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F10 / F11 (2011 - Current)
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  #1  
Old 05-05-2014, 05:36 PM
dvsone dvsone is offline
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Trade in on a lease? (535i)

Looking at a 535 and have a question on trade in.. What are the options for trading in an old car (that's wholly owned already). Never done this before (normally just return/lease another one but now i happen to have an old car i don't want).

Let's say trade in value is 10K.. (and if i sell it myself i'd net 10K as well).

I think if i use it as cap cost reduction. i save 1,000 on tax (assume tax is 10% which it's pretty close here). I save about 250ish in interest (depending on lease MF of course)..
so total i save 1250 over term of lease

That's about 4% return per year.. I've already read that you NEVER want ANY cap reduction and it's just silly to do it..

Thoughts?

Thanks!
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  #2  
Old 05-05-2014, 05:43 PM
weinschela weinschela is offline
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I once traded in on a lease but what the dealer did was cut a check for the value of the trade-in. In my case it was $20,000. That seems a better approach. You can take that money and invest it. If they will let you do MSDs, take some of it and put it into MSDs to reduce your payments and get it all back at the end of the lease. (we New Yorkers can't do that for reasons unknown to me). Take the rest and pocket it.
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  #3  
Old 05-05-2014, 06:27 PM
RangerWalker RangerWalker is offline
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I once did this also, and took the $12,000 as a check.
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Old 05-05-2014, 07:06 PM
beashonda beashonda is offline
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Same here. They cut you a check for value of trade
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  #5  
Old 05-05-2014, 07:21 PM
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Quote:
Originally Posted by dvsone View Post
I've already read that you NEVER want ANY cap reduction and it's just silly to do it...
It's not silly to do it, it just depends on your priority for the money. There's a lot of voodoo attributed to capital cost reductions on these boards, but here are the facts:
  • You pay no interest on money you don't borrow.
  • You don't lose your down payment on a lease if your car gets stolen or totaled. That is everyone's favorite lease-voodoo rumor. In fact, I'm in another thread right now debating against it. Here is my post explaining why down payments in leases are just like down payments on loans.
  • If lowering your payment is important, dollar for dollar a capital cost reduction does it best, mathematically speaking. Again, you don't pay interest on money you don't borrow, and you are also reducing your principal obligation to begin with so you have less money to pay BMWFS over the term of the lease.
  • The Multiple Security Deposit program is cool; you get the money back later and the effective interest rate is probably better than a CD. People seem to recommend it unconditionally over capital cost reductions; I say they are two very different things, both useful in different ways. The MSDs are utterly non-liquid over the term of the lease, so you have to be OK tying up thousands of dollars for for 3-5 years.

This topic generates some passion around here. I think everything I listed above is objective, and beyond this it goes to misinformation and personal preference. That's the world.

If you want or need to use the equity you have in your trade against your upcoming lease obligation, there's a lot to be said in favor of using it as a CCR. BMWFS is getting the money from you anyway and the CCR helps you avoid some interest and lowers your payment. If you don't really need to use that money, or if having a somewhat higher payment is OK for you, you might be able to do something more productive with the money, starting with the MSD program.
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  #6  
Old 05-05-2014, 11:55 PM
mauicoug mauicoug is offline
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Do the MSD's, due to the high residual, most likely if the car is stolen or totaled highly unlikely to get any money back with say a $5000 cap reduction. All the cap reduction does is lower the payments on the car....THEY DO NOT LOWER THE RESIDUAL. The payoff is calculated on the residual, plus the remaining lease payments.
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Old 05-06-2014, 02:18 AM
schnell525 schnell525 is offline
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have them take the fees and initial taxes taken from the proceeds of the trade in a pocket the money.

put down 1-2k and put the rest in the bank. if you use it as a cap cost reduction depending on the state you have to pay tax on it. you could MSD if you'd like.

i'd put the money in the bank--and use it to make the payments. you have control of it. what happens if you get a lemon or a problem car? you don't want that all tied in cap cost or multiple security deposits.
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  #8  
Old 05-06-2014, 07:28 AM
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Originally Posted by mauicoug View Post
Do the MSD's, due to the high residual, most likely if the car is stolen or totaled highly unlikely to get any money back with say a $5000 cap reduction. All the cap reduction does is lower the payments on the car....THEY DO NOT LOWER THE RESIDUAL.
Sigh.

