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F10 / F11 (2011 - Current)
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  #1  
Old 01-25-2013, 06:05 PM
Boardman Boardman is offline
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Greetings from newbie- Lease vs Owners choice question

First post here....been lurking and learning for a while. This seems like a great community.

I'm close to pulling the trigger on a 2013 550 m sport

I typically only last a few years before my car ADD kicks in so I like to lease. My sales guy is telling me the owners choice balloon option is a better choice.

The term balloon scares me...maybe it's the old GM program that screwed a lot of people?!

Anyway, the way he explains it seems to sound good.....but wanted to get some opinions. Guessing this has been discussed before but my search didn't find anything

Owners choice advantages I'm told....lesser monthly cost, greater flexibility to get out of if need be and no down payment.

What are any disadvantages vs a lease?

$69k
36 months
18k miles per year
0 down
$1050 monthly

Any feedback would be greatly appreciated. Thanks in advance!
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  #2  
Old 01-25-2013, 08:46 PM
PeterC4 PeterC4 is offline
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Quote:
Originally Posted by Boardman View Post
First post here....been lurking and learning for a while. This seems like a great community.

I'm close to pulling the trigger on a 2013 550 m sport

I typically only last a few years before my car ADD kicks in so I like to lease. My sales guy is telling me the owners choice balloon option is a better choice.

The term balloon scares me...maybe it's the old GM program that screwed a lot of people?!

Anyway, the way he explains it seems to sound good.....but wanted to get some opinions. Guessing this has been discussed before but my search didn't find anything

Owners choice advantages I'm told....lesser monthly cost, greater flexibility to get out of if need be and no down payment.

What are any disadvantages vs a lease?

$69k
36 months
18k miles per year
0 down
$1050 monthly

Any feedback would be greatly appreciated. Thanks in advance!
First and foremost you should assume that most financial plans offered by OEMs whether leases or structured finance products do not convey an advantage to you. The Owner's Choice programs appears to be a simple financing vehicle. You are obligated to the pay the amount owning at the end in a "balloon payment" or expressed simply, one payment at the end of the financing term, be it 3 years, 4 years etc.

Now, you can do this and far more imaginative things with your own money, maybe cheaper than BMW. If you have decent bank financing available to you then you can do the exact same thing. After all, in an "owners choice' program, (don't you love the name.."owner's choice") you own the car and you have to pay the balloon payment at the end.

A lease essentially only has one advantage from a financial point of view, assuming tax treatment for the capital cost and the lease payments work out the same over time and that is - the potential to reduce risk by not taking residual risk. From a financial point of view, the cost of capital, imputed interested and all that, is calculated carefully by BMW. The one thing everyone guesses on is what is a car worth when the lease term is up and you return it, with a smile, and with no intention of purchasing it.

Assuming the leased car you returned is in good shape, and you are not penalized for any problems at the end of the term, you might be ahead, you might be behind. When the calculated residual value is high, the OEM takes the risk he can re-sell it and make a profit...not you. You get the benefit of low lease payments if the OEM believes the value of his leased car will be high at the end of the lease.

With the "owners choice" , geeze I can't get over that name, you take the risk. If the car turns out to be a bust with BMW owners and consumers generally, and no one wants to buy it, you're stuck with it or will have to take a hit on the sales price at the end of the term to get rid of it. If it is a huge success with consumers and everyone wants to buy it because it was introduced at a discount to its real worth (fat chance) you're ahead. If you have a line of credit available to you and a decent asset base, you can structure anything you want. The one thing you can't do...is take out the residual risk. You can only do that with a lease. Mind you, all OEM's have figured that one out too...they don't take much residual risk these days, but they do control the used car market for their brands.
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Last edited by PeterC4; 01-25-2013 at 09:07 PM.
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  #3  
Old 01-25-2013, 09:11 PM
Boardman Boardman is offline
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Thanks for the feedback Peter. I had a feeling something didn't feel right with owners choice.

The thought of not knowing what that balloon payment at the end is is unsettling. Guessing dealers get higher incentives for pushing it....
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  #4  
Old 01-25-2013, 09:16 PM
PeterC4 PeterC4 is offline
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Originally Posted by Boardman View Post
Thanks for the feedback Peter. I had a feeling something didn't feel right with owners choice.

