[Shaw]

Ok guys,
here's the thing: after having financed my X3, I'm struggling with the lease vs. finance issue and keep thinking maybe it was better I would have leased the car. I know, I know, it is not a new discussion and kinda boring...but I need to put this on a debate and clear it out of my mind.
A quick reaction to this topic which I see a lot is: "if you are planning on keeping your vehicle for long, finance it is and lease for shorter timeframes".
I have done a quick analysis with 2 alternatives and frankly I don't see a lot of advantage on the financing side. Maybe I'm not seeing a part here...so help me out.
First of all the default input (from BMW Canada financing website):
======
*Lease example: lease a 2011 BMW X3 xDrive 28i base model for $41,900 at 5.90% for a term of 39 months and a $4,355 down payment; the monthly lease payment is $569. First month’s lease payment, a security deposit of approximately one month’s lease payment, transportation and preparation ($1,995), A/C excise tax ($100), a PPSA or RPMRR registration fee (up to $90), Retailer administration charges (if any) and all taxes are extra and required upon lease signing. Total obligation is $29,299.86 plus tax. The residual value of the vehicle at end of term is $20,950. License, insurance, vehicle registration and applicable taxes are extra. Annual kilometres are limited to 20,000; $0.15 per excess kilometre. Excess wear and tear charges may apply. Retailers are free to set individual prices and charge administration fees which may change the APR or the price of the vehicle. Transportation / Preparation and excess kilometre charges may vary by model and province.
*Finance rates are those offered by BMW Financial Services Canada only on approved credit on select new BMW models. Representative financing example: finance a 2011 BMW X3 xDrive 28i base model for $41,900 (plus tax) at 4.90% for a term of 60 months and a $6,500 down payment; the monthly finance payment is $769. Total obligation is $52,640.00. Transportation and preparation ($1,995), A/C excise tax ($100), a PPSA or RPMRR registration fee (up to $90), Retailer administration charges (if any) are extra and required upon finance signing. License, insurance, vehicle registration and applicable taxes are extra. Retailers are free to set individual prices and charge administration fees which may change the APR or the price of the vehicle.
========================
Alternative 1: The comparison assumes for the lease option that the "Leasee" pays off the residual value at the end of the 39th month and owns the car right after the 40th month. With the monthly $569 which he would NOT be paying after the 41st month, he is actually breaking even with the initial price ($41,900) on month 50th. Now as for the "Financee", he will finance at $769 for 60 months. Taking the average residual value from the Lease option (the car loses 50% of its value after 39 months), we reach a residual value of $10,984 after 60 months ( I know it may worth more than that, but this is the worst case scenario). So the Financee immediately earns the breakeven on the 60th month. In this scenario we are not calculating the 0.15$ excess kms should the Leasee drive the car over 20,000km per year. (for an excessive 20,000km per year meaning 40,000km per year it is $3,000 per year)

Alternative 2: The Leasee keeps on Leasing... that means probably returning back that car, and getting a new one or keeping the same car. Now the default here is that we are assuming the same car with the same value and installments (not very realistic but that's all we got...) . Even in this scenario, the Lease appears to be beneficial for the first 60 months! Now if we would have been looking at a 100 month timeframe, then the figures might be in favor of financing. But who wants to keep a car for 100 months???

OK, so your thoughts: If you agree with this observation, and if not, what are your angles and observations. Also if anything is missing in this evaluation... I'll attach the excel sheet that shows the graphs

[lhsa]

sorry i didn't have time to read it all, but there are a few situations where leasing is better than financing:

- lease rates (residual/money factor) are good - X3 rates are terrible at the moment

- tax benefit - lease is better if you can write off the amount

- cash flow considerations - finance will cost you more on a monthly payment basis

- keep for the long run or switch out after lease? - if you're keeping it finance is generally better. for example:

- a lease with BMW would put me ~5,800 in fees and interest over 3 years AND you still need to buy at the end of the lease and possible incur more interest.
- finance rates are great now and i'll be paying ~2,500 over a 5 year loan

everyone's needs are different, but this is what i see.

[JohnnyTT]

How many miles you plan on putting on the car is a big factor to add. If going 12k or less a year.. a Lease can be more attractive. If 15k or more a year driver, it forces your hand the other way.

