Today's Tidbit

Many times over the years I have seen posts from Bimmerfest Members asking how to convert a Lease Money Factor ("LMF") to an annual percentage rate of interest ("APR").

It's really quite simple. Simply multiply the LMF (which is expressed as a decimal) by 2400. Why do we do this? Save for a lengthier discussion, it has to do with the fact that the interest in a lease is based on an average daily balance.

So, let's look at an example.

Say the LMF is .00130. If we multiply that by 2400, the product is 3.12, so the functional equivalent as an APR is 3.12%!

:thumbup:

 

Thanks for this great info. I used it yesterday for my new X3. I will save almost $1,500 over the course of my 3 year lease. Can't beat a MF of .00081 !!!

 

Love MSDs. Combine that with BMW Fleet and I got a .0006 on my lease.

 

Thanks to some great advice by some wonderful people here, I leased a 2013 535i 2 years ago and max'd out my MSD's. The lease expires in a couple days, and I may lease another similar vehicle from the same dealer. On the actual contract from two years ago it doesn't list "multiple security deposits"; it just lists "refundable security deposit" of $4,900. How does this refund work exactly? Do they write me a check for $4,900? If I lease another car with the same max'd out MSD's, do they just forward that credit to the new lease?

FYI, I did buy the protection plan, and I do believe all the small stuff that is "wrong" with the car as I return it will be covered by the plan, based on my research.

Any help is appreciated.

 

If you lease another BMW, you will fill out paperwork that will roll over your security deposit to your new lease. They give you a loyalty discount on the security deposit. On a first time lease, you paid 8 MSDs. You will get that money back for one security deposit. Now if your lease price is much more than your last lease, you will only get part of that back. But most likely you will get a lot of it back in the form of a check.

 

Thanks for the information. One thing about this I don't understand.....is the security deposit a set amount? Or is it one payment? And if it is one payment, is this payment based on the "before" MSD amount or the "After?"

Thank you!

 

MSD is the payment after lower MF, rounded up to nearest $50.

 

Are there any other consequences to using max MSD's, for example is there anything in the contract that says the MSD's can be applied to deficiencies in the event of a gap between insurance claim payments and residual balances on vehicles or any other examples of negative consequences for doing multiple security deposits, I get the positives...if not it looks like a really good use of liquid assets as you say over a 36 or 39 month period as long as there are no other inherent contractual risks for leaving the money with BMW

Thanks for the post!

 

No, they are separate and should you have a total loss would not be factored into the payoff/potential gap liability...this is one of the main reasons people suggest doing MSDs vs. a Cap Cost reduction

 

Great info, thanks! I paid cash for my previous 335i convertible and will be looking at leasing a new 435iConv soon. Do I just ask the Finance people about the MSDs if the salespeople don't know? After negotiating the sales price?
Thanks!

 

Can someone tell me if MSDs are allowed NY? Also how are MSDs calculated

 

No. Not allowed in NY.

 

Thanks for the clarification. The saving is significant enough that I may go to NJ for my next car.

 

You would be best served to tell your CA that you want to use MSD's...when I went in to finance to complete my deal, the finance guy had a cow, even though I had advised the CA that I would be using MSD's. The sales mgr gave me a hard time too and I told him go look at the emails I sent the CA. Just to make the Finance guys day, I told him no to all the add insurance BS they wanted to sell me.

BTW, there are a vast number of CA's that don't have a clue about MSD's and they will try to get you to decap the lease instead.

 

We did a lease yesterday on a 528i x-drive. 7 MSDs totaled $3850. I calculated the difference between the monthly at .0013 and .00081 which worked out to $44.25 or $1593 saved over 36 months.

That works out to an effective interest rate of 13.8%. Thank you Bimmerfest forums! :thumbup:

 

We did a lease yesterday on a 528i x-drive. 7 MSDs totaled $3850. I calculated the difference between the monthly at .0013 and .00081 which worked out to $44.25 or $1593 saved over 36 months.

