Leasing can be a financially advantageous way of driving a BMW. Perhaps that's why more than half of BMW drivers lease. Leasing does not require the same cash commitment as you only pay for the value of the vehicle you use during its lease. And, at the end of lease term, you have the flexibility to turn in your BMW for another, re-lease for additional term, buy at set agreement price, or turn in and walk away.
May people are confused about what a lease is and how it works. This thread is about what leasing really is, common terms and how to calculate the monthly pricing. Please feel free to ask questions below about your lease deal, how to get the best least deal or any general leasing questions. If you want some one to rate your deal you will need to include MSRP, Negotiated price (cap cost), money factor, years, allowed mileage, cap cost reductions, number of MSDs, and monthly cost. Please note this is not a lease vs buy discussion.
Big thanks to Bimmerfest.com member OneRib
for putting this together for the BMW community.
Leasing a BMW
Leasing in simple terms is paying for the amount of car you are using plus interest and fees. The financing company wants you to pay for the anticipated depreciation of the car and it also takes interest while this happens so they can make a profit.
Most leases are 2-4 years with 3 being the sweet spot. This is because the most depreciation happens in year one, making it unfriendly to the buyer and too many years makes it unattractive to the finance company to take back and unfriendly to the buyer who wants to change cars more frequently.
Main Components of Leasing
There are a lot of terms related to leasing that can be confusing. Here is a description of the common BMW leasing terms.
This is the amount on the window sticker and is used for the residual calculation. Note this also includes the destination fee.
Basically a fancy way of saying interest rate. Lease factor should be in decimal form and should be a small number. Whatever the money factor is, multiply by 2400 and that will tell you the interest rate. This number cans be manipulated and the dealer will not always disclose it, but if you want to make sure you aren't taken advantage of, you need this number. The money factor can change monthly. Also BMW allows a dealer to mark up lease rates up to 0.0004. This may sound small but equates to 0.96% over the course of a lease and is pure dealer profit. Always find out the base money factor before you start negotiating lease terms. The smaller money factor number the better.
IMPORTANT MONEY FACTOR NOTE - If you are buying via BMW European Delivery, BMWFS automatically adds 0.0003 to the base money rate. In exchange they pay one months payment while the car is in transport. This is a losing equation for the buyer as the interest rate surpasses the one months payment.
In April 2015, BMW is charged 0.00129 (0.00159 for European Delivery) lease rate for the F80/82/83 M3/M4.
Money factor X 2400 = interest rate
.00129 x 2400 = 3.096%.
The residual, or remaining value of the vehicle at lease end. The residual rate is expressed as a percentage and varies by number of years, mileage, and model. It is based of the MSRP of the vehicle you are buying/ordering. This number can change every month. Obviously the more years and miles added to the lease the lower the residual because the car won't be worth as much when you turn it in. Higher residual rates are obviously better.
Please note there has been some misinformation from some CA's about the residual on a European delivery car. The residual is still based off of the US MSRP NOT the ED MSRP. BMWFS has officially confirmed that for ED leases the residual value is calculated off of the US MSRP. Please DO NOT let dealers try and convince you otherwise. If they are insistent, I recommend you call BMWFS yourself while at the dealer and clear it up or have BMWFS send you written confirmation to show the dealer.
MSRP is $50000
Residual of 50% means you will finance $25000 over the term of your lease
Residual of 60% means you finance $20000 over the term of the lease.
This is the price you have negotiated on the car. Yes that's right, you can negotiate the price on a leased car.
Cap cost reduction
This is any money used to reduce the total cap cost. It can be incentives, trade in, or cash. This is generally something to avoid because you CAN lose that money if you total the car. It is also money spent on something you are renting. You would be better off using it for something else. It is possible to get cap cost back if the insurance company pays more than payoff amount left on the car. It's a risk and only you can decide if it's worth it.
The other big issue with cap cost reduction is transferring the lease or pull ahead lease end. It's hard to recoup the money in a lease transfer. The other party is not likely to give you any of that money back (no one wants to give you cash that you spent to make your payment lower). If a lower monthly payment is needed, makes you feel better, or gets it past the gatekeeper (aka spouse/parent/significant other) then you are better off using MSDs (explained below). You could also take the money (that was going to be used as cap cost reduction) and put it into a separate account. You then transfer a small amount over every month to make the payment lower.
Multiple Security Deposits (MSDs)
UPDATE: As of May 2nd 2017 BMW is discontinuing the Multiple Security Deposit Program - Read more
This is a BMW tool to bring down the money factor which in turn will reduce your monthly payment. A maximum of 7 MSDs can be applied. Each one reduces the money factor 0.00007. Each MSD costs the monthly payment rounded up to the nearest $50. The deposit(s) are returned at the end of the lease and is a good tool to lower your payment, but there are a few caveats.
- You will not get it back if you fail to make good on your end of the lease (don't pay the monthly payment)
- Again difficult to get someone to give you that money when transferring the lease.
- End of lease charges are taken first before money is paid (damage, over mileage, etc.)
