BMW lease numbers not adding up

[Richmond Bimmer]

The following are the numbers on my proposed 335i Cp lease:

Total price w/ tax, title, fees: $51,176.76
Term: 36 mos
Cap reduction: $2500
Residual: $29,877
Money factor: 0.0024

I have run a couple of calculators and am getting a payment of $710 while the dealer is quoting me $758. I have asked them and they told me they ran it on a "BMW approved calculator". What gives? Do they use a different formula than everyone else?

[psucelticXI]

Did you try the payment calculator on edmunds.com?

[RMcoolX]

I went through the same issue. My salesman told me that it had something to do with the BMW calculator not accounting for how state taxes would be handled. I was just so ready to get the hell out of the dealership and into my baby that it really didn't matter anymore. I research everything else and he was on the up-and-up for the most part, so I took him at his word. All the other numbers worked out OK and I got a good deal on the car.

Is your car an 08? The money factor for an 07 cpe is 0.00200 based on what I've seen.

[drbimmer97]

your dealer is pulling a fast one on you. i did my own calculations in front of him. he quoted me a difference of $40-50/month at the stated BMWFS MF of 0.0019 (for sedan in august)....it turns out that the dealership "automatically" computed the MF at 0.0024 which when i computed showed the EXACT MONTHLY PAYMENT they were quoting. i called their LIE and got them to go with MY COMPUTED RATE of 0.0019 so CALL THEIR BLUFF !!!

[aftp302]

I don't know about a "BMW Approved Calculator" but leases are not magic. The only thing that makes them hard to calculate is the differences from state to state on where tax is applied (lump sum up front, amortized over lease payments, and whether you pay tax on the full value or just the part you "use").

The lease payment should be:

(CapCost-Residual) / Term = Depreciation
(CapCost+Residual) * Money Factor = Interest
Interest + Depreciation = Payment (plus taxes)

For example, here was my deal:
MSRP = 47020
Cap Cost (negotiated price) = 45813
Down Payment (cap cost reduction) = 0
15k Miles (61% residual)
36months
Money Factor .00136
Security Deposit = 1800 ($600 required plus 2x extra to reduce MF from .0015 to .00136)
Due at signing = 4514.11
Payment = 588.25

So, substituting my numbers into the formula above to figure out my deal, it looks like this:
(45813 - 28682) / 36 = 475.86
(45813 + 28682) * .00136 = 101.31
475.86 + 101.31 = 577.17
577.17 + 11.08 (delaware sales use tax of 1.92% on monthly lease pmt) = 588.25

Due at signing: $4514.11
acquisition fee = 625
1st pmt = 588.25
security deposits = 1800
delaware tax (2.75%) on full value of car = 1259.86
title/tags/reg = 241

Hope this helps you sort out your lease.

[bOOsted335]

They always try to close you a few dollars more so they can sell their finance products at closing that's all.

[RMcoolX]

As best I can tell, by default the BMW lease calculator assumes that you will be paying the $2500 down, 1st payment and security deposit. If you pay only the DP, but not the 1st payment and/or security deposit, then the calculator is going to understate what your real monthly payment will be.

I put down $1450 total drive out, which is also the amount that I put into the calculator. It was off by $30 for this reason based on my calculations.

[Richmond Bimmer]

As best I can tell, by default the BMW lease calculator assumes that you will be paying the $2500 down, 1st payment and security deposit. If you pay only the DP, but not the 1st payment and/or security deposit, then the calculator is going to understate what your real monthly payment will be.

I put down $1450 total drive out, which is also the amount that I put into the calculator. It was off by $30 for this reason based on my calculations.


This may be the explanation. The "down payment" is probably a cap reduction + first payment + security deposit = $2500 which means that the true cap reduction is only roughly $1042. Does anybody know the normal security deposit?

[galahad05]

Mine was one month's payment, or around $580 I believe.

[aftp302]

This may be the explanation. The "down payment" is probably a cap reduction + first payment + security deposit = $2500 which means that the true cap reduction is only roughly $1042. Does anybody know the normal security deposit?

Security deposit is always equal to your monthly payment rounded up to the nearest $50 increment.

[Zimmy1993]

your dealer is pulling a fast one on you. i did my own calculations in front of him. he quoted me a difference of $40-50/month at the stated BMWFS MF of 0.0019 (for sedan in august)....it turns out that the dealership "automatically" computed the MF at 0.0024 which when i computed showed the EXACT MONTHLY PAYMENT they were quoting. i called their LIE and got them to go with MY COMPUTED RATE of 0.0019 so CALL THEIR BLUFF !!!