The other most important parts..
Buying..
-- Discount off MSRP
-- Interest Rate
-- Price you'll get for selling car when done

Leasing
-- Lease Rate
-- Mileage
-- Total lease payments vs Buying (Price paid minus price can sell)



Also on a side note. When leasing a car, put as little down up front as possible. God forbid something happens to the car... that money goes bye-bye with the car. The few $$ it saves you in the long term might not be worth it.

[JohnnyTT]

But to answer your questions.. with those examples.. the Lease is the winner.

the problems with the real world application of that.

1) If that's your lease rate, the equivalent person should get a finance rate around 3%

2) When you buy, you will be able to get more money off of the MSRP vs Leasing.

3) When you buy, selling a used car in this economy is tuff, so odds are you won't get what you think you will.


I personally prefer a lease, unfortunately when new cars that everybody wants come out... Lease rates are so bad, it' makes the decision for you. Ie.. why I bot my X3.

[Rinse]

Originally Posted by JohnnyTT

The other most important parts..
Buying..
-- Discount off MSRP

Who says you can't get discount off MSRP when leasing?

[clivem2]

Leasing in NA seems different to the UK. You can still get great deals on sought after cars, resale value has more impact than discount. Good resale value = low lease cost. Leasing through Alphabet helps as they are owned by BMW. Ordering a car early in their model life also helps, lease prices have already increased vs when I ordered.

[carlili4190]

Honestly I would rather lease.

[xDrive35i]

Originally Posted by JohnnyTT

But to answer your questions.. with those examples.. the Lease is the winner.

I personally prefer a lease, unfortunately when new cars that everybody wants come out... Lease rates are so bad, it' makes the decision for you. Ie.. why I bot my X3.

I'm leasing because I don't want to be tied down in 36 months. It's nice to change it up. In terms of getting money off MSRP, it depends on the relationship you have with your dealership. I got a fantastic deal with lease in mind and living in the city I couldn't possibly rack up more than 12,000 mi/yr.

If you want a good deal in any event, make the dealership want your money more than the next guy, as if closing with you will be more lucrative and valuable for them than doing do with someone else, therefore making it clear that your time isn't to be wasted on silly dealer games--you want your car from them which reassures them that they have nothing to worry about you spending your money elsewhere. Don't be stingy asking for more, but don't be greedy once you've gotten them down to your predetermined target. This isn't a 2014 M3 CSL waiting list; it's a new car at the end of its model year.

[walendvay]

Am planning on driving this rig for at least 7-8 years, maybe longer. Hope to get 135k-150k out of it. maybe more! I am in it for the long haul!

[Want the thrill]

Originally Posted by walendvay

Am planning on driving this rig for at least 7-8 years, maybe longer. Hope to get 135k-150k out of it. maybe more! I am in it for the long haul!

I'm right there with ya! I only put 10,000 miles on a year, but I plan on keeping it for at least 8 years if it doesn't fall apart on me first!

[JohnnyTT]

Originally Posted by Rinse

Who says you can't get discount off MSRP when leasing?

You certainly can, but "usually" you can get more off when buying. Especially on a hot selling car.

[sard]

I average 6,000 haha .. Financed for me. For me a purchased car give you the feeling of "this is your car and you can do whatever the fuck you want with it".

[Want the thrill]

Originally Posted by sard

I average 6,000 haha .. Financed for me. For me a purchased car give you the feeling of "this is your car and you can do whatever the fuck you want with it".

+1

[guitarpath]

Originally Posted by sard

I average 6,000 haha .. Financed for me. For me a purchased car give you the feeling of "this is your car and you can do whatever the fuck you want with it".

2+

I think its always better to own rather than to rent (lease). At the end of the day, when you own, the car is yours. And with that you have options (which include when you may or may not want to move on to something else, how many miles you want to put on it, etc), not to mention the pride of ownership and the credit score benefits.

[LEDZEP]

How exactly are you going to "settle once and for all" a personal choice issue? Maybe we can also settle "once and for all" which color is the best.

If you want to purchase, you purchase. If you want to lease, you lease.

[richardew]

There is no answer to the question.
For me it's the after tax cost of either period. Cash flow is not an issue. For others, cash flow is an issue and leasing has less impact on cash flow for the period of the lease.
Knowing how to calculate the cost of a lease helps.
1. What is the interest rate? It's the money factor x 24.
2. What is the residual value, ie the cost of the vehicle at the end of the lease if you decide to buy it? It is a % of the MSRP. As you add miles the % decreases. When calculating the monthly cost of the lease, one factor is the interest you pay each month on the residual value. This is the money factor x 24 x the residual value.
3. How much of the vehicle are you "using up"? This amount is the MSRP - your negotiated discount - your down payment - residual value. You then amortize this amount over the lease period. If you do it with Xcel there is a pmt function. The number of periods is the number of months, the monthly interest is the (money factor x 24)/12 and the pv is the MSRP - discount - residual value.
4. Tax on the lease (9% in PA).
There you have it. Now you can calculate the lease cost yourself. You can play around with the amount you put down, the discount etc. and see the different effects this has.

