Lease to buy

Hi guys

I am planning to lease my new E90 with the intent to buy. My thought was that instead of locking in substantially more money in my car I can use that money to invest in ESPP (Employee Stock Purchase Plan). ESPP will give me around 20% (guaranteed) profit. Since I am planning to buy anyway I am thinking of going with 10k per year, eventhough I know I will drive more.

Since I am doing ED (w. $5000 off MSRP) my lease payment will be really low compared to buying the car.

Does this make sense or is it risky?

What are you opinions? Anyone else doing the same?

Thanks,
David

You should consider getting a loan if you are definite about buying the car in 3 years. Leasing a vehicle includes certain fees you don't need to pay when paying with a loan. Also, you can get a better price and rate normally if you buy instead of lease.

The game is different if your may switch your mind not buying.

Every study I've read show that lease-buy is a sure way to lose money.

Typically, a 5 year loan and a 3 year lease cost about the same in terms of monthly payment.
With about a 60% residual value on the car, you'll probably end up with a considerably higher payment for the remaining two years.

If you want a new car every three years and don't put a ton of miles on the car each year, you'll do OK leasing. You won't tie up a ton of your money, and your costs are defined up front. Leasing is an excellent choice for brands with strong residual values, like BMW or Honda.

If you want a car to drive 'til the doors fall off, buy the car. Residual value is less of an issue here, since doorless cars are often difficult to move in the used market, regardless of brand.

Good points. However, that a 5 year loan and a 3 year lease have similar payments might be true if you are not doing ED. But since I am reducing the 40% I need to pay off (if res is 60%), which in my case is $16400 with $5000, I only have to pay $11400 during three years, which lowers my payment with around 40%.

Lease to buy, can work out if you get a really low money factor or or large discount off of MSRP, like ED.

It all depends on your own personal needs. If you don't think you will keep the car, a lease can save you the headache of selling it privately or getting ripped on a trade in.

I would do the buy out in cash, to avoid paying further interest charges.

Yes, lease to buy is more expensive, it is up to you to decide if its worth it.

Originally Posted by david330

Good points. However, that a 5 year loan and a 3 year lease have similar payments might be true if you are not doing ED. But since I am reducing the 40% I need to pay off (if res is 60%), which in my case is $16400 with $5000, I only have to pay $11400 during three years, which lowers my payment with around 40%.

It sound's like you've may have done your homework. It might work out to something like a balloon mortgage, with the perk of being able to turn the car in and avoid the balloon payment if you want.

I'd spend a little time with the time value of money functions in Excel to be sure you're comfortable with the decision, and your not kidding yourself about the economics.

Originally Posted by david330

Good points. However, that a 5 year loan and a 3 year lease have similar payments might be true if you are not doing ED. But since I am reducing the 40% I need to pay off (if res is 60%), which in my case is $16400 with $5000, I only have to pay $11400 during three years, which lowers my payment with around 40%.

Your $5000 (should it be only about 2500?) discount is not a factor because it applies to both lease and loan.

Try play around with excel and see which better fits for you.

"Typically, a 5 year loan and a 3 year lease cost about the same in terms of monthly payment."


Obviously, you have never leased.. Most three year lease payments are about the same as an 84 month loan..

I do agree with other posters.. If you are positive that you want to own the car long term, shop for the best interest rate you can find, and purchase it.. The discount you receive is really no factor at all, since you get it whether leasing or buying.

The obvious savings in NOT leasing, is not having to pay the acquisition fee..

One thing that you have right... Leasing is just an alternative way to finance.. If you were going after an E46 coupe, I'd tell you to lease, just because all of the incentives are on the leasing side.. But, for an E90, there is no advantage, if your ultimate intent is to purchase.

regards,
kyfdx

Originally Posted by kyfdx

"Typically, a 5 year loan and a 3 year lease cost about the same in terms of monthly payment."


Obviously, you have never leased.. Most three year lease payments are about the same as an 84 month loan..

I do agree with other posters.. If you are positive that you want to own the car long term, shop for the best interest rate you can find, and purchase it.. The discount you receive is really no factor at all, since you get it whether leasing or buying.

The obvious savings in NOT leasing, is not having to pay the acquisition fee..

One thing that you have right... Leasing is just an alternative way to finance.. If you were going after an E46 coupe, I'd tell you to lease, just because all of the incentives are on the leasing side.. But, for an E90, there is no advantage, if your ultimate intent is to purchase.

regards,
kyfdx

Well you can find out how much the car is going to sell for, that has been estimated already. That is pretty much the downfall for the car. It is a set estimated value of the car (usually in their favor). When it comes time to buy the car, guess what you are probably paying higher for what the car is worth. This is another danager / pitfall of buying the car under a lease.

I was in a dealership last week and they were telling me that the lease rate was at something like a 7.5% interest rate. Horrid. With all the money that you are saving by going ED, you really should just do a straight finance. You can probably pull about a 5.5% interest rate on a 60-66 month loan right now if you look hard enough. As any econmics professor will tell you, leasing to then buy is always a losing situation (unless they are throwing a phenomenal money factor (lease rate) at you, which is just not happening right now. Plus, at the current state of things, who knows what interest rates are going to be like three years from now. I would imagine that rates will significantly higher than they are right now. Sit down with a financial calculator (or excel as others have suggested) and see just how much money you will be shelling out in interest payments on the lease then buy option and then the straight finance. I assure that you will see a significantly lower overall cost with the straight finance.

Just curious how your ESPP plans works, as no companies stock is ever guaranteed to post a positive return on a yearly basis. Hell my wife works for Johnson and Johnson and hasn't really earned a penny on all of her stock in the last 5 years.

Well, I get to buy the stock with a 15% discount. On top of that, the stock price is based on the lowest stock price during the beginning and end of the offering period (each offering period is three months), which usually is another 5-10%. It is very favorable. There is however a cap of $23000/year. So potentially I can make around $5000/year.

Originally Posted by Ratman009

I was in a dealership last week and they were telling me that the lease rate was at something like a 7.5% interest rate. Horrid. With all the money that you are saving by going ED, you really should just do a straight finance. You can probably pull about a 5.5% interest rate on a 60-66 month loan right now if you look hard enough. As any econmics professor will tell you, leasing to then buy is always a losing situation (unless they are throwing a phenomenal money factor (lease rate) at you, which is just not happening right now. Plus, at the current state of things, who knows what interest rates are going to be like three years from now. I would imagine that rates will significantly higher than they are right now. Sit down with a financial calculator (or excel as others have suggested) and see just how much money you will be shelling out in interest payments on the lease then buy option and then the straight finance. I assure that you will see a significantly lower overall cost with the straight finance.

Yup, it is generally better to buy than lease. But here is the deal, it pretty much allows a person that can not afford as a Finance or able to have enough of a credit score to get a loan. (Payment is smaller but you don't own anything) A loan is harder to get than a lease because on the lease you borrow less in theory. Also the lease payments don't change because of the credit score with BMW NA. As long as you get approved a crappy credit rating guy can pay the same as a good credit guy.

Originally Posted by david330

Well, I get to buy the stock with a 15% discount. On top of that, the stock price is based on the lowest stock price during the beginning and end of the offering period (each offering period is three months), which usually is another 5-10%. It is very favorable. There is however a cap of $23000/year. So potentially I can make around $5000/year.

I just bought my car, all cash, with money I'd been setting aside in an ESPP, buying in at a 15% discount of the lower price of the most recent period, so it sounds similar. Made lots on the shares purchased in the mid-late 90s, before the tech bubble fizzled... how risky it could be depends on the general volatility of your company.