Original money factor is 0.0013
0.0013 x 2400 = 3.12
You buy 5 MSDs
0.0013 - (0.00007 x 5)= 0.00095
0.00095 x 2400 = 2.28
You reduced your interest rate from 3.12 to 2.28 with money you get back at the end of the lease. Why does BMW do this?. Mostly because they can invest it and it gives them cash in hand to take for damage without having to chase after money at lease turn in.[/I]
GAP stands for "Guaranteed Auto Protection." Such insurance is indeed important when leasing, since you don't actually own the car and usually don't put down a large down payment. If you have an accident, your insurance will pay you the current market value of the car, but not the total amount of what you owe the finance company. This leaves a gap in your coverage, and an amount that you still have to pay. BMW Financial automatically includes GAP insurance. This is a nice touch because you don't need to get it yourself.
Basically a loan origination fee. Right now base fee is $925 for BMW as of 8/1/2015 and can no longer be raised by the dealer.
Its a fee BMW charges so the dealer can "dispose" of the car at lease end. The fee is usually for prepping and transporting for the next buyer. This fee is waived if you go into another lease or buy a new car through BMWFS, buy the currently leased car, transfer the lease, or sell it (you still need to pay BMWFS what you still owe them). The current BMW disposition fee is $350.
This can differ from state to state and even within a state. Some states require the full purchase price be taxed up front, some counties within a state add an additional tax, and some states tax at a different rate for lease than buying. Check with your state as this topic is too broad to tackle in this post.
BMW expects the car returned in the condition it was picked up. This means any mods must be reversible. Don't bolt on a wing to the trunk, paint the car a different color, change the interior material, etc. Mods like springs, wheels, grill changes are fine as long as you change it back when you turn it in. Some dealers will work with you on this and will let you add OEM parts. As with anything, check first before modding. Some mods can be rolled into the lease if they are added during the original order (BMW M Performance Parts for example). Other mods can be sold after you turn the car in (ex. Bavsound speakers).
One special topic is tires
. Most tires
will need to be replaced before end of lease. You are allowed to by any tire as long as it is of the same rating/size/performance. If the car came with Pilot Super Sports, Bridgestone
Potenza will be fine. IF YOUR CAR CAME WITH RUNFLATS IT HAS TO BE RETURNED WITH RUNFLATS. Many people forget this and get dinged at lease turn in. Tread depth must be 4/32" or greater. One way to get around this would be to shorten the lease to 24 months. You may still have enough tread to turn it in without buying more tires
and the increased monthly payment may be negated by avoiding the tire cost.
BMW requires a lease end inspection that usually is setup up about 75 days from the lease maturity date. This is done by an independent company, or the dealership. The BMW dealership tends to be more friendly on the inspection because they want your business on a future car. When completed you will receive a report and it will detail any repairs that are needed. You can fix it or still just turn it in and be billed by BMW later. BMW provides a "ding-o-meter" which shows how much damage is acceptable. This makes it easy to get an idea if you are going to need to fix certain defects.
You are also allowed to return your BMW to any authorized dealer (likely any US dealer) but they usually need to be notified (about 90 days). You can't just show up at a random dealer and drop of the car without expecting a huge hassle.
BMW has a nice interactive page to help you with the lease end process - http://www.bmwusa.com/Standard/Conte...tionFlash.aspx
BMW also makes it fairly painless to transfer a lease. This is nice because it reduces your financial exposure should you need to get out of the payments. It also makes it important to make a good deal as it will make your transfer more desirable. See the lease transfer section further down that covers lease transfers in more detail.
Additional fees vary by state but shouldn't be much different than buying a car. These fees include the doc fee, admin fee, title, etc. Watch for dummy fees a dealer tries to tack on, it is up to you to spot bogus or marked up fees. The fees can be paid upfront or rolled into the monthly cost. Some like to pay them upfront and not deal with the interest of them over three years. Some like to pay as little as possible at signing. Usually the rule of thumb is to pay these upfront because they most are mandatory and why pay interest on them if you don't have to.
Buying Additional Miles
BMW does provide the option to buy additional mileage before the lease ends. Its usually at a reduced rate compared to turn in, but higher than the mileage cost of adding it in at the beginning of the lease. You can crunch the numbers if you believe you will be in between mileage at lease end. Generally you want enough mileage so you aren't constantly looking for excuses not to drive it.
Details about buying excess miles
Lease Buy Out
- BMWFS will refunded purchased miles you do not use, but they don't specify how much you are refunded.
- You can pay for extra miles in increments or in lump sum payment if buying them outside of 120 days of lease end
- Within 120 days up to the day before lease maturity, you can buy miles in lump sum payment
- Payment is subject to sales tax
- Miles are currently $0.18 per mile before lease end
- After lease end miles are $0.25 for all models except the 6 Series, 7 Series and M models
- Be realistic with yourself about the mileage and its probably better to slightly underestimate than over, because the rebate on unused miles is embarrassingly low
You are always allowed to buy out the lease or sell the car whenever you want. As long as BMWFS gets the money they are owed, they don't care. This can be helpful if the car is worth more than the residual. This can happen at any time and some dealers (esp BMW) will gladly take your lease early if the car is in demand. Many forum members have taken advantage of this little known fact to get into new cars sooner than their lease term. Also since you can drop off at any dealer, you could shop your car around to multiple dealers and see if anyone will buy for more than the residual. If the dealer buys your leased car from BMWFS, they should be taking it as is (make sure they do). Now you won't have to worry about any lease inspection charges.