The thought of not knowing what that balloon payment at the end is is unsettling. Guessing dealers get higher incentives for pushing it....
I would have thought you would know that...it would be the remaining present value of the purchase price. You just have to pay it, or refinance it.
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  #5  
Old 01-25-2013, 09:30 PM
Boardman Boardman is offline
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Originally Posted by PeterC4 View Post
I would have thought you would know that...it would be the remaining present value of the purchase price. You just have to pay it, or refinance it.
I hear ya, but that's what confused me.

Sales guy said you just turn it in at the end like a lease. No pay or refinance required.....but you have the option. Which when I think of the "balloon" it doesn't make sense.

Hmm, guess ill get more clarification tomorrow.
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  #6  
Old 01-26-2013, 12:13 AM
PeterC4 PeterC4 is offline
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Originally Posted by Boardman View Post
I hear ya, but that's what confused me.

Sales guy said you just turn it in at the end like a lease. No pay or refinance required.....but you have the option. Which when I think of the "balloon" it doesn't make sense.

Hmm, guess ill get more clarification tomorrow.
You're right, it is confusing. If you can turn it in or purchase it, (with no penalty or premium) then it's just a lease. There may be a subtle difference in Canada versus the US. It may be that in the US, there is an advantage of an "owners option" when it comes to paying sales taxes when leasing in some states. In Canada, the advantage is you can lower the monthly payments by having an increased residual amount - just as deferral of the settlement of the ultimate purchase price and trust me they will have calculated the appropriate yield on that. Just ask the basic questions:

1) At the end of the lease term can I return it to the dealer without penalty? Do I have residual value risk?
2) Do I pay sales taxes (as applicable) on every payment or in some other fashion?
3) If I decide to get rid of the car before the end of the "owners option" term, what happens?
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Last edited by PeterC4; 01-26-2013 at 12:18 AM.
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  #7  
Old 01-26-2013, 04:43 AM
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K-A K-A is offline
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For some reason this is all confusing to me.

IMO if you want to keep the car there are two best options:

1- Buy/Finance it outright, therefore not paying any "Rental Fee's" and/or having to pay a potentially high residual to offset what you might be saving during the initial Lease period (saying that you get an aggressive Lease deal). In the long term, this may be the best option, though the risk is if you don't like the car, or something like that, you're stuck with it until you sell it yourself. Also, you have to tie in larger amounts of cash into the car (which if you invest your money, could negatively affect income).

2- Lease it, and if you like it, pay the Residual premium which will probably make it so you've paid over $3-5K for your car than you would have if you bought it outright from the beginning, or bought a Used model after your Lease. The benefits of paying more and taking this option would be that you get YOUR car, and you get the luxury of getting out of the car "early" if you don't want it anymore. Also, you will be able to spread the cost of the car over a longer period of time (saying a 2-3 year Lease and then a 5 year loan), allowing you to maximize the use of your existing cash over any other option. Of course, the downside to those "pluses" is paying a decent amount more to keep this car than you would had you took option #1 (or bought a comparable car Used after your Lease is up, for several thousand less than your cars residual, yet not having "YOUR car" anymore).

Sorry that this doesn't help via whatever the "Owners Choice" thing is, but just thinking aloud.
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Last edited by K-A; 01-26-2013 at 04:44 AM.
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  #8  
Old 01-26-2013, 05:05 AM
Boardman Boardman is offline
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Thanks for the replies guys

I've bought and leased before, familiar with both of those options.

I believe what sales guy was saying about owners choice was it is like a lease, with lower payments (Illinois and TX only have tax savings benefits) and that it can be turned in at end like a lease. He said the pros were (vs lease) lower payments due to tax benefits and nothing down. He said another pro was you could get out early if something happened, where as you couldn't with traditional lease.

He said the downside was it doesn't include gap insurance like a regular lease would, but it could be purchased additionally.

Ill get more clarifications today. Thx
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  #9  
Old 01-26-2013, 03:07 PM
PeterC4 PeterC4 is offline
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Quote:
Originally Posted by Boardman View Post
Thanks for the replies guys

I've bought and leased before, familiar with both of those options.

