BMW Leasing 101 / FAQ (BMW emphasis)

[angelbones]

I thought it applied to more than transfers but you are correct, the transfer was what I was thinking of, in regards to the 6 months. Thanks for the clarification. Just a lot of information to take in.

[newBMW2]

Thanks for this great FAQ. I had a question about how lease negotiation works when you are ordering a vehicle to spec. If I place an order now, in the month of May, but the delivery date isn't until next month or later, which month's numbers (MF/residual/incentives) would apply to my deal? For instance, if I were to end up with a June delivery date, how would I negotiate the lease deal specifics now? Would I only be able to agree to a total cap cost, and then apply whatever the June MF/residual/incentives turn out to be? Thanks in advance for any advice!

[OneRib]

Originally Posted by newBMW2

Thanks for this great FAQ. I had a question about how lease negotiation works when you are ordering a vehicle to spec. If I place an order now, in the month of May, but the delivery date isn't until next month or later, which month's numbers (MF/residual/incentives) would apply to my deal? For instance, if I were to end up with a June delivery date, how would I negotiate the lease deal specifics now? Would I only be able to agree to a total cap cost, and then apply whatever the June MF/residual/incentives turn out to be? Thanks in advance for any advice!

Glad you enjoyed the info.
BMW offers a 60 day lock for the east coast and 90 day lock on the west coast.

East Coast example:
You negotiate a lease in May. You would lock in those numbers and you get to keep them as long as you take delivery by July 31. The lock locks in on the last day of the that particular month.

If it takes longer for your car to arrive you can re lock at any point up to delivery.

Example 2:
Lease agreed on in May and the car is delivered in September. Any re-lock after July 1 would be valid.

Many use this to their advantage. If better rates come up before delivery, you re lock and get that rate.

[newBMW2]

Thank you OneRib, that's very helpful. Just to clarify, does the lock also apply to incentives, or just MF and residual terms? In other words, can I apply a May incentive when ordering now, if I don't take delivery until June, and similarly, if a new/better incentive shows up in June, can I take advantage of it instead? Thanks again.

[LindsayEOD]

Originally Posted by OneRib

Glad you enjoyed the info.
BMW offers a 60 day lock for the east coast and 90 day lock on the west coast.

East Coast example:
You negotiate a lease in May. You would lock in those numbers and you get to keep them as long as you take delivery by July 31. The lock locks in on the last day of the that particular month.

If it takes longer for your car to arrive you can re lock at any point up to delivery.

Example 2:
Lease agreed on in May and the car is delivered in September. Any re-lock after July 1 would be valid.

Many use this to their advantage. If better rates come up before delivery, you re lock and get that rate.

Thanks for your help OneRib. Just for my clarification, if I lock my rate in now, and my M4 doesn't come until September, I would have to take the rate available at that time even if I wanted to keep my current locked rate? I know it will have expired but I would assume lease rates are not going to get any better and that is my worry.

[OneRib]

Originally Posted by newBMW2

Thank you OneRib, that's very helpful. Just to clarify, does the lock also apply to incentives, or just MF and residual terms? In other words, can I apply a May incentive when ordering now, if I don't take delivery until June, and similarly, if a new/better incentive shows up in June, can I take advantage of it instead? Thanks again.

Yes incentives follow the same formula.

[OneRib]

Originally Posted by LindsayEOD

Thanks for your help OneRib. Just for my clarification, if I lock my rate in now, and my M4 doesn't come until September, I would have to take the rate available at that time even if I wanted to keep my current locked rate? I know it will have expired but I would assume lease rates are not going to get any better and that is my worry.

Yes you would lose the rate for this month. Most people in that situation would continue to re-lock is the rate doesn't change or improve. This extends your lock period. In your scenario, July rates and incentives would hold until the end of September. There is an exception. A dealer can go to BMWFS and ask for an exemption. This is done most often in the setting of an unexpected delay in shipping or a mistake on BMW/dealer's part.