That works out to an effective interest rate of 13.8%. Thank you Bimmerfest forums! :thumbup:

hello! sorry for the noob question. how do you calculate how much you save each month?

say my monthly is $460 so my MSD would be 7 x $500 = $3500

using the MF .0013 -> .00081, how much do i save each month? thanks!

 

I have a paid off car that I'm selling or trading in. Even with 7 MSDs I will have several thousand dollars left. I was thinking of putting that towards cap cost reduction. I figure that since it will lower the payment it also lowers the amount needed for MSDs and lower payment saves on the 9% tax. Otherwise the money goes in savings where it's not earning much. Bad or good idea?

 

You won't save money on tax since the cap cost reduction will be taxed. Problem with using money for cap cost reduction is that given the MSDs the effective interest is so low that the interest saved by paying the cap cost reduction is minimal while at the same time you waste the GAP insurance that comes with all BMW leases (part of why there is an acquisition fee upfront).

 

I should have realized this was not a way to escape the tax! It didn't occur to me that the cap cost reduction would be taxable. If I trade in do I get credit for the tax paid on the trade like I would on a purchase? I am in PA if it matters.

 

Off topic as Im trying to calculate max MSD's...Does ED still earn you a .0003 reduction? .0013 = .001, then reduce for max MSD's?

 

Actually it's just the opposite. If the current base money factor is 0.0013 then you add 0.0003 for ED, making the ED money factor 0.0016. Then you deduct 0.00049 for 7 MSD = 0.00111.

With ED, you pay the first lease payment when you sign the lease and then BMWFS pays the second lease payment 30 days later when it comes due. You resume paying your monthly lease payments with the 3rd payment.

 

Was not really shopping for a new vehicle but went ahead and had a sale rep run numbers on a new '15 X5. I was dissappointed in the lack of discounting on the sales price itself but what really "got me going" was that they wanted a .00155 MF vs. the .0013 represented on here. This was for a 36 month/10K lease. This is the same sales rep that sold me my 2012 (non-lease). He knows I have exceptional credit and could simply write a check if I so desired.

Is this simply another ploy to try and gough a client? Needless to say, the numbers I ran don't align with his "fantasy". Why would the MF be SO high?

 

Was not really shopping for a new vehicle but went ahead and had a sale rep run numbers on a new '15 X5. I was dissappointed in the lack of discounting on the sales price itself but what really "got me going" was that they wanted a .00155 MF vs. the .0013 represented on here. This was for a 36 month/10K lease. This is the same sales rep that sold me my 2012 (non-lease). He knows I have exceptional credit and could simply write a check if I so desired.

Is this simply another ploy to try and gough a client? Needless to say, the numbers I ran don't align with his "fantasy". Why would the MF be SO high?

Many dealers will start off with an inflated MF because it is easy profit for them since a large portion of the buying public doesn't understand how leasing works just have their mind set on a payment (a dealer's dream). So they come out with an inflated MF and work downwards from there as needed. No different than them not starting with their lowest price.

 

Thanks and I figured that but this guy is the same guy I bought my '12 from and he KNOWS I don't play that game. His dad is also a friend so I suspect he was likely "asked" to artifically inflate it for his finance team. It was an excellent reason for me to simply walk without ANY negotiation what-so-ever. Residual was also low @ 59% so another reason for me to walk away. Maybe some incentives will come out next month...:rofl:

or maybe I should just reach out to the Cali dealer on here and see what kind of numbers he could work up for me...

