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X3 F25 (2011 - current)
The latest X3 brings some added style and some new features to the BMW SUV family. Talk about the new F25 now!

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  #1  
Old 07-27-2011, 09:39 AM
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Shaw Shaw is offline
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Post Finance vs. Leasing- Let's settle this once and for all!!!

Ok guys,
here's the thing: after having financed my X3, I'm struggling with the lease vs. finance issue and keep thinking maybe it was better I would have leased the car. I know, I know, it is not a new discussion and kinda boring...but I need to put this on a debate and clear it out of my mind.
A quick reaction to this topic which I see a lot is: "if you are planning on keeping your vehicle for long, finance it is and lease for shorter timeframes".
I have done a quick analysis with 2 alternatives and frankly I don't see a lot of advantage on the financing side. Maybe I'm not seeing a part here...so help me out.
First of all the default input (from BMW Canada financing website):
======
*Lease example: lease a 2011 BMW X3 xDrive 28i base model for $41,900 at 5.90% for a term of 39 months and a $4,355 down payment; the monthly lease payment is $569. First month’s lease payment, a security deposit of approximately one month’s lease payment, transportation and preparation ($1,995), A/C excise tax ($100), a PPSA or RPMRR registration fee (up to $90), Retailer administration charges (if any) and all taxes are extra and required upon lease signing. Total obligation is $29,299.86 plus tax. The residual value of the vehicle at end of term is $20,950. License, insurance, vehicle registration and applicable taxes are extra. Annual kilometres are limited to 20,000; $0.15 per excess kilometre. Excess wear and tear charges may apply. Retailers are free to set individual prices and charge administration fees which may change the APR or the price of the vehicle. Transportation / Preparation and excess kilometre charges may vary by model and province.
*Finance rates are those offered by BMW Financial Services Canada only on approved credit on select new BMW models. Representative financing example: finance a 2011 BMW X3 xDrive 28i base model for $41,900 (plus tax) at 4.90% for a term of 60 months and a $6,500 down payment; the monthly finance payment is $769. Total obligation is $52,640.00. Transportation and preparation ($1,995), A/C excise tax ($100), a PPSA or RPMRR registration fee (up to $90), Retailer administration charges (if any) are extra and required upon finance signing. License, insurance, vehicle registration and applicable taxes are extra. Retailers are free to set individual prices and charge administration fees which may change the APR or the price of the vehicle.
========================
Alternative 1: The comparison assumes for the lease option that the "Leasee" pays off the residual value at the end of the 39th month and owns the car right after the 40th month. With the monthly $569 which he would NOT be paying after the 41st month, he is actually breaking even with the initial price ($41,900) on month 50th. Now as for the "Financee", he will finance at $769 for 60 months. Taking the average residual value from the Lease option (the car loses 50% of its value after 39 months), we reach a residual value of $10,984 after 60 months ( I know it may worth more than that, but this is the worst case scenario). So the Financee immediately earns the breakeven on the 60th month. In this scenario we are not calculating the 0.15$ excess kms should the Leasee drive the car over 20,000km per year. (for an excessive 20,000km per year meaning 40,000km per year it is $3,000 per year)

Alternative 2: The Leasee keeps on Leasing... that means probably returning back that car, and getting a new one or keeping the same car. Now the default here is that we are assuming the same car with the same value and installments (not very realistic but that's all we got...) . Even in this scenario, the Lease appears to be beneficial for the first 60 months! Now if we would have been looking at a 100 month timeframe, then the figures might be in favor of financing. But who wants to keep a car for 100 months???

OK, so your thoughts: If you agree with this observation, and if not, what are your angles and observations. Also if anything is missing in this evaluation... I'll attach the excel sheet that shows the graphs
Attached Files
File Type: pdf F vs L.pdf (34.6 KB, 125 views)
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  #2  
Old 07-29-2011, 04:01 AM
neurom neurom is offline
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I think at the end of the spectrum if you buy a car and keep it for 6 or more years, you end up better financing (or buying). If you change frequently, leasing has advantages beyond just the cost. First, you know what your car is going to be worth. You do not have to haggle trading in a vehicle that may not be in high demand and loose a lot there. Leasing gives you some discipline as you have to keep the car for a certain time and don't end up buying new and selling 6 months later because you get bored and are weak and have to take it in the chin (like it has happened to me). If you sell privately, you get a few $$ more, but with a lot of headaches. I used to think buying/financing was best, but this year trade in two cars and I am getting into financing because I was fooling myself thinking I am a keeper, but can't stay with the same vehicle for more than three years. Now when I am done I just turn it in and get a new one (just pay the fee and go through inspection process). Also, for BMW the residuals and finance rates are the best and you get discounts with MSD's and loyalty that make it even more attractive. I ended up leasing an M3 convertible with a 60% residual at 0.9% interest (MF of 0.00041) after MSD's.

Of course if you mod, you can't lease.