I would expect the numbers to hold pretty well for the rest of the 2015 M3 model run.

[LindsayEOD]

Originally Posted by OneRib

Yes you would lose the rate for this month. Most people in that situation would continue to re-lock is the rate doesn't change or improve. This extends your lock period. In your scenario, July rates and incentives would hold until the end of September. There is an exception. A dealer can go to BMWFS and ask for an exemption. This is done most often in the setting of an unexpected delay in shipping or a mistake on BMW/dealer's part.

I would expect the numbers to hold pretty well for the rest of the 2015 M3 model run.

Thanks man. I appreciate the help.

[jasnh]

Originally Posted by LindsayEOD

Thanks for your help OneRib. Just for my clarification, if I lock my rate in now, and my M4 doesn't come until September, I would have to take the rate available at that time even if I wanted to keep my current locked rate? I know it will have expired but I would assume lease rates are not going to get any better and that is my worry.

Talk to your CA.....I had this same issue because my build was delayed 4 weeks pushing my delivery passed the 60 day lock period. I ordered in March and my car just entered production yesterday. Your dealer can contact BMW and request a rate lock extension which I understand is almost always granted.
I was told by my CA a few weeks ago that even though it looks like I am not taking delivery now until June, I am locked in with March numbers and they will honor those. If Junes number are better, I can use those instead...

OR actually since Mays rate/incentives are currently better than March, making my payments lower, I will re-lock with May numbers.

But if May numbers were not better I could have stayed with March numbers while taking delivery in June.....Does this makes sense?

[OneRib]

Originally Posted by jasnh

Talk to your CA.....I had this same issue because my build was delayed 4 weeks pushing my delivery passed the 60 day lock period. I ordered in March and my car just entered production yesterday. Your dealer can contact BMW and request a rate lock extension which I understand is almost always granted.
I was told by my CA a few weeks ago that even though it looks like I am not taking delivery now until June, I am locked in with March numbers and they will honor those. If Junes number are better, I can use those instead...

OR actually since Mays rate/incentives are currently better than March, making my payments lower, I will re-lock with May numbers.

But if May numbers were not better I could have stayed with March numbers while taking delivery in June.....Does this makes sense?

That makes perfect sense and thank you for giving LindsayEOD a real world example of how it would work.

[LindsayEOD]

Originally Posted by jasnh

Talk to your CA.....I had this same issue because my build was delayed 4 weeks pushing my delivery passed the 60 day lock period. I ordered in March and my car just entered production yesterday. Your dealer can contact BMW and request a rate lock extension which I understand is almost always granted.
I was told by my CA a few weeks ago that even though it looks like I am not taking delivery now until June, I am locked in with March numbers and they will honor those. If Junes number are better, I can use those instead...

OR actually since Mays rate/incentives are currently better than March, making my payments lower, I will re-lock with May numbers.

But if May numbers were not better I could have stayed with March numbers while taking delivery in June.....Does this makes sense?

Originally Posted by OneRib

That makes perfect sense and thank you for giving LindsayEOD a real world example of how it would work.

Thanks guys. You both helped a lot.

[FAM3]

If my M4 build is $74,825, how do I go about finding out euro-delivery invoice pricing?

I get that on edmunds or true car I can see stateside invoice prices but how can you determine what price changes are in ED invoice. I hear people always saying oh I am paying $1000 above ED invoice...

Is ED invoice just regular invoice minus the money savings doing ED?

Thank you!

[OneRib]

Originally Posted by texxy

If my M4 build is $74,825, how do I go about finding out euro-delivery invoice pricing?

I get that on edmunds or true car I can see stateside invoice prices but how can you determine what price changes are in ED invoice. I hear people always saying oh I am paying $1000 above ED invoice...

Is ED invoice just regular invoice minus the money savings doing ED?

Thank you!

