I recently placed an order for my new 330i, which I will be leasing. I did a lot research to try and get the best deal possible. Unfortunately much of the information I needed was scattered among many threads, so I put together what I learned here, hoping that it would help those of you who are new to leasing. I welcome any additions, suggestions or criticisms of my findings.
I included what factors to look at before entering negotiations and what I feel are the least important variable to the lease equation and the ones I feel are the most important. I also included some notes down at the bottom that you should keep in mind.
Before Negotiations Begin
What Car This may sound like common sense but you should know what car you are talking about. Some of the figures explained below vary depending on what car you want. Even though they are both part of the 3-series the 325 and 330 do not use the same Money Factor or Residual Value.
Lease Terms Right after figuring out what car you want you should figure out what lease terms you want. Are you going to lease for 24, 36 or 48 months? Will you need 12,000 miles a year or 15,000? Your answers to these questions will also affect the Money Factor and Residual Value.
Least Important Factors
MSRP Many people place a lot of importance on this number but it's not as important as you may think. Negotiations should never start here. You should however know what the MSRP of your car is, as it will factor into the lease formula. Also note that MSRP should also include the Destination Charge, currently $695
MACO This is an advertising fee that all dealers charge. It ranges from $200 - $400 dollars. There is usually very little negotiation with this number
Residual Value This will represent how much your car will be worth when the lease expires. Typically this number is represented as a percentage. It varies depending on what car you get and what lease term you are looking at. This number is basically set for a given car and lease term combination, and there is no room for negotiating here, but make sure to check that the dealer is giving you the correct percentage, if they for whatever reason will not, don't bother dealing with them, look for someone else. If this number is represented as a dollar amount on your lease it is calculated by multiply the MSRP of the car by the Residual Value Percentage.
Most Important Factors
Money Factor This is equivalent to the interest rate in a traditional loan. Make sure you know the Money Factor your dealer is giving you. There is a fair amount of negotiation that can be done with this number. Unlike traditional financing there is a minimum a dealer can offer you called the "Buy Rate". Please note that the Buy Rate is set for a given car and lease term combination, but what you can negotiate is how much above that Buy Rate they will charge you. The maximum they can charge you is set at 0.0004 over the Buy Rate. Make the Buy Rate your target and try to get as close to it as you can.
Invoice Price This is one of the most important numbers of the whole equation. Know the invoice price of the car you want. All negotiations should start from this number. Currently negotiating $1,000 over invoice (Dealer Markup) is a good deal, any thing under that just makes the deal that much sweeter. Also note that Invoice Price should also include the Destination Charge, currently $695.
Down payment This is an amount that you will give to the dealer to reduce the Cap Cost of the car. A Down Payment is not required but will reduce your monthly payment.
Cap Cost This is the negotiated price of the car. It is basically the Invoice Price plus Dealer Markup, MACO and any fees (see note 1) and less a Down Payment. There really isn't any negotiation that is done here but you should make sure to check this amount so that no unknown charges will make their way into the deal.
Inception Fees This is a fee charged by the dealer for paperwork, securing financing and the like. This number is often overlooked but there is room for negotiation here too. As with the Money Factor there is a minimum ($625) and a maximum ($825) that a dealer can charge you.
Security Deposit This amount is determined by your monthly payment, it is basically your monthly payment increased to the next higher $50 increment. (Example: if your monthly payment including tax is $524, then your security deposit will be $550). Security deposits are typically only imposed on new BMW customers, returning customers should not be charged this fee. Also note that your security deposit is refundable and will be refunded to you when the lease ends.
Due at Signing This is the amount you will have to give the dealer when all the paperwork is signed and are ready to take possession of the car. This can include various amounts depending on how you structure your lease. Amounts that can be included are first month's payment, down payment, license and registration, inception fees, security deposit and taxes. The ones I mentioned are the pricier items that can be included. There could be others, but they are typically small amounts. Question anything over $50.
A few additional notes
Note 1: Make sure you know when you will be paying the various fees you will be charged. With some fees you can pay them up front or you can roll them into the lease. If you roll them into the lease they will increase the cap cost thereby increasing your monthly payment. The advantage to rolling then into the lease is that you will have to pay less at the start of the lease (Due at Signing). Some fees that you can roll into the lease are inception fees and license and registration.
Note 2: Don't forget Sales Taxes. These will very depending on where you lease your car. Make sure to get your quote with sales taxes already included on your monthly payment amount or your may be in for a surprise when you go to sign the paperwork.
Note 3: A down payment is not required and most people would advise against giving one for a leased car. The logic behind this is that if you get into an accident and the car is totaled you will loose any down payment you have given. If you have extra money lying around and would like to lower you monthly payment, a better option would be to take advantage of the Multiple Security Deposit program described below.
Note 4: BMW's Multiple Security Deposit program allows you to give up to 7 extra security deposits for your car. These will not be used to lower the cap cost, but instead for every additional security deposit you give, your money factor will be dropped by 0.00007, thereby lowering your monthly payment. These security deposits are also refunded to you at the end of the lease.
Note 5: Remember to get your floor mats and a full tank of gas. Some dealers will try to charge an additional fee for these. Try to negotiate for them upfront, don't wait until you are about to leave the dealer to ask for them.
Note 6: If you would like to save even more money on your lease and have the time, try the European Delivery program offered by BMW. I don't know all the details about this program so I won,t go into it, but you can find out more about it on the BMW website.