Not necessarily. The dealer is trying to make a profit. That's why they are there. If you go in with the proper knowledge, then you will able to better understand the deal and should be able to work out a deal that is not only profitable for the dealership, but one that is fair for both parties. Profit is not a dirty word and should be expected. Being that the OP is looking at one of the higher-demand BMW's available, the profit margin is going to be understandably higher.

OP; 2007 or 2008? If it's a 2007, the September buy rate (BMW FS Minimum) is .00200. This number can be raised by the dealership. It is raised .00015 by FS if you waive the security deposit. If it's a 2008, the rate for the same time is .00275.

The residuals are the same. 58% for 15k, 60% for 12k and 61% for 10k.

Don't forget there is an acquisition fee in the lease as well. BMW FS charges around $625 and dealers are allowed to mark this up as well.

Ask your dealer to be fair with you, be fair with them. And ask for a full-disclosure of the lease. That will leave nothing for them to hide. If you need further help, PM me tomorrow and I'll help out some more.

[335eye]

Dealers regularly quote lease prices that are too high, and are perfectly willing to fully disclose inflated money factors to buyers. Fact is, to most people, the MF means nothing, and since the payment seems much lower than financing they smile and sign. All this happens after price negotiations have presumably been completed. There should be a law.

[Zimmy1993]

Dealers regularly quote lease prices that are too high, and are perfectly willing to fully disclose inflated money factors to buyers. Fact is, to most people, the MF means nothing, and since the payment seems much lower than financing they smile and sign. All this happens after price negotiations have presumably been completed. There should be a law.


There are laws. Most information is available on the lease contract, however the MF is not, and most dealers will give you this information if you request it. Again, this is a profit making point for the dealership and if you tell them you understand that and are willing to let them make a fair profit, I cant think that they would argue with you about it. It's all about getting a fair deal and knowing the areas in which are negotiable.

[335eye]

Existing laws do little to improve transparency. The lease shell game continues.

Too bad there isn't a single number, or factor that can be the used to compare leases on an equal basis across different vehicles. Such a system would prove just as valuable as fuel consumption disclosures, IMO.

[edited for clarity]

[Zimmy1993]

The same thing goes for interest rates on a purchase. The dealer can mark up the buy rate as well.

I'll agree that things could be done to make leasing and buying cars clearer, but on the other side of the coin, we do live in a time where all the information is made available to a consumer. If armed with the proper information, you only have yourself to blame if you get screwed.

[Richmond Bimmer]

I spoke w/the dealer and apparently it took them a while to figure it out but the down payment was indeed not a full cap reduction but rather included the 1st payment, security deposit, etc thus the discrepancy. Thanks for your help guys.

[RMcoolX]

I spoke w/the dealer and apparently it took them a while to figure it out but the down payment was indeed not a full cap reduction but rather included the 1st payment, security deposit, etc thus the discrepancy. Thanks for your help guys.


So I guessed right...woohoo!!!

[Zimmy1993]

To the OP: Lease rates on 2008's went from .00275 in September to .00200 for October on the 335i Sedan.

These are BMW's buy rates.

I"d re-look at 2008's again if I were you...

[pamajmudar]

Do you know about the '08 coupe MF for October?

[Zimmy1993]

Do you know about the '08 coupe MF for October?


Down to .00190 (328) and .00235 (335)

[Beer Goggles]

to convert MF you multiply by 2400 to get the interest rate (easier to understand).

[CTT]

Down to .00190 (328) and .00235 (335)

woohoo

[rgpie75]

I don't know about a "BMW Approved Calculator" but leases are not magic. The only thing that makes them hard to calculate is the differences from state to state on where tax is applied (lump sum up front, amortized over lease payments, and whether you pay tax on the full value or just the part you "use").

The lease payment should be:

(CapCost-Residual) / Term = Depreciation
(CapCost+Residual) * Money Factor = Interest
Interest + Depreciation = Payment (plus taxes)

For example, here was my deal:
MSRP = 47020
Cap Cost (negotiated price) = 45813
Down Payment (cap cost reduction) = 0
15k Miles (61% residual)
36months
Money Factor .00136
Security Deposit = 1800 ($600 required plus 2x extra to reduce MF from .0015 to .00136)
Due at signing = 4514.11
Payment = 588.25

So, substituting my numbers into the formula above to figure out my deal, it looks like this:
(45813 - 28682) / 36 = 475.86
(45813 + 28682) * .00136 = 101.31
475.86 + 101.31 = 577.17
577.17 + 11.08 (delaware sales use tax of 1.92% on monthly lease pmt) = 588.25

Due at signing: $4514.11
acquisition fee = 625
1st pmt = 588.25
security deposits = 1800
delaware tax (2.75%) on full value of car = 1259.86
title/tags/reg = 241

Hope this helps you sort out your lease.