I was going to answer but I saw you got the answer from vonmayr in a different thread. You should be all set.

[FAM3]

Originally Posted by OneRib

I was going to answer but I saw you got the answer from vonmayr in a different thread. You should be all set.

I am set on everything aside from ED price for Individual Interior. I want to do Golden Brown and with Exec package the total is $1350...how would I determine ED invoice price for individual pieces? Any clues?

[OneRib]

Originally Posted by texxy

I am set on everything aside from ED price for Individual Interior. I want to do Golden Brown and with Exec package the total is $1350...how would I determine ED invoice price for individual pieces? Any clues?

As far as I know Individual potions don't have an ED price and aren't really negotiable at all. I would PM some who have picked Individual options. From what I understand, you put in the Individual request and they say yes or no then tell you the cost.

[MRCUR]

Originally Posted by OneRib

As far as I know Individual potions don't have an ED price and aren't really negotiable at all. I would PM some who have picked Individual options. From what I understand, you put in the Individual request and they say yes or no then tell you the cost.

2nd OneRib's statement - individual options are not open to negotiation or discounting. Sometimes you don't know the final pricing on an individual piece until the car is delivered and the pricing is on the window sticker.

[emfo]

Where are the MSDs listed on the Lease Agreement? Should it be under refundable security deposit? I see no mention of my MSD anywhere on the lease agreement.

[OneRib]

Originally Posted by eurospeed

Where are the MSDs listed on the Lease Agreement? Should it be under refundable security deposit? I see no mention of my MSD anywhere on the lease agreement.

Yes refundable security deposit is the same thing. MSD stands for multiple security deposit and you can make up to seven. Technically they are refundable security deposits just like the form says.

[jttBimmer]

Originally Posted by OneRib

Yes refundable security deposit is the same thing. MSD stands for multiple security deposit and you can make up to seven. Technically they are refundable security deposits just like the form says.

When are the MSDs paid? Up front or over time?

[OneRib]

Originally Posted by jttBimmer

When are the MSDs paid? Up front or over time?

Up front and you tell them how many you want to pay up to 7.

[jttBimmer]

Originally Posted by OneRib

Up front and you tell them how many you want to pay up to 7.

Got it. Thanks.

[Whttiger25]

I wanted to share some results of a cost analysis I just did when comparing financing vs leasing. Usually, the arguments on this topic focus on leasing being comparable to financing cost-wise, as long as you buy the appropriate number of miles and desire a new car every 3 years.

I ran a typical scenario for those buying F8x's. MSRP of $75,675, and Negotiated price $71,125, which is roughly $1000 over invoice. Tax rate is 9.5%. Residual 62%, MF 0.00129, 36 months, $995 acquisition, $600 in dealer fees and registration. For the finance scenario, I went with 60 months at 1.9%, and set the cash due at signing to be equal to the lease.

I had significant internal debate over what to do about Security Deposits. The fact is, they have a substantial impact on the cost of the lease, but you are tying up cash for which you could earn return on investments elsewhere as well. I decided to run this scenario including 7 SDs, but back out that effect later.

Here are the results including 9.5% tax, assuming tax only on payments. States that require full tax on leases to be paid, I am not accounting for that but just assume it makes leasing more expensive than I indicate here.

Lease
Payment: $869.39
Due at signing: $$7,819.39
Security Deposit: $6300
Annualized return on SD: 10.92%
Financial cost of lease: $4,842.08

Buy($7219.39 down):
Payment: $1,235.47
Due at signing: $7819.39
Financial cost of buying: $3,465.49

Keep in mind, the acquisition fee + tax is added to the lease financing cost, because acquisition is an added expense vs buying.

So at my first pass, Financing is $1400 cheaper than leasing. Keep in mind, however, that the term of the loan is 5 years, while the term of the lease is 3 years. If you were looking for a true apples-to-apples comparison you would want to finance over 3 years, which would lower the rate to 0.9%, increase the payment to $1990.20 a month, and decrease the total finance cost to $984.73 (wow!). However, people are probably not comfortable paying $2k a month, and we still need to consider opportunity cost of additional cash.