So, like I said, be careful about the advice you get about leasing on internet forums...
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  #9  
Old 05-06-2014, 03:31 PM
bmw325 bmw325 is online now
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Quote:
Originally Posted by WJGreer View Post
It's not silly to do it, it just depends on your priority for the money. There's a lot of voodoo attributed to capital cost reductions on these boards, but here are the facts:
  • You pay no interest on money you don't borrow.
  • You don't lose your down payment on a lease if your car gets stolen or totaled. That is everyone's favorite lease-voodoo rumor. In fact, I'm in another thread right now debating against it. Here is my post explaining why down payments in leases are just like down payments on loans.
  • If lowering your payment is important, dollar for dollar a capital cost reduction does it best, mathematically speaking. Again, you don't pay interest on money you don't borrow, and you are also reducing your principal obligation to begin with so you have less money to pay BMWFS over the term of the lease.
  • The Multiple Security Deposit program is cool; you get the money back later and the effective interest rate is probably better than a CD. People seem to recommend it unconditionally over capital cost reductions; I say they are two very different things, both useful in different ways. The MSDs are utterly non-liquid over the term of the lease, so you have to be OK tying up thousands of dollars for for 3-5 years.

This topic generates some passion around here. I think everything I listed above is objective, and beyond this it goes to misinformation and personal preference. That's the world.

If you want or need to use the equity you have in your trade against your upcoming lease obligation, there's a lot to be said in favor of using it as a CCR. BMWFS is getting the money from you anyway and the CCR helps you avoid some interest and lowers your payment. If you don't really need to use that money, or if having a somewhat higher payment is OK for you, you might be able to do something more productive with the money, starting with the MSD program.
Hmm- I read your post, but:
-if you're leasing you're paying for gap insurance anyway so why not position yourself to take maximum advantage should you need it.
-True, you may not necessarily lose all of your cap cost reduction, but why risk it for a small gain in interest saved.
-If you do want to save on interest, using the money toward MSDs actually saves you much more. For example, on my recent lease had I opted to put about 3k toward a down payment instead of MSDs I'd save about $5 a month in interest. With MSDs, I'm saving $40 ($35 more than with the down payment).
-While I might not lose that whole 3k if the car is stolen or totalled, I'm quite sure I'd lose more than the $5/month I'd saved in interest.
Now it's true that overall my payments would be lower with a pure down payment, but I don't understand the logic of that. If all I want to do is pretend to that my payments are lower, I can just set aside that cash myself and use it toward paying the lease. Though if someone were trying to sneak in a nicer car than spousal approval allows, I could see someone doing it...

I mean you're technically correct, but I can't think of any good reason why someone would use money toward a down payment in order to save interest when MSDs do a better job of it and you risk losing some benefit of your gap insurance.
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  #10  
Old 05-06-2014, 03:59 PM
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Originally Posted by bmw325 View Post
Hmm- I read your post, but:
-if you're leasing you're paying for gap insurance anyway.
Yeah, gap insurance isn't part of my argument, I just mentioned it to explain what happens if your insurance payoff falls short of your obligation. It's sort of the opposite of what people worry about with CCRs.


Quote:
Originally Posted by bmw325 View Post
-BMW tends to set their residuals artificially high which means that you have a higher chance of being "upside down".
I see what you mean. As long as your purchase price wasn't too high to begin with, I think that dynamic would only be likely in the very late period of a lease, in which case most of your CCR has "amortized itself off" via your lower payments.

