Yet another person seeking advice on buy vs. lease

[gohawks23]

Originally Posted by 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.

Taxation in IL/Chicago is based on where you live. Not where you buy. And on leases I found many dealers didn't even know how to tell how taxes were calculated. They said they just run numbers on some state authorized computer equation. Being an engineer this wasn't going to fly and I could never figure how taxes were actually calculated in Excel. Ridiculous. Also I didn't have a real problem getting quoted base MF it just took some pushing.

[gohawks23]

Originally Posted by 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.

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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.

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

As for being out of warranty a good independent helps greatly. In Chicago there is a place in West loop called Bavarian Motors.

[gohawks23]

Also in IL if you own your car and eventually trade on a new one you won't pay taxes on value of trade.

[instantexpert]

Greginaz Thanks for the info on Bavarian Motors. I've been thinking I may need a good independent shop in 3 years.

I did confirm that my dealer is marking up the money factor to 0.00174. I told him outright no on that.

In any case, I'm actually considering stretching the budget a bit and getting a 72 month loan. I'll get the tax advantage on trade in and won't get caught in the model year gap for the M3.

It's funny how two months ago, I wouldn't have even considered anything over 60 months and now the 72 month loan is the financially responsible choice. :-D

[instantexpert]

Also, I'm working with Knauz and I do get a bit of tax savings over buying in the city.

I could potentially find a slightly better deal at another dealership since Knauz has 1 (singular) M3 on the lot which almost exactly matches my build.

Both Perillo and Laurel have multiple in stock and might be more willing to deal but I'd be giving up the amazing service Knauz has provided me and I would not getting my MG/SO combination.

[gohawks23]

Originally Posted by instantexpert

Also, I'm working with Knauz and I do get a bit of tax savings over buying in the city.

I could potentially find a slightly better deal at another dealership since Knauz has 1 (singular) M3 on the lot which almost exactly matches my build.

Both Perillo and Laurel have multiple in stock and might be more willing to deal but I'd be giving up the amazing service Knauz has provided me and I would not getting my MG/SO combination.

I just don't understand how Knauz can offer a tax advantage. It is ridiculous no dealer could tell me how they exactly calculated taxes on a IL/Chicago lease. And if you don't pay state/county tax upfront you get taxed on it again with the 9% Chicago lease tax. Plus MSD's being taxed too. Crazy bad deal. Owner's Choice makes you pay full tax as if you had purchased it. I think you are doing the right thing by financing.

You drive all the way to Knauz just for service? Perillo service has been good and it is only a few blocks away for me.

[instantexpert]

Originally Posted by greginaz1

I just don't understand how Knauz can offer a tax advantage. It is ridiculous no dealer could tell me how they exactly calculated taxes on a IL/Chicago lease. And if you don't pay state/county tax upfront you get taxed on it again with the 9% Chicago lease tax. Plus MSD's being taxed too. Crazy bad deal. Owner's Choice makes you pay full tax as if you had purchased it. I think you are doing the right thing by financing.

You drive all the way to Knauz just for service? Perillo service has been good and it is only a few blocks away for me.

The tax advantage is small. It works out to about $170 in savings on a purchase. I'm not quite sure how it shakes out on a lease.

I pulled the description of this method off of the department of revenue website. I only managed to get close on the calculation:
Tax = (Down Payment + (# payments * Monthly Payment))*Tax rate

You'll notice that your taxes are actually dependent on your monthly payment and your monthly payment is dependent on your taxes. It's an iterative calculation and results in taxes about 50% above what you would get by just taxing the depreciation on the vehicle.

One of the CAs lives in my condo building and takes it up for service for me. Otherwise, I might consider Perillo, even though I've had bad experience purchasing from them in the past.

[gohawks23]

Originally Posted by instantexpert

The tax advantage is small. It works out to about $170 in savings on a purchase. I'm not quite sure how it shakes out on a lease.