So you have earned 10.9% on that $6300 security deposit for 3 years, and those benefits have already been included in the $4800 lease cost. What could you have earned in the general stock market? long term suggests 8%, but since we are talking about a 3 year window, 3 year treasuries are currently yielding 1%. Accounting for that range of possible returns the lease cost is somewhere between $5030 and $6500 depending on the optimism of your returns investing over the next 3 years.

You may say there is a problem - you end up tying up more cash buying and you need to account for that opportunity cost. You are right. All I've proven is that leasing has higher direct financial cost than financing. We need to look at indirect costs - opportunity costs - of financing, as well. Let's do a real apples to apples comparison 3 year lease vs 3 year purchase and sell. I'll assume you sell the car for the residual value.

Leasing - after 3 years, total cash outlay = $32,817.60. You own nothing at the end of the lease, so that's your cost.

Financing (5 year loan scenario) - after 3 years, total cash outlay = $52,296.17. You still owe $29,651,19, and the Residiual value of the vehicle is $46,919. After the sale, you net $17,267,31 in cash, bringing your NET cash outlay to $35,028.86. So in this case, including taxes(!) you have spent $2200 more to finance the vehicle than to lease it. You have also tied up an average of $9,750 more cash over those three years and need to add back between $300 and $2500 in lost returns (1% - 8%). So cost is $2500 - $5000 more.

Financing (3 year loan scenario) - after 3 years, total cash outlay = $79,499.6. You owe nothing, and the Residiual value of the vehicle is $46,919. After the sale, you net that $46,919 in cash, bringing your NET cash outlay to $32,548.1. So in this case, including taxes(!) you have spent $300 less to finance the vehicle than to lease it. However you have tied up an average of $23,350 in cash so you need to add back in between $800 and $6000 in lost returns (1% - 8%). So cost is $500 to $5700 more.

So the act of selling a purchased car after 3 years to make it equivalent to the lease makes it more exensive (mainly due to the taxes you end up paying on the residual). But if you keep the car longer, it is assumed you lease a new car, and the cost of financing then obviously quickly drops relative to leasing, as you are paying for depreciation on a new car, vs keeping a much lower rate of depreciation on your existing car. I could run more complex scendarios but I suspect if you add an additional year to the purchased car before selling it, you are in much better shape financing.

So what's the conclusion? If you truly plan to only keep a car 3 years, leasing is cheaper. However, if you think the cost of financing is equal between the two, they really aren't. Finance costs of lease are certainly higher, while true cost depends on your personal "cost of capital". It makes no sense to lease with the intention of buying at the end of the lease, and it makes no sense to buy with the intention of selling after 3 years. Owning becomes cheaper - all costs included, not long after 3 years, although the exact time frame depends on your cost of capital.

If you are willing to deal with a higher payment, and keep a car 4-5 years, you'll save a lot more money long term. Really it comes down to this - let's say you are attracted to that $870 monthly payment, and that's why you lease your car. Every 3 years, it's a new car, and you are paying, in perpetuity, $870 a month. If you commited however to owning for 4-5 years at a time, your payment would be $1240, and you would be paying, in perpetuity, $1240 a month. Yet - becuase of the residual value at the end of the loan you are wealthier if you buy. So while it is counterintuitive, in this scenario, higher payment = savings, if you are willing to accept keeping the car a bit longer than a 3 year lease. And let's say you love the car, and you keep it longer than 5 years - you save even more.

My final conclusion - leasing is really just a form of financial engineering meant to capitalize on a financial heuristic* - a preoccupation with monthly payment.

*Heuristics are simple, efficient rules which people often use to form judgments and make decisions. They are mental shortcuts that usually involve focusing on one aspect of a complex problem and ignoring others.