Quote:
Originally Posted by bmw325 View Post
-True, you may not necessarily lose all of your cap cost reduction, but why risk it for a small gain in interest saved.
I don't think the risk that a given owner will a)experience a total loss, b)receive an unexpectedly low payoff, and c)have that happen early enough in a lease period such that any considerable portion of the CCR is compromised is material. It is a combination of events that could occur and surely has occurred, but I wouldn't use it as a deciding factor.

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Originally Posted by bmw325 View Post
-If you do want to save on interest, using the money toward MSDs actually saves you much more.
Pay a lower % on more $ borrowed, or a higher % on less $ borrowed. There's a break-even somewhere and it would be a little hard to find exactly where it is. Here's a simple example of the comparison:
  • If I lend you $1000 at 6% simple interest for a year, you'll pay $60 in interest.
  • If I agree to knock one point off of that APR if you give me an extra $100 in my pocket for that year, you effectively pay 5% or $50.
  • If, instead, you use that $100 to pay off principal up front and only borrow $900 at the original 6% interest, you pay $54, which means the "MSD" in the bullet above would have been better for you.
  • But - if I only knock off half a point in return for the "MSD", You save a dollar in interest by paying down the principal ($54 versus $55)

Quote:
Originally Posted by bmw325 View Post
Though if someone were trying to sneak in a nicer car than spousal approval allows, I could see someone doing it...
Sure, or maybe a buyer is concerned about their debt to income ratios. There are a few reasons why the optics of a lower monthly payment are important to some people.
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  #11  
Old 05-06-2014, 07:45 PM
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Quote:
Originally Posted by WJGreer View Post
It's not silly to do it, it just depends on your priority for the money. There's a lot of voodoo attributed to capital cost reductions on these boards, but here are the facts:
  • You pay no interest on money you don't borrow.
  • You don't lose your down payment on a lease if your car gets stolen or totaled. That is everyone's favorite lease-voodoo rumor. In fact, I'm in another thread right now debating against it. Here is my post explaining why down payments in leases are just like down payments on loans.
  • If lowering your payment is important, dollar for dollar a capital cost reduction does it best, mathematically speaking. Again, you don't pay interest on money you don't borrow, and you are also reducing your principal obligation to begin with so you have less money to pay BMWFS over the term of the lease.
  • The Multiple Security Deposit program is cool; you get the money back later and the effective interest rate is probably better than a CD. People seem to recommend it unconditionally over capital cost reductions; I say they are two very different things, both useful in different ways. The MSDs are utterly non-liquid over the term of the lease, so you have to be OK tying up thousands of dollars for for 3-5 years.

This topic generates some passion around here. I think everything I listed above is objective, and beyond this it goes to misinformation and personal preference. That's the world.

If you want or need to use the equity you have in your trade against your upcoming lease obligation, there's a lot to be said in favor of using it as a CCR. BMWFS is getting the money from you anyway and the CCR helps you avoid some interest and lowers your payment. If you don't really need to use that money, or if having a somewhat higher payment is OK for you, you might be able to do something more productive with the money, starting with the MSD program.
Correct. If the car gets totaled, BMW is only entitled to the contract balance of the lease and the lessee gets the excess insurance payment back, if any, plus taxes paid. The insurance company has an obligation to pay the fair market value of the car up to the policy limit.
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Old 05-06-2014, 08:29 PM
bmw325 bmw325 is online now
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Quote:
Originally Posted by WJGreer View Post
Yeah, gap insurance isn't part of my argument, I just mentioned it to explain what happens if your insurance payoff falls short of your obligation. It's sort of the opposite of what people worry about with CCRs.


I see what you mean. As long as your purchase price wasn't too high to begin with, I think that dynamic would only be likely in the very late period of a lease, in which case most of your CCR has "amortized itself off" via your lower payments.

