than OC everywhere except Chicago.

In Chicago, with the extra lease tax on the payment, it tends to be more of a case by case basis as to whether it is cheaper to lease and pay double tax or do OC and pay full vehicle tax up front.

In the case of my coming M3, it would depend on the interest rate and amount down as to whether OC or leasing was the cheaper option.

Aside from some potential technicalities, for my purposes, a lease and OC would be the same just with different mechanics behind the scenes.

Please correct me if I'm wrong!

[sdshah]

Buy a used M3. Private Sale tax is Illinois is capped at 1500 dollars. You will save a ton and still will be able to find a car you love without breaking the bank.

[jjrandorin]

Originally Posted by instantexpert

@jjrandorin My apologies, I was unclear.

My first "lease" was an Owner's Choice because Illinois used to tax full value of the vehicle until 2015 and OC was the only realistic way to lease. Now that they only tax the leased value, leasing is a better option than OC everywhere except Chicago.

In Chicago, with the extra lease tax on the payment, it tends to be more of a case by case basis as to whether it is cheaper to lease and pay double tax or do OC and pay full vehicle tax up front.

In the case of my coming M3, it would depend on the interest rate and amount down as to whether OC or leasing was the cheaper option.

Aside from some potential technicalities, for my purposes, a lease and OC would be the same just with different mechanics behind the scenes.

Please correct me if I'm wrong!

You are right, there are different mechanics behind it but they are similar.. with some of the exceptions I said.

As for your deals above, I can not provide any feedback because there are just monthly prices with no details behind them, so I cant tell what they actually represent.

Very easy for a dealer to structure the deals in such a way that they are pushing you toward whatever solution they want you to take, so without the "data" behind the numbers they dont mean all that much to me from a "help you evaluate them" point of view.

[instantexpert]

@///M4ster Yoda

Looking at just using the $1,000 deposit down on the car, that's what you get with the BMW published current residuals, MF, Illinois/Chicago taxes and the complete lack of current incentives. It doesn't matter where I buy, I'll still get hit with the taxes because of where I live.

My payment is almost $100 more just because of Chicago. Factoring purchase tax and the tax on my monthly payment is 20+% if I go with a lease!

I agree that it is ridiculous!

[instantexpert]

jjrandorin

Thank you for poking me on this. I just tried to give you numbers and found a flaw in my spreadsheet. I need to go back to the deal sheet I have at home and pull the specifics out of it to refine my model.

What I do know purchase price: $68,250 (I actually don't know if this includes destination, another thing for me to ask)
Taxes: $3393
Taxes up front + plates + first month's payment: $995/month

I'm planning to do only $1K down, which is where my math for $1060/month came in. Obviously, I have too many holes in my knowledge to answer your question effectively.

I will come back with answers when I have them.

[afadeev]

Originally Posted by instantexpert

The lease this time forced me to be a good boy and not start trading in after 2 years.

You know yourself better than anyone, so this is a pretty strong argument for leasing, regardless of financial considerations.

Originally Posted by instantexpert

[...]With the lack of a car at that 3 year mark and no great lust for something else, I'd be buying out my lease or picking up a used M3. My expectation is that continuing another year on my loan would be better than buying out the lease.

Buying out a lease is a bad financial move, unless you have exceptionally few miles on the car, or made lots of mods that you don't want to uninstall.

Lease buy out price is determined as (residual %) * (MSRP of the car), not the purchase price.
Most of us buy cars at a significant discount to MSRP, usually closer to invoice + $1-2K. Thus, the lease buy out surcharge is: (residual %) * (7% MSRP mark-up on ~ %70K car), or (62%) * ($4.9K) = $3K.

Not the end of the world, but effectively, exercising the "option" to buy out the lease will cost you $3K (on average).

a

[instantexpert]

I just called and left a message for my CA. Illinois has some really, really weird tax rules as the tax on the lease is based on the amount due at lease plus the sum total of lease payments. That means I'm paying taxes on the interest of the lease! Add in the FU lease tax from the city of Chicago and it sucks pretty badly to lease a car here.

Even so, my payment should be $1,031/month with current residuals and MF.

Even so, I can't make the payment he quoted me work unless I crank the MF up to 0.0017 (4%). That is absolutely not an acceptable money factor to me with my credit score and the relationship equity.

I'll find out when he calls where either my math is wrong or where he needs to make a better offer.

[Halewafa]

Agreed, that MF is way to high if that's what it actually is. Didn't see you mention MSDs anywhere, are you against doing that? Would help a lot, especially if the MF is brought down prior to applying them.

In your situation I think going the loan route would be best. Sucks to be paying such a high lease payment on that MSRP. For reference (not really apples to apples since I did ED), my MSRP is $84k and I'm paying $850/month taxes included.

[f80NJ17]

My F80 is at 77k paying $770
See if you can add any discounts to lower the msrp. I believe that $1000 for 68k is alot.

[XsltAnalyst]

look into Penfed payment saver loan.

[instantexpert]

Originally Posted by XsltAnalyst

look into Penfed payment saver loan.

I did briefly look into the payment saver but I'm super worried about reaching the end of the period and not being able to sell the car for what is owed. That's why I'm looking at 84 months as I can likely trade it in at a small loss (made up for by the tax offsets) or keep it a bit longer.

Please correct me if I'm wrong, but 84 month gets me the benefits of payment saver without the need to refinance at 3 years with a (probably) higher interest rate?

[PodDoc]

Maybe i missed when your current lease is up, but if you have time, I would check with other area dealers to get a better discount off msrp. Also, if you could get the car from Knauz in lake bluff, the tax is .25 or .5% cheaper for some reason because of there location. Dont ask me how or why, i just know based on cross shopping at Fields vs Knauz.

Also, not surprised that your MF is high, chicago area dealers always mark up the MF from BMW posted rates. Another point to negotiate since they arent giving much of a discount off sticker.

[gohawks23]

Yep, leasing in Chicago is a ripoff...for that reason I just wrote a check for my M3. For a 3 year lease in Chicago the total taxes due over the lease are pretty much the same as if you had bought the car plus you have the large acq fee and I just totally couldn't stomach paying tax on tax and interest, etc...so I just bought it.

[gohawks23]

Originally Posted by Halewafa

Agreed, that MF is way to high if that's what it actually is. Didn't see you mention MSDs anywhere, are you against doing that? Would help a lot, especially if the MF is brought down prior to applying them.

In your situation I think going the loan route would be best. Sucks to be paying such a high lease payment on that MSRP. For reference (not really apples to apples since I did ED), my MSRP is $84k and I'm paying $850/month taxes included.

As a capper MSD's are taxed in IL/Chicago as they are considered a down payment...in fact anything that lowers the payment will be taxed and in Chicago with additional lease tax that means over 18%!

OC is a cleaner tax solution but you have no gap and you pay tax on entire value of car even though you only have it for 3 years.

Cash in the city is the only thing that makes sense.