I pulled the description of this method off of the department of revenue website. I only managed to get close on the calculation:
Tax = (Down Payment + (# payments * Monthly Payment))*Tax rate

You'll notice that your taxes are actually dependent on your monthly payment and your monthly payment is dependent on your taxes. It's an iterative calculation and results in taxes about 50% above what you would get by just taxing the depreciation on the vehicle.

One of the CAs lives in my condo building and takes it up for service for me. Otherwise, I might consider Perillo, even though I've had bad experience purchasing from them in the past.

Crazy there is a difference at all. Yep, it is a thing where you need to have the result before you have the result.

The tax on MSD really was last straw...to have to pay 18% tax on it because it is treated like a down payment was just stupid...it would have been over $1000!

I've had good experience buying and servicing at Perillo...though when buying you need to push harder than most but they will match others. With my current M3 it had to be in stock on 12/31 and Laurel was the only one that had something I wanted and they really wanted to sell before year end.

[gohawks23]

Suburban dealers say MSDs are not taxed and Perillo in city says they are...crazy.

Regardless I won't lease while living in the city just because of additional 9% they tax on the monthly payment. On an M3 type lease that would be near $3K over the term virtually making the amount of tax paid on a lease they same as a purchase. By owning you also save 9.5% times value when trading on next car.

[Kevin M]

Do neither. Of Get a better lease deal, or get a cheaper car. 84 month loan?

My $67,800 msrp M3 is $733/month with 6.35% tax rolled in, 15k miles/year. Paying $925 bank fee, $250 dmv, $50 doc fee up front, that's it.

[instantexpert]

Originally Posted by Kevin M

Do neither. Of Get a better lease deal, or get a cheaper car. 84 month loan?

My $67,800 msrp M3 is $733/month with 6.35% tax rolled in, 15k miles/year. Paying $925 bank fee, $250 dmv, $50 doc fee up front, that's it.

Since I posted my original post, I've reconsidered the 84 month loan and am leaning towards 72 month over a lease. It's still longer than I like but I'll be well within positive equity territory at the 36 month point if I start to get itchy.

The problem with Chicago is that lease taxes work out to something on the order of 9.3% (calculated full vehicle value) or 26% (calculated on depreciation only). It's, literally, a no win situation.

[Need4spd28]

As someone who has been flipping negative equity from one loan into the next since I bought my first car at 18 years of age, I implore you to not do an 84 month loan. This is a trap you do not want to find yourself getting sucked into. If I told you what I pay for my M3 as a result of such decisions you would have a heart attack. It was my choice and I accept the consequences, plus I can afford it, but I wouldn't wish an 84 month loan on anyone.

The vast majority of what you'll be paying for the first three years is interest, so unless you put down a good chunk you'll be in such a deep hole with that car in three years you won't be able to see daylight. Sounds like leasing in Chicago is indeed a raw deal, but that's still probably the route I would go. I decided to lease my M3 with 15K miles a year, roll all the God forsaken negative equity I've accrued into the payment, and then kiss it goodbye when this lease is over. At least you don't have that to deal with. I would lease the car, enjoy it for three years, and then move onto the next free and clear of any baggage.

[Need4spd28]

72 month is a mistake too in my opinion. If you think you won't be upside down in three years you're wrong, unless you put down a good bit of money up front. Respectfully, I feel like 72 and 84 month loans were created when car prices started going up for people who couldn't afford the car they wanted in a more traditional 60 month loan. Here again, I'm not judging because I made the mistake of getting sucked into that trap, I'm just speaking from experience.

You may also consider BMW Select, which is a balloon style financing option. My preference is to lease because I feel that it suits me the best, but BMW Select is less restrictive than leasing, you could avoid the Chicago based tax issue, and your payment is much less than in a traditional loan. Just a thought.

[mm767cap]

The sales tax only being applied to the difference between the value of the trade and a new purchase is huge; same for us in WA. This was a prime reason for me taking out a loan instead of a lease.

The other reason? I checked with BMW and found out what happens on a lease if you die. The car gets returned to BMW, and your estate still has to make all the payments until your lease expires. WTH. Sounds morbid and not something that anyone probably thinks about. As a fit, healthy 46 yr old I didn't either until one day real life smacked me in the face.