I don't think the risk that a given owner will a)experience a total loss, b)receive an unexpectedly low payoff, and c)have that happen early enough in a lease period such that any considerable portion of the CCR is compromised is material. It is a combination of events that could occur and surely has occurred, but I wouldn't use it as a deciding factor.

Pay a lower % on more $ borrowed, or a higher % on less $ borrowed. There's a break-even somewhere and it would be a little hard to find exactly where it is. Here's a simple example of the comparison:
  • If I lend you $1000 at 6% simple interest for a year, you'll pay $60 in interest.
  • If I agree to knock one point off of that APR if you give me an extra $100 in my pocket for that year, you effectively pay 5% or $50.
  • If, instead, you use that $100 to pay off principal up front and only borrow $900 at the original 6% interest, you pay $54, which means the "MSD" in the bullet above would have been better for you.
  • But - if I only knock off half a point in return for the "MSD", You save a dollar in interest by paying down the principal ($54 versus $55)

Sure, or maybe a buyer is concerned about their debt to income ratios. There are a few reasons why the optics of a lower monthly payment are important to some people.
Yes, the security deposits will always save you the same amount regardless of the interest rate. At lower interest rates, they make a bigger impact because the reduction is a greater percentage. I made a spreadsheet to simulate what happens at different money factors (assuming BMW's MSD program of .00007 MF reduction per security deposit) comared to putting the same amount down.

If you put the max allowed in security deposits (7), the interest rate would have to be around 14% before you'd do better by putting that amount toward down payments. On the other hand, if you just put down 1 extra security deposit, you're better off putting that toward a down payment starting at around a 3% interest rate (.00125 MF).

So in practice, given BMW's MSD program, you're almost always better off in terms of saving on interest by doing that instead of a down payment. In the way most people here use MSDs (by putting the max allowed in), it's even more dramatic. Higher residuals (another BMWFS characteristic) also tends to tilt the balance in favor of MSDs.

Didn't consider the debt/income ratio angle. Though in practice I'd imagine that if someone had that issue they might want to reconsider financing or leasing a BMW in the first place.

I suppose the Gap insurance argument/ fear of losing all or part of your down payment is splitting hairs and not the main reason someone should consider MSDs vs a down payment. But its "icing on the cake".
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Old 05-07-2014, 02:10 PM
dvsone dvsone is offline
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Appreciate the discussion. very insightful.

How about if it's not a MSD OR downpayment?
Let's say MSD for sure already max'd out at 7x... but still have cash. bank it? or put down to reduce interest/tax (tax on the interest)?
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Old 05-07-2014, 02:17 PM
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Appreciate the discussion. very insightful.

How about if it's not a MSD OR downpayment?
Let's say MSD for sure already max'd out at 7x... but still have cash. bank it? or put down to reduce interest/tax (tax on the interest)?
I suppose you could open a separate savings account for that purpose, put the money in it, and have the payment direct-drafted from it. USAA pays about .15% APY in liquid savings accounts, effectively nothing. I've never been good at converting lease money factor numbers to APRs, but I'm guessing it would be trivial one way or the other.

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Old 05-07-2014, 03:36 PM
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Originally Posted by dvsone View Post
Appreciate the discussion. very insightful.

How about if it's not a MSD OR downpayment?
Let's say MSD for sure already max'd out at 7x... but still have cash. bank it? or put down to reduce interest/tax (tax on the interest)?

Well it would still reduce the amount of interest you have to pay overall. So at that point it's your call as to:
-what's the expected after tax return on the savings (opportunity cost of the money) vs the money saved on interest
-putting some value on the gap insurance aspect of the lease and your comfort level with the risk of potentially losing part of the down payment should the worst case occur.

If we take an extreme example, let's say someone is leasing a 60k car with a 60% residual and a money factor of .0013. If they put the max allowable down (the total depreciation of 36k), they save $1684 in interest plus 134 in sales tax ifs at 8%. You can probably find a 3 year CD that wont do much worse.