2013 M3 with a residual of 55% after 3 years (MSRP $75000) Buy out is $41,250. You go to turn the BMW in and ask if they want to buy it. They say yes and offer $43,000. You get $1,650 in cash or towards the next car.
This works prior to lease end, you just need to have them offer more than the current buy out.
BMW typically has one of the most painless lease transfer policies. Basically any lease further out than 6 months to maturity can be transferred. Exceptions are made for cars within 6 months. Also the lease must be current with no other liens/parking tickets/etch. The process usually takes about 4 weeks. If you think you will want to transfer a lease, it is best to completely avoid cap cost reduction and MSDs. It makes it harder to do the lease transfer if you expect some or all of that money back. Most times the accepting party will not have any interest in paying you that money.
One huge point that must be made is when you transfer a lease with BMWFS they also transfer over responsibility to the new lessee. The original person leasing walks away free and clear. This is a big time perk.
Also note that MY2015 or later cars leased after 7/1/14 no longer transfer their free maintenance coverage. Though the warranty will still transfer. Other than getting new brakes, it doesn't have a huge effect on lease transfers.
Lease transfer first stage
The current lessee needs to find a person willing to take it over. How they find said person is up to them. Many will use this forum, some other lease swapping sites, etc.
Once you find a potential trading partner. You must notify BMWFS of you intention to transfer the lease and the lease assumer must submit a credit application with BMWFS along with $500. $100 is a nonrefundable credit application and $400 is the lease transfer fee (refunded if the credit check fails),
If approved, both parties are sent paperwork to complete. Approval decision is completed in 48 hours or less. The current lease holder will not know the credit decision until the assumed lets them know. It is key that whoever you are dealing with needs to be accessible. If you can't get in contact with them the prices can drag out or you could miss out on another candidate while you play telephone tag.
BMWFS creates transfer documents within 1-2 days and sends them to each party. They must be completed and sent back with original signatures. Again one party dragging their feet really slows down the process. Also the vehicle must be added to the transferee's policy at this point.
BMW mails out final paperwork to both parties. The transferor gets a confirmation letter that the process is complete and the transferee gets all the documents necessary to register the vehicle. At this point the parties meet and the car is exchanged. The transferor needs to remove their plate and cancel the registration.
The whole process takes about 3-4 weeks, but can be faster if both parties are diligent. If the entire process takes longer than 60 days then the whole things goes back to square 1, including the fees.
Lease transfer while convenient, is one scenario where MSD's are not a great idea. Any MSD money is transferred over to the assumed. This is why you will see some try and recoup that money. Most times you have take the loss as assumes have no incentive to give you that money.
Calculating Lease Prices
You can use the Bimmerfest pen and pencil lease payment form
if you like to have the numbers on paper in front of you. There are also a good number of smartphone apps and websites that will let you calculate lease prices. Having an phone app lets you plug the numbers in right along with the dealer to make sure it all adds up properly. By having you number in hand ready the dealer is less likely to mess around with you. This takes some of the stress off of you because you don't have to have every aspect memorized.
A quick search through Google Play Store or IPhone App Store will give you some choices. There is enough reviews out there of the apps that you can make an informed decision on what to use. Whatever program/app you choose, double check it with posted deals in this forum first
to verify it's working properly.
Lease Payment Formula
This is the formula that dealers use to calculate the lease payment. Thanks to M6-Coupe for putting this part of the BMW Leasing 101 guide together.
- If the residual value is "R" ; R = MSRP x Residual (%)
- The Capital cost (sales price) is "C"
- Money Factor is "MF"
- Down payment is "D"
- Lease term is "N" ; number of months (ie 36 or 39)
- Monthly depreciation fee "MD" = (C-D-R)/N
- Monthly lease fee "ML" = MF * ([C-D]+R)
- Then the monthly lease payment= MD +ML + tax
- Drive off : The upfront money including all other fees ( bank fee , acquisition fee, license fee, etc) + first month payment
MSRP = $100,000
Capital cost (sales price after 10k discount) = $90,000
MF = 0.0013
Residual = 60% = $60,000
Lease term = 36 months
Down payment = $0
Other fees = $2,000
Tax = 8%
MD = $30,000 / 36 = $833.33
ML = 195
Tax = 0.08 * ($833.33 + $195) = $82.20
Monthly lease payment = $833.3 + $195 + $82.20 = $1110.50
Drive off = $2000 + $1110.5 = $3110.5
Note: Tax- this calculation is based on CA tax which is a tax on lease cost. Some states calculate the tax based on whole capital cost.