Out of curiosity, why did you pay an extra $1200 deposit to reduce your MF from .0015 to .00136? That would have only reduced your monthly payment by like $10 or so, correct?

[rgpie75]

Also, does anyone know the $/mile charge if you go over the stated miles on the lease? BMW uses $.15/mile in their calculation if you build extra miles into the lease from the beginning (though I suppose that could be negotiable?), but I'm not sure what they use as a penalty if you are over at the end.

[galahad05]

My lease agreement states $0.20/mile.

[Beer Goggles]

Out of curiosity, why did you pay an extra $1200 deposit to reduce your MF from .0015 to .00136? That would have only reduced your monthly payment by like $10 or so, correct?

You save money doing that and if you can be without the deposit for the length of the term it's like a non-interest savings. Most people want the lowest payment and doing some cap cost will save more than putting 7 months security into BMWs bank.

[Richmond Bimmer]

Also, does anyone know the $/mile charge if you go over the stated miles on the lease? BMW uses $.15/mile in their calculation if you build extra miles into the lease from the beginning (though I suppose that could be negotiable?), but I'm not sure what they use as a penalty if you are over at the end.

My dealer told me that if you feel like you are going over you can re-work the mileage mid-lease. Anybody have experience with this? Is it more prudent to shoot low and then re-work rather than pay for miles you'll never use?

[Beer Goggles]

If you pay first you save .01 a mile. Paying lower first then increasing is probably not the best idea. How much lower can you go than 10K or 12K?

You should know what you drive a year...I went for 15K because I knew I'd do it.

[Bimmerext]

I don't know about a "BMW Approved Calculator" but leases are not magic. The only thing that makes them hard to calculate is the differences from state to state on where tax is applied (lump sum up front, amortized over lease payments, and whether you pay tax on the full value or just the part you "use").

The lease payment should be:

(CapCost-Residual) / Term = Depreciation
(CapCost+Residual) * Money Factor = Interest
Interest + Depreciation = Payment (plus taxes)

For example, here was my deal:
MSRP = 47020
Cap Cost (negotiated price) = 45813
Down Payment (cap cost reduction) = 0
15k Miles (61% residual)
36months
Money Factor .00136
Security Deposit = 1800 ($600 required plus 2x extra to reduce MF from .0015 to .00136)
Due at signing = 4514.11
Payment = 588.25

So, substituting my numbers into the formula above to figure out my deal, it looks like this:
(45813 - 28682) / 36 = 475.86
(45813 + 28682) * .00136 = 101.31
475.86 + 101.31 = 577.17
577.17 + 11.08 (delaware sales use tax of 1.92% on monthly lease pmt) = 588.25

Due at signing: $4514.11
acquisition fee = 625
1st pmt = 588.25
security deposits = 1800
delaware tax (2.75%) on full value of car = 1259.86
title/tags/reg = 241

Hope this helps you sort out your lease.

*** What # does the 28,682 represent in this scenerio?
Is it the price you would pay to buy the car at lease end, or the amount of payments you made? It doesn't add up to 61% or 58%, etc.

Also, why is the 45,813 added to 28,682 when calculating interest?

Not a finance person, sorry for the stupidity.

Pls advise.

Thanks,

M~

[335eye]

47020 x .61 = 28682 = MSRP times Residual. Residual is the amt you could pay to buy the car at the end of the lease term.

[335eye]

Calculating A Sample Lease Payment

In the following example, we have chosen a vehicle that has a sticker price of $23,000. You have negotiated the price down to $20,000. We'll also assume that the interest rate is 9 percent and the residual value is 57 percent. What are the monthly payments on a three-year lease?

The first step is to find out how much of the car's value you will use. In other words, down the road three years, what will it be worth? In this example, the MSRP of $23,000 is multiplied by the residual value of 57 percent.

$23,000 X .57 = $13,110

The car will be worth $13,110 at the end of the 36-month lease. Since the car was worth $20,000 (after you negotiated it down) and it will be worth $13,110, you will be using $6,890 of the car's value.

$20,000 - $13,110 = $6,890

The $6,890 is then broken into 36 monthly payments of $191.39.

Before you get excited about how low this payment is, remember that this figure doesn't include interest or tax. Finding the interest amount is the second half of the calculation. Interest on a lease is computed in a weird way. You add the negotiated price of the car to the residual value and multiply this by the money factor.

($20,000 + $13,110) X .0037 = $122.50

Finally, these two figures are added together to give you the approximate bottom-line monthly lease payment.