I
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Old 05-07-2014, 05:14 PM
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Well it would still reduce the amount of interest you have to pay overall. So at that point it's your call as to:
-what's the expected after tax return on the savings (opportunity cost of the money) vs the money saved on interest
-putting some value on the gap insurance aspect of the lease and your comfort level with the risk of potentially losing part of the down payment should the worst case occur.

If we take an extreme example, let's say someone is leasing a 60k car with a 60% residual and a money factor of .0013. If they put the max allowable down (the total depreciation of 36k), they save $1684 in interest plus 134 in sales tax ifs at 8%. You can probably find a 3 year CD that wont do much worse.

I
That is a one pay lease and it offers other benefits.
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Old 05-07-2014, 05:32 PM
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That is a one pay lease and it offers other benefits.

No a one pay lease would be that plus the finance charge. In either case you'd still owe interest of:
(cap cost + residual) * money factor * term. With one pay you'd pay that upfront and with a regular lease you'd pay that on a monthly basis.
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Old 05-07-2014, 05:55 PM
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No a one pay lease would be that plus the finance charge. In either case you'd still owe interest of:
(cap cost + residual) * money factor * term. With one pay you'd pay that upfront and with a regular lease you'd pay that on a monthly basis.

I don't think you pay a finance charge on a one pay lease. You're not borrowing any money.


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Old 05-07-2014, 06:12 PM
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I don't think you pay a finance charge on a one pay lease. You're not borrowing any money.


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You are actually. Leases aren't just depreciation, you have to borrow the residual value too. So the same formula applies. (Cap cost + residual) * money factor * term. With one pay, they give you a reduced money factor in exchange for getting all your money up front. But it's not 0.
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Old 05-07-2014, 06:28 PM
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You are actually. Leases aren't just depreciation, you have to borrow the residual value too. So the same formula applies. (Cap cost + residual) * money factor * term. With one pay, they give you a reduced money factor in exchange for getting all your money up front. But it's not 0.

I guess that makes sense that there would be a money factor against the residual.


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Old 05-08-2014, 04:28 AM
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No a one pay lease would be that plus the finance charge. In either case you'd still owe interest of:
(cap cost + residual) * money factor * term. With one pay you'd pay that upfront and with a regular lease you'd pay that on a monthly basis.
What you are missing is that BMW offers additional incentives on one-pay leases. In Texas, they waive sales tax. That is big in Texas because leases are taxed on the entire "purchase price".
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Old 05-08-2014, 05:24 AM
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What you are missing is that BMW offers additional incentives on one-pay leases. In Texas, they waive sales tax. That is big in Texas because leases are taxed on the entire "purchase price".
That is a big plus, if they actually waive taxes.
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Old 05-08-2014, 09:18 AM
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What you are missing is that BMW offers additional incentives on one-pay leases. In Texas, they waive sales tax. That is big in Texas because leases are taxed on the entire "purchase price".
Don't think I said anything about sales tax, but that's cool if they waive the sales tax on a one pay. How does that work? Is that state thing or a BMW incentive?

I remember reading about how the "owners choice" program which is similarin practice to a lease but structured as a loan with a balloon payment is somehow advantageous tax wise in places like Texas.
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Old 05-08-2014, 08:12 PM
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That is a big plus, if they actually waive taxes.
Quote:
Originally Posted by bmw325 View Post
Don't think I said anything about sales tax, but that's cool if they waive the sales tax on a one pay. How does that work? Is that state thing or a BMW incentive?

I remember reading about how the "owners choice" program which is similarin practice to a lease but structured as a loan with a balloon payment is somehow advantageous tax wise in places like Texas.
I really don't know given that taxes are different on leases state-by-state. I have two good friends who have done several one-pay leases and on the BMW's that has always been a standard part of the deal on a one-pay. The taxes are waived and the money factor is much lower as has been stated on other posts.
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