[tagz]

Originally Posted by sard

I average 6,000 haha .. Financed for me. For me a purchased car give you the feeling of "this is your car and you can do whatever the fuck you want with it".

+1

[Shaw]

Lease vs Buy
Is it better to lease a car or buy? Why? Which is best?
It's a common dilemma with automotive consumers: lease versus buy — to lease a car or buy a car — which is better?

So what is the answer?

Lease versus Buy

The answer is – it depends. It's not possible to simply say that one is always better than the other because the answer depends on the specifics of each individual situation.

Leases and purchase loans are simply two different methods of automobile financing — leasing is not renting as many people seem to think. Leasing finances the use of a vehicle; buying with a loan finances the purchase of a vehicle. Each has its own benefits and drawbacks.

When making a 'lease or buy' decision you must look not only at financial comparisons but also at your own personal priorities — what's important to you.

Is having a new vehicle every two or three years with no major repair risks more important than long-term cost? Or are long term cost savings more important than lower monthly payments? Is having some ownership in your vehicle more important than low up-front costs and no down payment? Is it important to you to pay off your vehicle and be debt-free for a while, even if it means higher monthly payments for the first few years?

So we find out that making a lease-or-buy decision is not quite cut and dry. There are trade-offs, pluses and minuses, pros and cons to consider.

Buying and Leasing are Different

When you buy, you pay for the entire cost of a vehicle, regardless of how many miles you drive it or how long you keep it. Monthly payments are higher than for leasing. You typically make a down payment, pay sales taxes in cash or roll them into your loan, and pay an interest rate determined by your loan company based on your credit score. You make your first payment a month after you sign your contract. Later, you may decide to sell or trade the vehicle for its depreciated resale or trade value.

When you lease, you pay only a portion of a vehicle's cost, which is the part that you "use up" during the time you're driving it. Leasing is a form of financing and is not the same as renting. You have the option of not making a down payment, you pay sales tax only on your monthly payments (in most states), and you pay a financial rate, called money factor, that is similar to the interest on a loan. You may also be required to pay fees and possibly a security deposit that you don't pay when you buy. You make your first payment at the time you sign your contract — for the month ahead. At lease-end, you may either return the vehicle, or purchase it for its depreciated resale value. You may be charged a lease-end disposition fee.



Lease-versus-Buy Example

As an example, if you LEASE a $20,000 car that will have, say, an estimated resale value of $13,000 after 24 months, you only pay for the $7000 difference (this is called depreciation), plus finance charges, plus possible fees. You return the car at lease-end, or buy it to own it.

When you BUY, you pay the entire $20,000, plus finance charges, plus possible fees. You own the car at the end of your loan, although its value is less than the $20,000 you initially paid.

This difference is fundamentally why leasing offers significantly lower monthly payments than buying.

How are Lease and Loan Payments Different?

Lease payments are made up of two parts: a depreciation charge and a finance charge. The depreciation part of each monthly payment compensates the leasing company for the portion of the vehicle's value that is lost during your lease. The finance part is interest on the money the lease company has tied up in the car while you're driving it. In effect, you are borrowing the money that the lease company used to buy the car from the dealer. You repay part of that money in monthly payments, and repay the remainder when you either buy or return the vehicle at lease-end.

Loan payments also have two parts: a principal charge and a finance charge, similar to lease payments. A loan company or bank issues money directly to you or a dealer, and you agree to repay that money, with interest, over time. The principal charge pays off the full vehicle purchase price over the length of the loan, while finance charge is loan interest on monthly unpaid balance. The finance company or bank will hold the vehicle's legal title until the loan has been completely repaid.
However, since all vehicles depreciate in value by the same amount regardless of whether they are leased or purchased, part of the principal charge of each loan payment can be considered as a depreciation charge, just like with leasing — it's part of each monthly payment that you never get back, even if you sell the vehicle in the future. It's lost money for which you'll have nothing to show.