$191.39 + $122.50 = $313.89

Remember, this figure does not include taxes or fees and doesn't take into consideration any down payment or upfront money such as rebates or incentives. The entire formula looks like this:

1. Sticker Price of the car + options $23,000

2. Times the residual value percentage X .57%

3. Equals the residual value = $13,110

4. Invoice price of car minus incentives (net capitalized cost) $20,000

5. Minus the residual (From line 3) - $13,110

6. Equals the depreciation over 36 months = $ 6,890

7. Depreciation (Line 6) divided by term in months ÷ 36

8. Equals the monthly depreciation payment = $ 191.39

9. Net capitalized cost (From line 4) $20,000

10. Plus the residual (From line 3) + $13,110

11. Equals = $33,110

12. Times the money factor X .0037

13. Equals money factor payment portion = $ 122.50

14. Monthly depreciation payment (from line 8) $ 191.39

15. Plus money factor payment portion (from line 12) + $ 122.50

16. Equals bottom-line monthly lease payment = $ 313.89

Don't forget that you haven't paid tax yet, and this is significant. To find out how much tax you will pay, multiply the monthly lease payment by the state sales tax. For this example, your vehicle will be leased in California, which has an 8.25 percent sales tax:

$313.89 X .0825 = $25.89
This has increased your monthly payment to $339.78.

In the above example, you could reduce your monthly payment by putting more money down. (Most leases require about $1,000 in "drive-off fees." Some of this money is loan initiation, some of it is security deposit and some goes toward the down payment.) The down payment would be subtracted from line 4, the invoice price of the car.

While this calculation looks a bit complicated, it actually only takes minutes to plug in the data and generate a lease payment. It's time well spent, since this will guide you through the process and help you get a good deal on a leased car.

[The HACK]

Out of curiosity, why did you pay an extra $1200 deposit to reduce your MF from .0015 to .00136? That would have only reduced your monthly payment by like $10 or so, correct?

Huh? :confused

Why not pay the $1,200 security deposit to save $10 a month? Even assuming moderate returns in a savings account (let's be generous and say 5.9%apr), that $1,200 will earn you $6 a month. A Money Factor reduction of .00014 equates to around $15 a month. You'll need to invest the money in something that returns around 15% guaranteed in the next 3 years to equal the savings you see from the 2 MSD.

If you can pick something to guarantee 15% return in the next 3 years, by all means, skip the MSD and invest that money in whatever you want to invest in. Otherwise the MSD is still a safe, secure way to save a few bucks a month.

[joelk01]

You have to check their numbers. One dealer in NJ showed me a lower Cap Cost than I had from another dealer. The resid is set from the MSRP, the MF was disclosed to me as the same as I was using with the first dealer. After that it is just math. The dealer came back with a payment that was way too high. There was no down payment, no taxes., or any other adjustments. Their numbers were just wrong. When I asked them to go over the numbers with me, they said that the numbers were the numbers. It was a black box. Basically, they were adding markups that they were not disclosing and hoping that I didnt try to tie out the payments with them. In essence, they were commiting fraud.

Go in with a calculator. You should tie out with them. It is just math. If they wont tie out with you, walk out of the dealership.

[Beer Goggles]

Huh? :confused

Why not pay the $1,200 security deposit to save $10 a month? Even assuming moderate returns in a savings account (let's be generous and say 5.9%apr), that $1,200 will earn you $6 a month. A Money Factor reduction of .00014 equates to around $15 a month. You'll need to invest the money in something that returns around 15% guaranteed in the next 3 years to equal the savings you see from the 2 MSD.

If you can pick something to guarantee 15% return in the next 3 years, by all means, skip the MSD and invest that money in whatever you want to invest in. Otherwise the MSD is still a safe, secure way to save a few bucks a month.


I think because most people are looking to significantly lower monthly payments and doing more cap cost makes a much bigger difference. Most people have a set amount to put down, and security deposits don't do anything for cap cost.

If you had 5K to put down, and tied up the max SDs (estimate $500 a month) you'd put $4500 in deposits and have ZERO cap cost. Your payments would probably be $150 higher. Sure you get that money back at the end but cash flow dictates.

That is why people don't use Sds because 5K available in your bank collecting interest and there for you is better than loaning somebody giving you a loan money.

The deposit is a good idea if you have an extra 5 months payments laying around, but realistically most people don't.

[rgpie75]

Huh? :confused

Why not pay the $1,200 security deposit to save $10 a month? Even assuming moderate returns in a savings account (let's be generous and say 5.9%apr), that $1,200 will earn you $6 a month. A Money Factor reduction of .00014 equates to around $15 a month. You'll need to invest the money in something that returns around 15% guaranteed in the next 3 years to equal the savings you see from the 2 MSD.