I believe what sales guy was saying about owners choice was it is like a lease, with lower payments (Illinois and TX only have tax savings benefits) and that it can be turned in at end like a lease. He said the pros were (vs lease) lower payments due to tax benefits and nothing down. He said another pro was you could get out early if something happened, where as you couldn't with traditional lease.

He said the downside was it doesn't include gap insurance like a regular lease would, but it could be purchased additionally.

Ill get more clarifications today. Thx
Interesting, so you are on the hook for the residual value effectively, but you can insure the GAP? I wonder who underwrites that one?? Now that is betting at its best. God bless the financial markets. Gap insurance on residuals. Okay, you gotta tells us how it works after you clarify.
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Last edited by PeterC4; 01-26-2013 at 03:09 PM.
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  #10  
Old 01-26-2013, 04:33 PM
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miamiboyca miamiboyca is offline
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To my knowledge...

The tax benefit in TX is that unlike other states you get double taxed. That is to say that when you lease, you have to pay sales tax in its entirety for the entire value of the car just like a purchase. At the end of your lease, if you decide to buy the car the state of TX sees this as a new transaction and you have to pay taxes all over again on the new "purchase price"

The benefits of "owner's choice" are that you do not pay rent charges and there are lower insurance requirements since its a purchase (10K/25K) rather than a lease (100K/300K).

Gap insurance I believe has to be purchased separately, whereas it is included in a lease.

Let us know what else you find out.
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  #11  
Old 01-26-2013, 04:55 PM
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K-A K-A is offline
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Quote:
Originally Posted by miamiboyca View Post
To my knowledge...

The tax benefit in TX is that unlike other states you get double taxed. That is to say that when you lease, you have to pay sales tax in its entirety for the entire value of the car just like a purchase. At the end of your lease, if you decide to buy the car the state of TX sees this as a new transaction and you have to pay taxes all over again on the new "purchase price"

The benefits of "owner's choice" are that you do not pay rent charges and there are lower insurance requirements since its a purchase (10K/25K) rather than a lease (100K/300K).

Gap insurance I believe has to be purchased separately, whereas it is included in a lease.

Let us know what else you find out.
Wow, that's horrible.

As I understand, in other States with "normal" tax rules on Leasing, if you buy the car out after the Lease, you just pay full tax on the residual portion? (while tax on the Leased portion was obviously broken down into individual months).
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  #12  
Old 01-26-2013, 04:57 PM
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miamiboyca miamiboyca is offline
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Originally Posted by K-A View Post
Wow, that's horrible.

As I understand, in other States with "normal" tax rules on Leasing, if you buy the car out after the Lease, you just pay full tax on the residual portion? (while tax on the Leased portion was obviously broken down into individual months).
That is correct. That is norm in most states. The idea being you pay taxes on what you are actually buying/using.

Remember in a state with no income tax they have to be creative to get their revenues...
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  #13  
Old 01-26-2013, 05:49 PM
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Keyser Soze Keyser Soze is offline
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I would recommend just doing a straight BMWFS loan out of the gate for order/delivery and if you still feel like doing a balloon payment a few months down the road, do it with someone like Pentagon Federal that will get you a 1.75% rate or better. At least that way the juice is barely running on that balance due after 5 years. Rates are so low it's crazy. You could just toss $3-5k per year into your trading account and hopefully get a return greater than the juice running on the balloon. Then just cut the check after 5 years.
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  #14  
Old 01-26-2013, 06:36 PM
PeterC4 PeterC4 is offline
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Originally Posted by Keyser Soze View Post
I would recommend just doing a straight BMWFS loan out of the gate for order/delivery and if you still feel like doing a balloon payment a few months down the road, do it with someone like Pentagon Federal that will get you a 1.75% rate or better. At least that way the juice is barely running on that balance due after 5 years. Rates are so low it's crazy. You could just toss $3-5k per year into your trading account and hopefully get a return greater than the juice running on the balloon. Then just cut the check after 5 years.
That's my view too. Unless the dealer is giving you the money for free, (although you can alwys get an equivalent deal if you pay cash THEN finance it yourself) I would always sturcture the financing deals myself. Interest only, balloons, non-scheduled payments....all these OEM financing options really don't do anything you couldn't do yourself. A lease...well it's about the residual value as we have discussed many times on the board.
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Old 01-27-2013, 09:17 AM
JPetrillo JPetrillo is offline
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There is one option. Pay cash.