The remainder of each loan principal payment goes toward equity. It's what remains of your car's original value at the end of the loan after depreciation has taken its toll. Equity is resale or trade value. It's what you get back if you sell the vehicle — or credit you receive if you trade. The longer you own and drive a vehicle, the less equity you have. At some point in time, after the wheels have fallen off and the engine is worn out, the only equity left is scrap value. You never get back the full amount you've paid for your vehicle.

Buy versus Lease - Savings Account or No Savings Account

So, buying a car with a loan is essentially like putting money into a declining-value savings account — you never get out as much as you put in. A portion of every payment you make is lost to depreciation and finance charges. What you have "to show" for your investment when your loan is paid off is only the part that is left over after depreciation and interest. A terrible investment by any measure. But cars are not usually purchased as investments, are they?

Leasing, then, is similar to buying, but without the equity "savings account." You only pay for what you use and you don't put anything extra into "savings." It's true that you'll own nothing at the end of a lease; you'll have nothing "to show" for the money you've put into it. But... what you don't own is the same part of the car's original value — the depreciated part — that a buyer too doesn't own at the end of his loan. Again, a car's value depreciates the same amount whether it is leased or purchased. That money is gone forever, lease or buy.

With leasing, you may have the option of putting your monthly payment savings into more productive investments, such as mutual funds or stocks that have the possibility of increasing in value. In fact, many experts encourage this practice as one of the benefits of leasing, though most people will typically find other uses for the money they save by leasing — such as paying the mortgage or buying groceries.

Leasing Can be a Little More Complicated

Because leasing is somewhat more complicated with residuals, money factors, acquisition fees, etc.; it shouldn't be undertaken quite as casually as you might with a simple loan. There are more opportunities to misunderstand and make mistakes. Therefore, leasing requires that you be more careful and more informed.

This is precisely the reason we've provided this Lease Guide and our optional Lease Kit — to make leasing as easy as possible for you.

Just a Comment on Lease-to-Buy Plans

Some people lease with the intention of buying their vehicle at the end of the lease, or before the end of the lease. It allows them to start out with lower payments by leasing and then buy the car at lease-end with a used-car loan. This is nearly always more expensive in the long run than simply buying outright. However, you may have a good reason for this tactic.

One Other Thing - GAP Protection

Most car leases have automatic built-in gap coverage, while car purchase loans almost always do not. Gap coverage, or gap insurance, pays the difference between what you owe on your loan or lease, and what your vehicle is actually worth if your vehicle is stolen or destroyed in an accident.

Why is gap insurance important? Because it's very common, in these days of long-term loans and leases, rolled-over and refinanced loans, and little or no down payment, to be "upside down" — to owe more on your loan or lease than your car is actually worth.

This can mean you'll still owe hundreds or thousands of dollars to the finance company even after your insurance has paid for your car that has been totaled or stolen. This turns out to be a huge shocking surprise for most people caught in this unfortunate situation.

So, nearly all leases have built-in gap protection, but loans do not. You're better protected with a lease, unless you purchase the gap insurance separately at extra cost for the loan — if you can find somewhere to buy it.

Which is Better - Buying or Leasing ?
As with any question of this type, there can be more than one answer, depending on particulars.

Lease vs Loan

Let's simplify the answers and summarize them here:

1. The short-term monthly cost of leasing is ALWAYS SIGNIFICANTLY LESS than the cost of buying.
For the same car, same price, same term, and same down payment, monthly lease payments will always be 30%-60% lower than loan payments. This is still true even when compared to 0% or low-interest loans (see comparison chart at right). For actual real-life comparisons, see our Lease vs. Buy Calculator.


2. The medium-term cost of leasing is ABOUT THE SAME as the cost of buying, assuming the buyer sells/trades his vehicle at loan-end and the leaser returns her vehicle at lease-end.
The overall cost of leasing compared to buying, over the same lease/loan term, is approximately the same, assuming the buyer sells or trades the vehicle at the end of the loan. Comparisons sometimes show buying to cost a little less than leasing due to fewer fees, lower total finance costs, and the assumption that a purchased vehicle will return full market value if it is sold or traded at the end of the loan (often a bad assumption, especially if traded). However, when the benefits of wisely investing monthly lease savings are considered, along with sales tax savings (in most states), the net cost of leasing can easily be less than buying.