If you can pick something to guarantee 15% return in the next 3 years, by all means, skip the MSD and invest that money in whatever you want to invest in. Otherwise the MSD is still a safe, secure way to save a few bucks a month.

Actually a MF reduction of .00014 using his example did only save him $10 per month....or $10.43 to be exact. So you really only need a little over a 10% annual return on your $1200 to make out better than that $10.43 a month saves you. If savings accounts are where you keep your money, the I agree, you might as well save the $10 a month because you're certainly not going to get better than a 10% return there. 10% is average in the stock market though. Guess it all depends on risk tolerance.

[Beer Goggles]

For example I did a lease calc with

45K (sticker for neg) price

Payment with $4K down and the higher interest rate of .0024 = $583 month

A lower interest rate from 7 deposits (eating up the a typical $5k budget) and it's $660 a month.

[Bimmerext]

Calculating A Sample Lease Payment

In the following example, we have chosen a vehicle that has a sticker price of $23,000. You have negotiated the price down to $20,000. We'll also assume that the interest rate is 9 percent and the residual value is 57 percent. What are the monthly payments on a three-year lease?

The first step is to find out how much of the car's value you will use. In other words, down the road three years, what will it be worth? In this example, the MSRP of $23,000 is multiplied by the residual value of 57 percent.

$23,000 X .57 = $13,110

The car will be worth $13,110 at the end of the 36-month lease. Since the car was worth $20,000 (after you negotiated it down) and it will be worth $13,110, you will be using $6,890 of the car's value.

$20,000 - $13,110 = $6,890

The $6,890 is then broken into 36 monthly payments of $191.39.

Before you get excited about how low this payment is, remember that this figure doesn't include interest or tax. Finding the interest amount is the second half of the calculation. Interest on a lease is computed in a weird way. You add the negotiated price of the car to the residual value and multiply this by the money factor.

($20,000 + $13,110) X .0037 = $122.50

Finally, these two figures are added together to give you the approximate bottom-line monthly lease payment.

$191.39 + $122.50 = $313.89

Remember, this figure does not include taxes or fees and doesn't take into consideration any down payment or upfront money such as rebates or incentives. The entire formula looks like this:

1. Sticker Price of the car + options $23,000

2. Times the residual value percentage X .57%

3. Equals the residual value = $13,110

4. Invoice price of car minus incentives (net capitalized cost) $20,000

5. Minus the residual (From line 3) - $13,110

6. Equals the depreciation over 36 months = $ 6,890

7. Depreciation (Line 6) divided by term in months ÷ 36

8. Equals the monthly depreciation payment = $ 191.39

9. Net capitalized cost (From line 4) $20,000

10. Plus the residual (From line 3) + $13,110

11. Equals = $33,110

12. Times the money factor X .0037

13. Equals money factor payment portion = $ 122.50

14. Monthly depreciation payment (from line 8) $ 191.39

15. Plus money factor payment portion (from line 12) + $ 122.50

16. Equals bottom-line monthly lease payment = $ 313.89

Don't forget that you haven't paid tax yet, and this is significant. To find out how much tax you will pay, multiply the monthly lease payment by the state sales tax. For this example, your vehicle will be leased in California, which has an 8.25 percent sales tax:

$313.89 X .0825 = $25.89
This has increased your monthly payment to $339.78.

In the above example, you could reduce your monthly payment by putting more money down. (Most leases require about $1,000 in "drive-off fees." Some of this money is loan initiation, some of it is security deposit and some goes toward the down payment.) The down payment would be subtracted from line 4, the invoice price of the car.

While this calculation looks a bit complicated, it actually only takes minutes to plug in the data and generate a lease payment. It's time well spent, since this will guide you through the process and help you get a good deal on a leased car.

Anyway to calculate what the .0037 interest rate is on an annual basis?

[The HACK]

Guess it all depends on risk tolerance.

Indeed. MSDs aren't the greatest investment (neither is a car) but if it's money you're just going to put into a savings account anyway, it's a better GUARANTEED return.

[The HACK]

Anyway to calculate what the .0037 interest rate is on an annual basis?

Multiply it by 2400.

[Beer Goggles]

Indeed. MSDs aren't the greatest investment (neither is a car) but if it's money you're just going to put into a savings account anyway, it's a better GUARANTEED return.


There's no return on that money given to them, and realistically it's a loss. Unless you have extra capitol to put away for the length of the lease it's better off to use what you were budgeting for a down payment and have a lower monthly. The MSDs do give you a better rate but we're not talking a huge amount.