Note 7: Some of the necessary figures like Invoice Prices, MRSP, Money Factors and Residuals can be found at the top of the Ask A Dealer forum of this great site. They are reffered to on this site as Sticky's.
I hope some of you find this useful.
I included what factors to look at before entering negotiations and what I feel are the least important variable to the lease equation and the ones I feel are the most important. I also included some notes down at the bottom that you should keep in mind.
Before Negotiations Begin
What Car This may sound like common sense but you should know what car you are talking about. Some of the figures explained below vary depending on what car you want. Even though they are both part of the 3-series the 325 and 330 do not use the same Money Factor or Residual Value.
Lease Terms Right after figuring out what car you want you should figure out what lease terms you want. Are you going to lease for 24, 36 or 48 months? Will you need 12,000 miles a year or 15,000? Your answers to these questions will also affect the Money Factor and Residual Value.
Least Important Factors
MSRP Many people place a lot of importance on this number but it's not as important as you may think. Negotiations should never start here. You should however know what the MSRP of your car is, as it will factor into the lease formula. Also note that MSRP should also include the Destination Charge, currently $695
MACO This is an advertising fee that all dealers charge. It ranges from $200 - $400 dollars. There is usually very little negotiation with this number
Residual Value This will represent how much your car will be worth when the lease expires. Typically this number is represented as a percentage. It varies depending on what car you get and what lease term you are looking at. This number is basically set for a given car and lease term combination, and there is no room for negotiating here, but make sure to check that the dealer is giving you the correct percentage, if they for whatever reason will not, don't bother dealing with them, look for someone else. If this number is represented as a dollar amount on your lease it is calculated by multiply the MSRP of the car by the Residual Value Percentage.
Most Important Factors
Money Factor This is equivalent to the interest rate in a traditional loan. Make sure you know the Money Factor your dealer is giving you. There is a fair amount of negotiation that can be done with this number. Unlike traditional financing there is a minimum a dealer can offer you called the "Buy Rate". Please note that the Buy Rate is set for a given car and lease term combination, but what you can negotiate is how much above that Buy Rate they will charge you. The maximum they can charge you is set at 0.0004 over the Buy Rate. Make the Buy Rate your target and try to get as close to it as you can.
Invoice Price This is one of the most important numbers of the whole equation. Know the invoice price of the car you want. All negotiations should start from this number. Currently negotiating $1,000 over invoice (Dealer Markup) is a good deal, any thing under that just makes the deal that much sweeter. Also note that Invoice Price should also include the Destination Charge, currently $695.
Down payment This is an amount that you will give to the dealer to reduce the Cap Cost of the car. A Down Payment is not required but will reduce your monthly payment.
Cap Cost This is the negotiated price of the car. It is basically the Invoice Price plus Dealer Markup, MACO and any fees (see note 1) and less a Down Payment. There really isn't any negotiation that is done here but you should make sure to check this amount so that no unknown charges will make their way into the deal.
Inception Fees This is a fee charged by the dealer for paperwork, securing financing and the like. This number is often overlooked but there is room for negotiation here too. As with the Money Factor there is a minimum ($625) and a maximum ($825) that a dealer can charge you.
Security Deposit This amount is determined by your monthly payment, it is basically your monthly payment increased to the next higher $50 increment. (Example: if your monthly payment including tax is $524, then your security deposit will be $550). Security deposits are typically only imposed on new BMW customers, returning customers should not be charged this fee. Also note that your security deposit is refundable and will be refunded to you when the lease ends.
Due at Signing This is the amount you will have to give the dealer when all the paperwork is signed and are ready to take possession of the car. This can include various amounts depending on how you structure your lease. Amounts that can be included are first month's payment, down payment, license and registration, inception fees, security deposit and taxes. The ones I mentioned are the pricier items that can be included. There could be others, but they are typically small amounts. Question anything over $50.
A few additional notes
Note 1: Make sure you know when you will be paying the various fees you will be charged. With some fees you can pay them up front or you can roll them into the lease. If you roll them into the lease they will increase the cap cost thereby increasing your monthly payment. The advantage to rolling then into the lease is that you will have to pay less at the start of the lease (Due at Signing). Some fees that you can roll into the lease are inception fees and license and registration.
Note 2: Don't forget Sales Taxes. These will very depending on where you lease your car. Make sure to get your quote with sales taxes already included on your monthly payment amount or your may be in for a surprise when you go to sign the paperwork.
Note 3: A down payment is not required and most people would advise against giving one for a leased car. The logic behind this is that if you get into an accident and the car is totaled you will loose any down payment you have given. If you have extra money lying around and would like to lower you monthly payment, a better option would be to take advantage of the Multiple Security Deposit program described below.
Note 4: BMW's Multiple Security Deposit program allows you to give up to 7 extra security deposits for your car. These will not be used to lower the cap cost, but instead for every additional security deposit you give, your money factor will be dropped by 0.00007, thereby lowering your monthly payment. These security deposits are also refunded to you at the end of the lease.
Note 5: Remember to get your floor mats and a full tank of gas. Some dealers will try to charge an additional fee for these. Try to negotiate for them upfront, don't wait until you are about to leave the dealer to ask for them.
Note 6: If you would like to save even more money on your lease and have the time, try the European Delivery program offered by BMW. I don't know all the details about this program so I won,t go into it, but you can find out more about it on the BMW website.
Note 7: Some of the necessary figures like Invoice Prices, MRSP, Money Factors and Residuals can be found at the top of the Ask A Dealer forum of this great site. They are reffered to on this site as Sticky's.
I hope some of you find this useful.