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  #16  
Old 01-27-2013, 10:32 AM
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AggieKnight AggieKnight is offline
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Originally Posted by JPetrillo View Post
There is one option. Pay cash.

I'm not sure that's the best option for him as he has car ADD (like I do).

Paying up front, cash, in full would be a dreadful financial transaction when he replaces the car in a few years.

As per the OPs original question, I'm not sure I've seen a scenario where using the "Owner's Choice Balloon" is a good option. You have the framework of a lease, but w/out the give back option, you pay taxes up front, and you lack GAP insurance. I guess they don't limit you on miles as per the lease? If your true intention is to return the car in a few years, then absolutely don't buy it.

Just my 2 cents. Cheers.
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Old 01-27-2013, 12:15 PM
numbersguy numbersguy is offline
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My next car will be a lease.

The residual risk that bothers me the most is the risk of a collision, somebody else's fault of course, followed by perfect BMW-approved repairs, followed by a drastic loss of residual value resulting from a bad Carfax. This would be less of a concern if I wanted to keep a car for many years, but lately I'm getting tired of the kinds of things that go wrong with cars that are middle-aged and older.
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Old 01-27-2013, 01:52 PM
PeterC4 PeterC4 is offline
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Originally Posted by AggieKnight View Post
I'm not sure that's the best option for him as he has car ADD (like I do).

Paying up front, cash, in full would be a dreadful financial transaction when he replaces the car in a few years.

As per the OPs original question, I'm not sure I've seen a scenario where using the "Owner's Choice Balloon" is a good option. You have the framework of a lease, but w/out the give back option, you pay taxes up front, and you lack GAP insurance. I guess they don't limit you on miles as per the lease? If your true intention is to return the car in a few years, then absolutely don't buy it.

Just my 2 cents. Cheers.
This is a good point. I have always paid cash, but if I buy something really exotic, its a little used as the depreciation is too steep. The BMW that I have now is an interesting dilema. I don't use leverage in my personal life for a variety of reasons, but a lease may make sense when you are always wanting a new car. There is no free lunch in the world, not these days anyway, as the OEMs are not giving away residual value to the consumer. But, you can look at as say $1,000 or so a month, $12,000 a year and within 3 years say, you've got a new one.
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Old 02-18-2013, 05:55 PM
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I am still confused......and need a clarification.

I am in Houston,TX and I leased (Owner's choice) my BMW 535i in Dec 2010. Am under (any) contractual obligation to buy the car at the end of "owner's choice" lease by paying BWMFS the balloon payment OR can I just walk away at the end-of "owner's choice" lease by paying extra for excess mileage + excess wear tear + other fees.

I am/was under the impression, that, to get around the the problem with a few states like Texas where you are double-taxed , they invented "Owner's choice" lease. So, should you decide to buy the vehicle, NO need to pay tax on the balloon payment and you still have the option to walk away. PLEASE CLARIFY. Thanks a lot.

This is what I found on BMW USA site @ https://www.bmwusa.com/Secured/Conte...fine=undefined

Owners Choice
Owners Choice financing combines the lower monthly payments of leasing and the security of ownership. You make low monthly payments for your selected term then reach a three-way option point:

1. You can get a new BMW and sell your BMW back to us at a predetermined price. What is predetermined price in this case ? Any idea if this amount was predetermined at the time of signing the "owner's choice" and where exactly is this amount in the contract?
2. You can refinance the balloon payment amount.
3. You can complete your purchase by making the balloon payment.

Owners Choice is a good alternative if you reside in a state where leasing is less advantageous due to state tax laws.

Last edited by VicTexas2010; 02-18-2013 at 06:34 PM.
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Old 02-18-2013, 06:33 PM
jjsC6 jjsC6 is offline
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Quote:
Originally Posted by VicTexas2010 View Post
I still confused......and need a clarification. I am in Houston,TX and I leased (Owner's choice) my BMW 535i in Dec 2010. Am under (any) contractual obligation to buy the car at the end of "owner's choice" lease by paying BWMFS the balloon payment OR can I just walk away at the end-of "owner's choice" lease by paying extra for excess mileage + excess wear tear + other fees.