Example lease
$45K
5K down
.0024 36 months
$556/month

If you bought down to .0019
It's $515 month, or $40 a month for putting another $4200 down.

[Bimmerext]

Calculating A Sample Lease Payment

In the following example, we have chosen a vehicle that has a sticker price of $23,000. You have negotiated the price down to $20,000. We'll also assume that the interest rate is 9 percent and the residual value is 57 percent. What are the monthly payments on a three-year lease?

The first step is to find out how much of the car's value you will use. In other words, down the road three years, what will it be worth? In this example, the MSRP of $23,000 is multiplied by the residual value of 57 percent.

$23,000 X .57 = $13,110

The car will be worth $13,110 at the end of the 36-month lease. Since the car was worth $20,000 (after you negotiated it down) and it will be worth $13,110, you will be using $6,890 of the car's value.

$20,000 - $13,110 = $6,890

The $6,890 is then broken into 36 monthly payments of $191.39.

Before you get excited about how low this payment is, remember that this figure doesn't include interest or tax. Finding the interest amount is the second half of the calculation. Interest on a lease is computed in a weird way. You add the negotiated price of the car to the residual value and multiply this by the money factor.

($20,000 + $13,110) X .0037 = $122.50

Finally, these two figures are added together to give you the approximate bottom-line monthly lease payment.

$191.39 + $122.50 = $313.89

Remember, this figure does not include taxes or fees and doesn't take into consideration any down payment or upfront money such as rebates or incentives. The entire formula looks like this:

1. Sticker Price of the car + options $23,000

2. Times the residual value percentage X .57%

3. Equals the residual value = $13,110

4. Invoice price of car minus incentives (net capitalized cost) $20,000

5. Minus the residual (From line 3) - $13,110

6. Equals the depreciation over 36 months = $ 6,890

7. Depreciation (Line 6) divided by term in months ÷ 36

8. Equals the monthly depreciation payment = $ 191.39

9. Net capitalized cost (From line 4) $20,000

10. Plus the residual (From line 3) + $13,110

11. Equals = $33,110

12. Times the money factor X .0037

13. Equals money factor payment portion = $ 122.50

14. Monthly depreciation payment (from line 8) $ 191.39

15. Plus money factor payment portion (from line 12) + $ 122.50

16. Equals bottom-line monthly lease payment = $ 313.89

Don't forget that you haven't paid tax yet, and this is significant. To find out how much tax you will pay, multiply the monthly lease payment by the state sales tax. For this example, your vehicle will be leased in California, which has an 8.25 percent sales tax:

$313.89 X .0825 = $25.89
This has increased your monthly payment to $339.78.

In the above example, you could reduce your monthly payment by putting more money down. (Most leases require about $1,000 in "drive-off fees." Some of this money is loan initiation, some of it is security deposit and some goes toward the down payment.) The down payment would be subtracted from line 4, the invoice price of the car.

While this calculation looks a bit complicated, it actually only takes minutes to plug in the data and generate a lease payment. It's time well spent, since this will guide you through the process and help you get a good deal on a leased car.

Why is interest calculated the way it is, shouldn't it be on that portion of the car I'm using? Seems like I'm being charged for something I'm not buying!

[rgpie75]

There's no return on that money given to them, and realistically it's a loss.

Not entirely true. You can look at it exactly like buying a coupon bond. For simplicity, let's say you pay an extra $1,000 down payment (the bond) that reduces your MF and saves you $10/month (the coupon payment the bond pays you). So for your $1,000 investment, you get $10 a month income (savings actually, but still a cash flow) and then get your $1,000 back at the end of your lease. Once you factor in time value of money, let's say 5% for a savings account, the Net Present Value of your $1,000 investment and $10 savings is $1,194.63. If you had put that $1,000 into a savings account instead, you would have only had $1,161.47 after 36 months assuming the same 5% interest. So it's really a positive NPV investment to buy down the MF. This of course assumes you're leaving the money in a low yield investment and not something that could get a higher return.

I know, I'm a finance geek :redspot

[Beer Goggles]

Not entirely true. You can look at it exactly like buying a coupon bond. For simplicity, let's say you pay an extra $1,000 down payment (the bond) that reduces your MF and saves you $10/month (the coupon payment the bond pays you). So for your $1,000 investment, you get $10 a month income (savings actually, but still a cash flow) and then get your $1,000 back at the end of your lease. Once you factor in time value of money, let's say 5% for a savings account, the Net Present Value of your $1,000 investment and $10 savings is $1,194.63. If you had put that $1,000 into a savings account instead, you would have only had $1,161.47 after 36 months assuming the same 5% interest. So it's really a positive NPV investment to buy down the MF. This of course assumes you're leaving the money in a low yield investment and not something that could get a higher return.