Last edited by neurom; 07-29-2011 at 04:03 AM.
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  #3  
Old 07-29-2011, 06:28 AM
exLurker exLurker is offline
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Location: Canada
 
Join Date: Jul 2011
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Mein Auto: 2011 X3 35i
Quote:
Originally Posted by Shaw View Post
Ok guys,
here's the thing: after having financed my X3, I'm struggling with the lease vs. finance issue and keep thinking maybe it was better I would have leased the car. I know, I know, it is not a new discussion and kinda boring...but I need to put this on a debate and clear it out of my mind.
A quick reaction to this topic which I see a lot is: "if you are planning on keeping your vehicle for long, finance it is and lease for shorter timeframes".
I have done a quick analysis with 2 alternatives and frankly I don't see a lot of advantage on the financing side. Maybe I'm not seeing a part here...so help me out.
First of all the default input (from BMW Canada financing website):
======
*Lease example: lease a 2011 BMW X3 xDrive 28i base model for $41,900 at 5.90% for a term of 39 months and a $4,355 down payment; the monthly lease payment is $569. First month’s lease payment, a security deposit of approximately one month’s lease payment, transportation and preparation ($1,995), A/C excise tax ($100), a PPSA or RPMRR registration fee (up to $90), Retailer administration charges (if any) and all taxes are extra and required upon lease signing. Total obligation is $29,299.86 plus tax. The residual value of the vehicle at end of term is $20,950. License, insurance, vehicle registration and applicable taxes are extra. Annual kilometres are limited to 20,000; $0.15 per excess kilometre. Excess wear and tear charges may apply. Retailers are free to set individual prices and charge administration fees which may change the APR or the price of the vehicle. Transportation / Preparation and excess kilometre charges may vary by model and province.
*Finance rates are those offered by BMW Financial Services Canada only on approved credit on select new BMW models. Representative financing example: finance a 2011 BMW X3 xDrive 28i base model for $41,900 (plus tax) at 4.90% for a term of 60 months and a $6,500 down payment; the monthly finance payment is $769. Total obligation is $52,640.00. Transportation and preparation ($1,995), A/C excise tax ($100), a PPSA or RPMRR registration fee (up to $90), Retailer administration charges (if any) are extra and required upon finance signing. License, insurance, vehicle registration and applicable taxes are extra. Retailers are free to set individual prices and charge administration fees which may change the APR or the price of the vehicle.
========================
Alternative 1: The comparison assumes for the lease option that the "Leasee" pays off the residual value at the end of the 39th month and owns the car right after the 40th month. With the monthly $569 which he would NOT be paying after the 41st month, he is actually breaking even with the initial price ($41,900) on month 50th. Now as for the "Financee", he will finance at $769 for 60 months. Taking the average residual value from the Lease option (the car loses 50% of its value after 39 months), we reach a residual value of $10,984 after 60 months ( I know it may worth more than that, but this is the worst case scenario). So the Financee immediately earns the breakeven on the 60th month. In this scenario we are not calculating the 0.15$ excess kms should the Leasee drive the car over 20,000km per year. (for an excessive 20,000km per year meaning 40,000km per year it is $3,000 per year)

Alternative 2: The Leasee keeps on Leasing... that means probably returning back that car, and getting a new one or keeping the same car. Now the default here is that we are assuming the same car with the same value and installments (not very realistic but that's all we got...) . Even in this scenario, the Lease appears to be beneficial for the first 60 months! Now if we would have been looking at a 100 month timeframe, then the figures might be in favor of financing. But who wants to keep a car for 100 months???

OK, so your thoughts: If you agree with this observation, and if not, what are your angles and observations. Also if anything is missing in this evaluation... I'll attach the excel sheet that shows the graphs
Financially leasing is never a better option unless you can't afford the monthly payments on a purchase, or would use the moeny saved to pay off high interest debt. (if either is ture you might want to think twice about buying a BMW) That said, if you don't like worrying about reselling your car it might be worth the extra money for peace of mind.

Leasing is a business so they estimate what they can get for your car at the end of the lease and then they add a profit and risk margin. This along with what they make by lending you money is their profit. They did get burned on especially SUVs that were coming off lease as gas prices shot up at the same time the economy crashed and burned in 2008. This has inscreased the risk premium they demand and made leasing an even worse option. You note you are paying a full point more to lease than to buy for example.
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  #4  
Old 08-02-2011, 02:27 PM
dgkfl dgkfl is online now
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Quote:
Originally Posted by exLurker View Post
Financially leasing is never a better option unless you can't afford the monthly payments on a purchase, or would use the moeny s....
I'm sorry, ex, but I just can't let this go by. This is simply not a fair thing to say.

If you are considering leasing vs. buying, you have to do the math for your own situation (especially with BMW's) and you have to look at the risks and assumptions.

Aside from the arithmetic calculations, here are the negatives of a lease: you are locked in for the period (not counting Swap-a-Lease etc), your costs go up if you are badly under or over miles, and you have acquisition and possibly disposition costs.