I am/was under the impression, that, to get around the the problem with a few states like Texas where you are double-taxed , they invented "Owner's choice" lease. So, should you decide to buy the vehicle, NO need to pay tax on the balloon payment and you still have the option to walk away. PLEASE CLARIFY. Thanks a lot.

This is what I found on BMW USA site @ https://www.bmwusa.com/Secured/Conte...fine=undefined

Owners Choice
Owners Choice financing combines the lower monthly payments of leasing and the security of ownership. You make low monthly payments for your selected term then reach a three-way option point:

1. You can get a new BMW and sell your BMW back to us at a predetermined price. What is predetermined price in this case ? Where exactly is this amount in the contract?
2. You can refinance the balloon payment amount.
3. You can complete your purchase by making the balloon payment.

Owners Choice is a good alternative if you reside in a state where leasing is less advantageous due to state tax laws.
This is done so seldom I have not heard of it since the Texas lease-tax laws were changed about 15 years ago (give or take). Back then, Texas charged full sales tax & ad-valorem taxes annually. That is when GM did Smart Buy, and others had similar plans so you did not pay the ad-valorem taxes. Since then, I have not heard of anyone doing what you have. Best thing to do is A) look at your contract B) contact the finance company for answers.
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Old 02-18-2013, 06:35 PM
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AggieKnight AggieKnight is offline
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I may have gotten the Owner's Choice and the BMW Select mixed up previously, but this is as much of a definition as I was able to find on BMW's website
Quote:
Originally Posted by BMW USA
Owners Choice
Owners Choice financing combines the lower monthly payments of leasing and the security of ownership. You make low monthly payments for your selected term then reach a three-way option point:

1. You can get a new BMW and sell your BMW back to us at a predetermined price.
2. You can refinance the balloon payment amount.
3. You can complete your purchase by making the balloon payment.
Owners Choice is a good alternative if you reside in a state where leasing is less advantageous due to state tax laws.
Looks like you can sell the BMW back to BMW and that the OC is only a good choice in states where full sales tax is charged at purchase time (vs states like GA where you pay tax on the lease payment). Reading the verbose (/sarcasm) text from BMW it may be that the selling of the BMW back is contingent on your purchasing a new bimmer.

Having said that, I'd refer to your financing paperwork.
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Old 02-18-2013, 06:47 PM
Boardman Boardman is offline
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Oh damn I forgot to follow up in this thread. OP here!

I did go with the owners choice. As been said above its the TX tax benefits. And nothing down. Works like a lease, give it back after 3 years or finance it (balloon)

This works for me as I don't keep cars for long. If I did, I would buy slight pre owned with substantial cash down.
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Old 12-17-2013, 07:01 AM
Driver4 Driver4 is offline
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Quote:
Originally Posted by AggieKnight View Post
I may have gotten the Owner's Choice and the BMW Select mixed up previously, but this is as much of a definition as I was able to find on BMW's website


Looks like you can sell the BMW back to BMW and that the OC is only a good choice in states where full sales tax is charged at purchase time (vs states like GA where you pay tax on the lease payment). Reading the verbose (/sarcasm) text from BMW it may be that the selling of the BMW back is contingent on your purchasing a new bimmer.

Having said that, I'd refer to your financing paperwork.
^^^^This.
I have used Owners Choice in Chicago where leasing adds an additional 10% use tax to the payment on top of IL charging tax on the entire cap cost. This is the only way to get close to lease payments that the remainder of the country sees in Chicago. To answer some questions:
1- the residual value, or value BMW will buy back the vehicle is set at time of contract.
2- after 36 months you can turn in the vehicle just like a lease. Instead of calling it a lease they are simply taking title back by paying the remaining balloon / agreed residual.
3- No where on my contract did it state that I was required to purchase another BMW in order for them to buy back the OC after 36 months.

The program is simply an intuitive way to get a lease payment to those that live in areas of the country where it can be prohibitively expensive to do so conventionally. As to why... I like many here have car ADD and prefer to rotate every few years. The thought of one payment with no maintenance is appealing.
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