I know, I'm a finance geek :redspot


That makes sense when presented that way, interesting spin.

[335eye]

Why is interest calculated the way it is, shouldn't it be on that portion of the car I'm using? Seems like I'm being charged for something I'm not buying!

No, you should pay interest on the negotiated value of the car (loaned portion), at the interest rate,

or..

you should pay interest on MORE than the negotiated value of the car at 1/2400th of the interest rate (MF). Adding the residual to the negotiated value is a way to insure that the residual affects both portions of your payment (depr and interest), inversely.

A rising residual will reduce the depreciation portion of the pmt and increase the interest portion of the pmt. A falling residual will have the opposite effect.

[mryakan]

Not entirely true. You can look at it exactly like buying a coupon bond. For simplicity, let's say you pay an extra $1,000 down payment (the bond) that reduces your MF and saves you $10/month (the coupon payment the bond pays you). So for your $1,000 investment, you get $10 a month income (savings actually, but still a cash flow) and then get your $1,000 back at the end of your lease. Once you factor in time value of money, let's say 5% for a savings account, the Net Present Value of your $1,000 investment and $10 savings is $1,194.63. If you had put that $1,000 into a savings account instead, you would have only had $1,161.47 after 36 months assuming the same 5% interest. So it's really a positive NPV investment to buy down the MF. This of course assumes you're leaving the money in a low yield investment and not something that could get a higher return.

I know, I'm a finance geek :redspot
So all this for 30$ over three years? *sight* :stickoutt

[rgpie75]

So all this for 30$ over three years? *sight* :stickoutt

Well that also assumes BMW gives you your full deposit back! :D

[The HACK]

So all this for 30$ over three years? *sight* :stickoutt

:rolleyes

Look at it another way. Say you're leasing higher level car instead of the 3 series, like a 650i. Your monthly payment before the MSD is say, $765/mo (pulling numbers out of my @ss right now). You put down the maximum allowable MSD, 7 @ $800ea, for a total of $5,600. That's a money factor reduction of .00049. By my quick fuzzy math, you'll realize a saving of approximately $45-$50 a month, on a 36 month term for a total of $2,700-3,000 at the end of the lease term.

I'm doing most of the calculation in my head so I can't guaranteed any of these numbers are remotely accurate, but you get the idea. The reason why he's only realizing $30 worth of return is because he only put down 2 MSD. By buying the maximum MSD he'll actually be reducing his approximate APR by 1.2% instead of just .3%. On a higher end vehicle you'll also realize a larger amount of savings.

But it makes no sense to put MSD down if you know of an investment that will guaranteed ~10% return. And I think BMWFS is pretty much the only lease you can do MSDs through so if you're leasing through say, Chase or other bank, you don't even have this option anyway. :dunno

[rgpie75]

:rolleyes

Look at it another way. Say you're leasing higher level car instead of the 3 series, like a 650i. Your monthly payment before the MSD is say, $765/mo (pulling numbers out of my @ss right now). You put down the maximum allowable MSD, 7 @ $800ea, for a total of $5,600. That's a money factor reduction of .00049. By my quick fuzzy math, you'll realize a saving of approximately $45-$50 a month, on a 36 month term for a total of $2,700-3,000 at the end of the lease term.

I'm doing most of the calculation in my head so I can't guaranteed any of these numbers are remotely accurate, but you get the idea. The reason why he's only realizing $30 worth of return is because he only put down 2 MSD. By buying the maximum MSD he'll actually be reducing his approximate APR by 1.2% instead of just .3%. On a higher end vehicle you'll also realize a larger amount of savings.

But it makes no sense to put MSD down if you know of an investment that will guaranteed ~10% return. And I think BMWFS is pretty much the only lease you can do MSDs through so if you're leasing through say, Chase or other bank, you don't even have this option anyway. :dunno

You would also want to compare the savings you get by reducing the capitalized cost with that money rather than paying MSD and reducing the money factor. If you get $50 in savings by reducing the MF, but $175 in savings by reducing the cap cost, it might make more sense to do that and invest that money. Not sure which would be better in the examples here, but there's a breakeven point there somewhere. I have an excel spreadsheet at home that works exactly like the BMW lease calculator. I'll check it out later.

[The HACK]

You would also want to compare the savings you get by reducing the capitalized cost with that money rather than paying MSD and reducing the money factor. If you get $50 in savings by reducing the MF, but $175 in savings by reducing the cap cost, it might make more sense to do that and invest that money. Not sure which would be better in the examples here, but there's a breakeven point there somewhere. I have an excel spreadsheet at home that works exactly like the BMW lease calculator. I'll check it out later.

