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      01-28-2015, 11:10 AM   #15
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Join Date: Apr 2010
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Originally Posted by OneRib View Post
I am starting this thread in the hopes it helps those new to leasing. The emphasis is about what leasing really is, some of the terms, and its main components. If decent enough maybe the mods will make it a sticky and newbies can use it as a one stop info post/thread. Please feel free to comment and I will edit out whatever needs correction.


Leasing in simple terms is paying for the amount of car you are using + interest and fees.
The financing company wants you to pay for the anticipated depreciation of the car and it also takes interest while this happens so they can make a profit.

Most leases are 2-4 years with 3 being the sweet spot. This is because the most depreciation happens in year one, making it unfriendly to the buyer and too many years makes it unattractive to the finance company to take back and unfriendly to the buyer who wants to change cars more frequently.

The main components of leasing are as follows.

MSRP- This is the amount on the window sticker and is used for the residual calculation.

Money factor- Basically a fancy way of saying interest rate. Whatever the money factor is, multiply by 2400 and that will tell you the interest rate. This number cans be manipulated and the dealer will not always disclose it, but if you want to make sure you aren't taken advantage of, you need this number. The money factor can change monthly.
Also BMW allows a dealer to mark up lease rates up to 0.0004. This may sound small but equates to 0.96% over the course of a lease and is pure dealer profit. Always find out the base money factor before you start negotiating lease terms.
Lease factor should be in decimal form and should be a small number. Currently BMW is charging a 0.0013 lease rate for the F80/82/83.
.0013 x 2400 = 3.12%.
So the smaller the number the better.

Residual rate- Expressed as a percentage and varies by number of years, mileage, and model. This number can change every month. Obviously the more years and miles you add to the lease the lower the residual because the car won't be worth as much when you turn it in. Higher residual rates are obviously better.

MSRP is 50000
Residual of 50% means you will finance 25000 over the term of your lease
Residual of 60% means you finance 20000 over the term of the lease.

Cap cost- This is the price you have negotiated on the car. Yes that's right, you can negotiate the price on a leased car.

Cap cost reduction- This is any money used to reduce the total cap cost. It can be incentives, trade in, or cash. This is generally something to avoid because you lose that money if you total the car. Its also hard to recoup if you want to transfer the lease to someone else (no one wants to give you cash you spent to get your payment low). If a lower monthly payment is needed, makes you feel better, or gets it past the gatekeeper (aka spouse) then you are better of using MSDs (explained below) or taking the money and putting into a separate account. You then transfer a small amount over every month to make the payment lower.

Multiple Security Deposits (MSDs)- This is a BMW tool to bring down the money factor which in turn will reduce your monthly payment. It is returned at the end of the lease and is a good tool to lower your payment, but there are a few caveats.
1- You will not get it back if you fail to make good on your end of the lease (don't pay the monthly payment)
2- Again difficult to get someone to give you that money when transferring the lease.
3- End of lease charges are taken first before money is paid (damage, over mileage, etc.)
A maximum of 7 MSDs can be applied. Each one reduces the money factor 0.00007. Each MSD costs the monthly payment rounded up to the nearest $50.


Original money factor is 0.0013
0.0013 x 2400 = 3.12
You buy 5 MSDs
0.0013 - (0.00007 x 5)= 0.00095
0.00095 x 2400 = 2.28

You reduced your interest rate from 3.12 to 2.28 with money you get back at the end of the lease.

Why does BMW do this?. Mostly because they can invest it and it gives them cash in hand to take for damage without having to chase after money at lease turn in.

Acquisition fee- Basically a loan origination fee. Right now base fee is $795 for BMW as of 1/1/2015 (can be raised to $995 max by dealer). Varies by manufacturer.

Disposition fee- BMW charges $350. Its a fee BMW charges so the dealer can "dispose" of the car (usually prepping/transporting for the next buyer). This fee is waived if you go into another lease or buy a new car through BMWFS, buy the currently leased car, transfer the lease, or sell it (you still need to pay BMWFS what you still owe them).

Taxes- This can differ from state to state and even within a state. Some states require the full purchase price be taxed up front, some counties within a state add an additional tax, and some states tax at a different rate for lease than buying. Check with your state as this topic is too broad to tackle in this post.