 

Puzzled over MSD Refund

Jonathan;

Appreciate all the advice on Bimmerfest. I thought I understood MSDs but in talking to my local dealer while we agree on the effect of 7 msd's on lowering the MF, I thought my 7 MSD @ $700 ea. would result in a refundable deposit of $4900. Instead through some hocus pocus my BMWFS lease shows a refundable deposit shows $4200 and I am told it is calculated by multiplying something to my monthly lease amount and rounding it up to the nearest $50. IS THIS CORRECT? :dunno:

SZan64
Honolulu, HI:

 

Jonathan;

Appreciate all the advice on Bimmerfest. I thought I understood MSDs but in talking to my local dealer while we agree on the effect of 7 msd's on lowering the MF, I thought my 7 MSD @ $700 ea. would result in a refundable deposit of $4900. Instead through some hocus pocus my BMWFS lease shows a refundable deposit shows $4200 and I am told it is calculated by multiplying something to my monthly lease amount and rounding it up to the nearest $50. IS THIS CORRECT? :dunno:

SZan64
Honolulu, HI:

The MSD deposit is calculated by rounding the lease payment (with the lower MSD rate applied) up to the nearest $50 increment. So for example, if the lease payment was $658, it would be rounded up to $700 then multiplied by seven for $4,900.

Similarly, if the payment was $642, it would be rounded up to $650 then multiplied by seven for a total of $4,550.

Whatever the MSD total is, that is the amount refunded at lease end.

 

Got it Now

Thanks Weaselboy. I was under the impression that the MSDs were always $700 per. Thank you for clarifying that it is up to 7 X $700 but the actual amount is determined by your lease rent prior to adjusting for MSDs. I have finally seen the light. Aloha.

 

Maybe I have not seen the light. Now that I know how to calculate the MSD amount. How does that amount relate to the reduction in the MF. Is it always .00049 or something different?

 

As it says up in the first post:

A lease rate factor reduction of .00007 is applicable for up to seven security deposits beyond the conventional requirement.

For every extra deposit you out down, it will reduce your MF by .00007. You don't have to do all 7, but most people do.

 

Hope this clarifies my question. "You always get the .00049 reduction but your total MSD could be less than $4900?

For example if the total MSD is calculated as $4,200, then I am really purchasing the MSD discount for $600 per a .00007 reduction in MF?

Thanks again for your responses.

 

Hope this clarifies my question. "You always get the .00049 reduction but your total MSD could be less than $4900?

For example if the total MSD is calculated as $4,200, then I am really purchasing the MSD discount for $600 per a .00007 reduction in MF?

Thanks again for your responses.

You are overthinking this

A normal security deposit is one months payment. An MSD is just multiple of that deposit (rounded), and for each one you get the .00007 deduction in MF.

My payment was $550 with the reduced MF with 7 MSD. Thus, I had to deposit $3850.

 

Squeak;

Thanks, you are rigt I am overthinking this. I was under the impression what all I read that you can purchase 7 MSD for $700 per or $4,900 for a total of .00049 reduction.

I am now enlightened and pleased that this impression is false and that in actuality it could me much less to purchase 7 MSDs.

Regards and aloha.

 

I'm still not clear how the 10% return is calculated. Can someone shed some light on this?

 

In really round numbers, let's says you use $4,200 for MSDs. At a 10% annual return in a bank account/investment you would earn $420 a year in interest. 3 x 420 = $1,260.

So if using MSDs lowers your total lease payments over 36 months by $1,260 you have effectively earned a ten percent annual return on your $4,200 in MSDs.

For simplicity here, I am ignoring compounding interest.

 

Are there any rules on how the MSDs are paid? Can I put it all on my credit card to get miles, and then pay it off next month?

 

It is added into your amount due at signing. It depends on the individual dealership and their policy around credit card acceptance. Many dealers have a cap on how much you can put on a CC, some don't.

 

One more point that should be obvious but that I forgot to mention. The proper time to mention that you intend to put all of the drive-offs on your credit card is before the deal is completed. You're making it a condition of the deal and the person approving the deal has to be told by the client advisor. "He needs to put the entire drive-offs on his credit card otherwise he said he's going to have to wait another two or three weeks to do this."

 

Total payment including sales tax.