Here is the big advantage (again, other than the arithmetic): almost all the financial risk is shifted to the seller. This applies to the lease-end price (you have an option to buy at that price or walk away, but they must sell to you at that price if you choose), to the fact that if you have the bad luck to be in a major accident it does not affect the lease-end value (i.e. you can still walk away if the car was repaired properly), and you are not charged for normal wear-and-tear on the vehicle. Also, if your car is totaled early in the lease (assuming you put nothing down) you have not lost the early depreciation hit you would have had if you had bought a new car (at least for virtually all manufacturer's leases which have gap insurance built in). Finally, if you are lucky, you may be rewarded with a pull-forward or loyalty program at the end of the lease which is a nice bonus.

So, do the math based on the most likely scenario for your situation, and then factor in the risk situation (including the risk that you will hate the car and won't be able to get rid of it!) For a lease subsidized by the manufacturer, and if you are realistic about what you would truly get for the car when you traded it in if you owned it, you may easily find that the numbers are better for a lease if you are going to keep the car for about 3 years anyway.

My $.02.

David
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  #5  
Old 08-02-2011, 03:19 PM
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Kamdog Kamdog is offline
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Over the long run, and I am talking about your years as a car owner, leasing is more expensive, and gives you more, newer cars to drive. As long as you don't drive a lot of miles, and never have to turn in a car in less that acceptable condition, you don't usually get burned.

The question above about 60 months, and who wants one, well, 60 months is 5 years, and yes, lots of people have cars that are more than 5 years old. Let's look at a segment of the OP:
Quote:
Lease example: lease a 2011 BMW X3 xDrive 28i base model for $41,900 at 5.90% for a term of 39 months and a $4,355 down payment; the monthly lease payment is $569. First month's lease payment, a security deposit of approximately one month's lease payment, transportation and preparation ($1,995), A/C excise tax ($100), a PPSA or RPMRR registration fee (up to $90), Retailer administration charges (if any) and all taxes are extra and required upon lease signing. Total obligation is $29,299.86 plus tax.
So, after 39 months, he has laid out (I didn't do the interim math, I am accepting it at face value) 29,299.96, so, if it were all financed, he would still owe $41,900 - $29,300 = $12,600, which, at $569 a month, comes to another 22.1 months. 39+22 months = 61 months, and the car is totally paid for. A 5 year old car, no payments. Assuming you can live with that, each person has to decide if they want to put that $569 a month to better use than driving a newer car.

It is a personal choice, and, fiscally, it is in favor of buying a car and keeping it until it is not worth fixing. The question is, do you want to do that? I own two, soon to be 3 cars completely paid off (I have 3 more months on the 535i), and I keep the cars in good shape, and none of them are unreliable, or new anymore. So, by October, the family will be driving 3 cars and NO payments. Leasing my 3 cars, one of which is a BMW, would have to cost around $1300 a month, or a bit better than $15,000 a year.
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  #6  
Old 08-02-2011, 06:26 PM
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raleedy raleedy is offline
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Leasing is financing.
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  #7  
Old 08-02-2011, 08:08 PM
02420X3 02420X3 is offline
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LOL, just pay cash.
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  #8  
Old 08-03-2011, 12:00 AM
exLurker exLurker is offline
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Quote:
Originally Posted by dgkfl View Post
I'm sorry, ex, but I just can't let this go by. This is simply not a fair thing to say.

If you are considering leasing vs. buying, you have to do the math for your own situation (especially with BMW's) and you have to look at the risks and assumptions.

Aside from the arithmetic calculations, here are the negatives of a lease: you are locked in for the period (not counting Swap-a-Lease etc), your costs go up if you are badly under or over miles, and you have acquisition and possibly disposition costs.

Here is the big advantage (again, other than the arithmetic): almost all the financial risk is shifted to the seller. This applies to the lease-end price (you have an option to buy at that price or walk away, but they must sell to you at that price if you choose), to the fact that if you have the bad luck to be in a major accident it does not affect the lease-end value (i.e. you can still walk away if the car was repaired properly), and you are not charged for normal wear-and-tear on the vehicle. Also, if your car is totaled early in the lease (assuming you put nothing down) you have not lost the early depreciation hit you would have had if you had bought a new car (at least for virtually all manufacturer's leases which have gap insurance built in). Finally, if you are lucky, you may be rewarded with a pull-forward or loyalty program at the end of the lease which is a nice bonus.

So, do the math based on the most likely scenario for your situation, and then factor in the risk situation (including the risk that you will hate the car and won't be able to get rid of it!) For a lease subsidized by the manufacturer, and if you are realistic about what you would truly get for the car when you traded it in if you owned it, you may easily find that the numbers are better for a lease if you are going to keep the car for about 3 years anyway.

My $.02.

David
You make some good points, but the financial arithmetic remains.

You can buy your own gap insurance if you wish.

As for shifting the risk this is true except you are paying for this. Leasing companies are not charities they look at this risk in their calculations.

In some cases you could end up better off at the end of a 3 year lease then if you had bought the same car but statistically this is unlikely.

With lease rates higher than financing the bottom line is you won't find anyone qualified to give financial advice who recommends leasing over buying with the exception of someone who can use the deduction. (even this is overestimated by many)
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