You don't get cap reduction cost back. You get MSDs back.

In your example, the difference in savings with cap reduction vs. MSD is $125 per month. In a 36 month lease that's $4,500. The MSD is $5,600. You still end up "saving" $1,100 more with MSDs.

NEVER put money down for cap reduction.

[Beer Goggles]

You don't get cap reduction cost back. You get MSDs back.

In your example, the difference in savings with cap reduction vs. MSD is $125 per month. In a 36 month lease that's $4,500. The MSD is $5,600. You still end up "saving" $1,100 more with MSDs.

NEVER put money down for cap reduction.


Never is a strong word. Many have a budget they are willing to "lose" you walk into a dealer with 5K to put down, which most people want a lower payment and are willing to pay interest on a balance to actually finance a car. So unless you are buying outright, paying down cap cost does make sens in the terms of cash flow. Sure you're doing better (albeit a smaller amount) having a lower interest rate, but in reality (where we live) people have a certain amount to spend each month.

As I "chalked out" the difference in not putting money down on cap, and just using all MSDs.

[rgpie75]

You don't get cap reduction cost back. You get MSDs back.

In your example, the difference in savings with cap reduction vs. MSD is $125 per month. In a 36 month lease that's $4,500. The MSD is $5,600. You still end up "saving" $1,100 more with MSDs.

NEVER put money down for cap reduction.

Yep, you're right. You would need a crazy high rate of return on any savings realized by cap cost reduction to recoup the money you put down.

[Jhunter]

Yep, you're right. You would need a crazy high rate of return on any savings realized by cap cost reduction to recoup the money you put down.

Cap cost reduction is a dollar for dollar pre-payment of the "rent" charge portion of a lease. If you put $36 down as cap cost reduction your month payment on a 36 month lease will be $1 less plus the interest saved so there is no downside to cap cost reduction, it is just like a down payment on a lease. The only danger that Beer Googles alluded to is if your car is totalled or stolen especially early in the lease, your insurnace company will pay off the lease but you have "prepaid" some rent. Trying to get this money out of your insurance company (i.e. the prepaid portion of your remaining payments) may be difficult.

[Jhunter]

I looked at the actual savings of MSD when I leased months ago. I don't remember the exact percentage return but I concluded it was not worthwhile and I recall that my savings account interest rate was higher. Also, why would BMWFS borrow money from you at such a high cost?

[Jhunter]

Why is interest calculated the way it is, shouldn't it be on that portion of the car I'm using? Seems like I'm being charged for something I'm not buying!

BMWFS pays the dealer the full cost of the car. If you only pay interest on the part your are using, say half the cost of the car, then BMWFS is loaning the other half of the car for 36 months for free!

[Bimmerext]

...go into a lease and put down $$$ except inceptions. If you need to do that you're buying a car you can't afford!! The point of a lease is to drive away with nothing out of pocket that you can walk away from in 4 years. Sure there may be some tax reasons to lease vs. buy, but overall, any $$$ you put down on a lease is being pissed away.
This advice has been shared with me by people that have a lot of money and know a lot more about how to make it than I ever will.

[335eye]

...go into a lease and put down $$$ except inceptions. If you need to do that you're buying a car you can't afford!! The point of a lease is to drive away with nothing out of pocket that you can walk away from in 4 years. Sure there may be some tax reasons to lease vs. buy, but overall, any $$$ you put down on a lease is being pissed away.
This advice has been shared with me by people that have a lot of money and know a lot more about how to make it than I ever will.

Yeah, and I believe in man-made global warming cause Al Gore told me so.

[Jhunter]

but overall, any $$$ you put down on a lease is being pissed away.

This is not true, see post #52.

[cvex]

Silly question, but does the MF numbers go by your credit rating just as if you were to finance? Or is just a set number where everyone gets it if your credit is at a certian number and over?

[galahad05]

Credit rating is a factor. A big factor.

[Jhunter]

Silly question, but does the MF numbers go by your credit rating just as if you were to finance? Or is just a set number where everyone gets it if your credit is at a certian number and over?

Not a silly question. BMWFS credit decisions are binary, you are either approved or you are not. If you are approved, you get the base money factor. The dealer can mark up the money factor for additional profit but this is not dependent on your FICO score.

[galahad05]

Damn, really? Most lenders don't go that way...learn something new every day.

[Beer Goggles]

Dealers will do anything to sell car and that includes overlooking FICO (which is higher for Auto if you didn't know).

I bought an Audi 5 years ago, just divorced...bad credit. They at first didn't approve me, then the GM talked to the finance guy and they approved at their second lowest rate (5.9%) at the time.