3. The long-term cost of leasing is ALWAYS MORE than the cost of buying, assuming the buyer keeps his vehicle after loan-end.
If a buyer keeps his car after the loan has been paid off and drives it for many more years, the cost is spread over a longer term. It doesn't take rocket science to figure out that the cost of buying one car and driving it for ten years is less expensive than leasing or buying four or five different cars over the same period. Therefore, leasing is always more expensive than long-term buying. If long-term financial cost savings were the most important objective in acquiring a new car, it would always be best to buy the car and drive it for as long as it survives — or until the cost of maintenance and repairs begins to exceed the cost of replacing it. However, many automotive consumers have other more immediate objectives that are more important than long-term cost savings.

Lease or Buy? What's Important to You? What Are Your Priorities?

It's personal. All of us have different personal styles, objectives, and priorities — in cars, life, and in finances. Car lease-versus-buy decisions must be made with your own lifestyle and priorities in mind. What's right for one person can be totally wrong for another.

LEASE - If you enjoy driving a new car every two or three years, want lower monthly payments, like having a car that has the latest safety features and is always under warranty, don't like trading and selling used cars, don't care about building ownership equity, have a stable predictable lifestyle, drive an average number of miles, properly maintain your cars, are willing to pay more over the long haul to get these benefits, and understand how leasing works, then you should lease.

BUY - If you don't mind higher monthly payments at first, like holding on to your cars, prefer to build up some trade-in or resale value (equity), enjoy the idea of having ownership of your car, like paying off your loan and being payment-free for a while, don't mind the unexpected cost of repairs after warranty has expired, drive more than average miles, prefer to drive your cars for years to spread out the cost, like to customize your cars, might have lifestyle or job changes in the near future, and don't like the risk of possible lease-end charges — then you should buy.

Another Way to Lease — A Better Cheaper Leasing Alternative

The single best way to drive a late model car at the lowest possible cost is to take over someone's existing car lease. It's less expensive than buying and less expensive than taking out a new lease. You avoid all the up-front hassles, negotiations, and fees.

Why?

Most existing car leases were taken out months ago when car manufacturers were offering incredible money-losing lease deals and very low monthly payments. Many people who took those great lease deals now need to get out after losing jobs or suffering other financial distress. Most lease companies allow those leases to be transferred to someone else by simply paying a small transfer fee.

Since the original lessee got a good deal — a deal that may not be possible today — anyone taking over the lease will inherit the same great deal, same low monthly payment, with NO MONEY DOWN, no up-front sales tax, and in many cases, a CASH incentive from the "seller." There is no other way to get a late model car this cheap with payments this low.

Online companies such as Swapalease.com act as match-makers between people who want out of a lease, and people who would like to take over a lease.

Swapalease.com is the largest online lease marketplace and has the largest inventory of lease takeover vehicles. You can look over their vehicle listings and if you find a car you like, they help arrange the lease transfer. The "seller" pays most of the cost. It's easy and fast.

Summary

To summarize, car leasing is the right answer for people who want to save on monthly automobile costs but who have a stable predictable lifestyle and take good care of their cars. Buying is better for those who drive lots of miles, like paying off their car loans and enjoying their car without monthly payments for years to come.

[Shaw]

Here's the dilemma!
I find more of my attributes in the "Leasing" section!!! though I've financed!!!!
How dumb is that?????

[richardew]

I look at the after tax cost. That's the bottom line. I also look at what I can do with my money if I don't tie it up in a car. There is no one answer. I sit down with Xcel, turbo tax and quicken and try to choose the method that minimizes the net cost. If you don't understand finance you can never find the "right" answer.

[skier219]

I agree, just look at the bottom line. That is an easy way to make the decision. Back in the day, I whipped up a spreadsheet to end all spreadsheets in order to properly evaluate lease vs finance by my own criteria. It also helped in that it forced me to understand all the mathematics of leasing, which was a bonus when negotiating with the dealer. They can hide or cover up a lot just because it's so hard for consumers to understand the lease calculations. Definitely messy.

[guitarpath]

Originally Posted by Shaw

Leases and purchase loans are simply two different methods of automobile financing — leasing is not renting as many people seem to think. Leasing finances the use of a vehicle; buying with a loan finances the purchase of a vehicle. Each has its own benefits and drawbacks.

Interesting reasoning. Leasing is most definitely renting. Call it whatever you want. But isn't renting an apartment "financing the use of the apartment"?

Bottom line: you are paying to use a car you don't (and won't) own. Just as renting is paying for use of a home one doesn't own.

People should do whatever they are comfortable doing. But lets be real and not play word games.