Now that we understand the terms, some quick tips.

Every leasing company has slightly different rules for the leases. You have to investigate them individually. For this section I will use BMW as the example.

BMW expects the car returned in the condition it was picked up. This means any mods must be reversible. Don't bolt on a wing to the trunk, paint the car a different color, change the interior material, etc. Mods like springs, wheels, grill changes are fine as long as you change it back when you turn it in. Some dealers will wok with you on this and will let you add OEM parts. As with anything, check first before modding. Some mods can be rolled into the lease if they are added during the original order (black grills for the M3/M4 is one example). Other mods can be sold after you turn the car in (ex. Bavsound speakers).

One special topic is tires. Most tires will need to be replaced before end of lease. You are allowed to by any tire as long as it is of the same rating/size/performance. If the car came with Pilot Super Sports, Bridgestone Potenza will be fine. IF YOUR CAR CAME WITH RUNFLATS IT HAS TO BE RETURNED WITH RUNFLATS. Many people forget this and get dinged at lease turn in. Tread depth must be 4/32" or greater.

BMW requires an lease end inspection that usually is setup up about 75 days from the lease maturity date. This is an independent company. When completed you will receive a report and it will detail any repairs that are needed. You can fix it or still just turn it in and be billed by BMW later.

Fees also vary by state but shouldn't be much different than buying a car. These fees include the usual doc fee, admin fee, title, etch. Watch for dummy fees. These can be paid upfront or rolled into the monthly cost. Its up to you to spot bogus or marked up fees. Spoke like to pay them upfront and not deal with the interest of them over three years. Some like to pay as little as possible at signing. Usually the rule of thumb is to pay these upfront because they most are mandatory and why pay interest on them if you don't have to.

BMW does provide the option to buy additional mileage before the lease ends. Its usually at a reduced rate compared to turn in, but higher than the mileage cost of adding it in at the beginning of the lease. You can crunch the numbers if you believe you will be in between mileage at lease end. Generally you want enough mileage so you aren't constantly looking for excuses not to drive it.

Be realistic with yourself about the mileage and its probably better to slightly underestimate than over, because the rebate on unused miles is embarrassingly low.

BMW financial also automatically includes GAP insurance. This is a nice touch because you don't need to get it yourself.

BMW provides a "ding-o-meter" which shows how much damage is acceptable. This makes it easy to get an idea if you are going to need to fix certain defects.

You are also allowed to return your BMW to any authorized dealer (likely any US dealer) but they usually need to be notified (about 90 days). You can't just show up at a random dealer and drop of the car without expecting a huge hassle.

BMW also makes it fairly painless to transfer a lease. This is nice because it reduces your financial exposure should you need to get out of the payments. It also makes it important to make a good deal as it will make your transfer more desirable. I will try and update some of the basics at a later date.

Another important tip. You are always allowed to buy out the lease or sell the car whenever you want. As long as BMWFS gets the money they are owed, they don't care. This can be helpful if the car is worth more than the residual. This can happen at any time and some dealers (esp BMW) will gladly take your lease early if the car is in demand. Many forum members have taken advantage of this little known fact to get into new cars sooner than their lease term. Also since you can drop off at any dealer, you could shop your car around to multiple dealers and see if anyone will buy for more than the residual.

2013 M3 with a residual of 55% after 3 years (MSRP $75000) Buy out is $41,250. You go to turn the BMW in and ask if they want to buy it. They say yes and offer $43,000. You get $1,650 in cash or towards the next car.
This works prior to lease end, you just need to have them offer more than the current buy out.

So that is leasing in a nutshell.
If you want some one to rate your deal you will need to include MSRP, Negotiated price (cap cost), money factor, years, allowed mileage, cap cost reductions, number of MSDs, and monthly cost.
Please add comments/corrections/suggestions.
great post... thank you for the info!! MODS make this a sticky
2015 f82 alpine white bmw/// M4
2013 f10 carbon black bmw 550i=traded in
2010 e92 alpine white bmw m3=traded in
2003 e46 alpine white bmw m3=traded in
2003 e46 Laguna seca blue bmw m3=stolen