[jjrandorin]

Originally Posted by mm767cap

The sales tax only being applied to the difference between the value of the trade and a new purchase is huge; same for us in WA. This was a prime reason for me taking out a loan instead of a lease.

The other reason? I checked with BMW and found out what happens on a lease if you die. The car gets returned to BMW, and your estate still has to make all the payments until your lease expires. WTH. Sounds morbid and not something that anyone probably thinks about. As a fit, healthy 46 yr old I didn't either until one day real life smacked me in the face.

How is your estate having to make the payments different on a loan vs a lease? Honest question....

On a loan, is the loan amount forgiven or something?? I dont think so but trying to see what the difference between the two is.

[mm767cap]

Originally Posted by jjrandorin

How is your estate having to make the payments different on a loan vs a lease? Honest question....

On a loan, is the loan amount forgiven or something?? I dont think so but trying to see what the difference between the two is.

Good question, and sorry I did a poor job of explaining. If you have a loan and you pass, your estate needs to make the payments.. but they keep the car. Or they can sell the car and pay off the loan with no penalty, just have to pay any negative equity if there is any. With the lease, BMW takes the car back... but you're still responsible for the entire length of the lease. This was a huge surprise to me, and my Sales Rep. Unfortunately I'm in a position where I have to consider these things, but it was something I wasn't aware of when leasing.

[///M4ster Yoda]

Originally Posted by mm767cap

Good question, and sorry I did a poor job of explaining. If you have a loan and you pass, your estate needs to make the payments.. but they keep the car. Or they can sell the car and pay off the loan with no penalty, just have to pay any negative equity if there is any. With the lease, BMW takes the car back... but you're still responsible for the entire length of the lease. This was a huge surprise to me, and my Sales Rep. Unfortunately I'm in a position where I have to consider these things, but it was something I wasn't aware of when leasing.

This doesn't make sense to me. How can they "take" the car back and still make the customer responsible for the payments. In my case my wife and I put both our names on each vehicle we purchase/lease so it shouldn't matter in our situation.

Is this in the fine print that many of us do not read?

[SilverRevlis]

OP, I would lease. Actually, anything over $20k I would lease. I would not want to be tied to a depreciating asset, just me. God forbid something funky happens with the manufacturer or the car itself, I want them to be on the hook dealing with the value of the car, not me! Plus, you won't have to worry about extended warranties or anything like that.

[MrSmileyDC]

Why not just put some money down to get your payment to whatever you want it to be?

I mean taxes suck, but they are just a fact of life. That's why we have different states.

The only time leasing really gets you the most bang for your buck is if you do it through a business you own with pretax money.

[saleen556]

Would taking over a short term lease help? There are plenty out there. We don't have sales tax in OR. However from my understanding you pay tax on the term of the lease. Maybe finances will change in the near future.

[mm767cap]

Originally Posted by ///M4ster Yoda

This doesn't make sense to me. How can they "take" the car back and still make the customer responsible for the payments. In my case my wife and I put both our names on each vehicle we purchase/lease so it shouldn't matter in our situation.

Is this in the fine print that many of us do not read?

Didn't make sense to me either. They called BMW corporate and that's what they responded with. Unreal

[HPIA4v2]

Originally Posted by mm767cap

Didn't make sense to me either. They called BMW corporate and that's what they responded with. Unreal

Interesting, that's something someone needs to be aware I guess as far as lease goes.
If leaser dies, BMW finance basically says, thank for under mileage car, since the driver dies well may as well take the car back now. By law the gap insurance is under leaser name and if the "intent" is for some one else to keep driving it on regular basis that can be considered insurance fraud.
Wonder, if the leaser appointed an estate executor and he/she can take over the lease or not. the executor has more than power-of-attorney.

With financing, the estate can pay off the balance then resell the car, the inheritors maybe upside-down though depending on the car.

I just went through some of this when my father-in-laws died, the lawyers, insurance companies etc well they were seeing green more than I do