rhnorb

I've ordered a 2010 535XIT and will be trading in my 2006 530XIT for which I paid cash. I'll be taking a big hit on the trade-in based on what the residual values were if I had leased the car.

I can pay cash for the difference between the new car and my trade-in, but would I be smarter to lease the new car and thus guarantee the residual (or trade in value) after three years. Can I avoid the money factor by paying the entire lease cost up front? Why wouldn't this be a good idea...as compared to buying the car for cash.

sdg1871

Don't do that. If you car is stolen/totalled, you will lose all the money you pre-paid into the lease. The only way to lease, from an economic risk perspective, is to make no cap cost reduction and pay zero inceptions. Roll everything (taxes, bank fee, etc) into the lease payment. If the car is totaled or stolen, don't have to pay the remaining payments (which includes the things you rolled into the payment). The only thing I did not roll into my payment was the security deposit. If you roll your security deposit in, BMWFS increases the money factor.

BMWFS does offer you the opportunity to pay up to seven refundable multiple security deposits (MSDs). With each one, the money factor on your lease goes down. Paying 7 MSDs lowers the MF quite a bit. And at the end of the lease (whether by passage of time or if your car is totaled or stolen, you get the MSDs back.

You sound like a perfect candidate for MSDs.

rhnorb

Thanks for the info. The MSDs sound like a good idea. But, assuming I have insurance and the car is totaled or stolen, what's the difference whether I own or lease the car? Won't the insurance company pay the FMV whether it's leased or purchased. And if I had purchased the vehicle, I would have already paid what I would have to pay on the lease.

One other question...is the money factor (interest) calculated on the difference between the MSRP and Residual, or the total MSRP of the vehicle?

Thanks....

Jrowe

No... He's talking about buying the car outright or just paying monthly on a lease... He's asking if it's a good idea or not to pay cash again like he did on his 06 but for the new 2010 and buy it outright.

sdg1871

Buying the car outright is fine. Leasing and making all the payments up front is not a good idea for the reaasons I mentioned.

gregg2gs

U r receiving good advice here. Listen to what you are reading

rhnorb

Well, after 3.5 years with my current 530xit, the trade in value is at least $10,000 less than the residual value had I leased the car. I understand that the conventional wisdom is that it's not a good idea to pay any money up front on a lease, but compared to my situation, paying cash (so obviously I'm not concerned about getting a low monthly payment) I'm not sure it applies. I was thinking I could avoid the lease finance charge by paying up front and then be protected from the big depreciation hit at the end. And I still don't see the difference regarding whether the car is totaled or stolen since I will have paid for the car one way or the other.

sdg1871

If you lease, you will be hit with the finance charge whether or not you make the lease payments up front or not. It's one way that BMW (as every other car company) makes money from leasing. I do not believe that BMW simply waives the finance charge (money factor) on a lease because you opt to make the payments all up front.

If you are flush with cash and want to lower the finance charge, pay 7 MSDs as that will significantly reduce your MF and lower your monthly payment. And you get the money back at the end of the lease.

rhnorb

OK...If you still pay finance charges when you pay up front...you are right. Thanks for that info.

So I guess the question for me as to whether I pay cash or lease comes down to guessing what the trade in value vrs the lease residual will be in three years (taking into consideration the additional cost of the financing with the lease). I would prefer to own the car and have the flexibility when to trade or sell it but not if its going to cost $10,000 in a depreciation hit!

In my current situation I think I would have been better off had I leased my 2006 530XIT, but that may not be true 3 years from now. Any opinions on that question?

sdg1871

If you can grab one of BMW's high residual 3 year lease programs (the only I got on my 2009 550 had a 57% residual value for 15K miles per year, I then bought an additional 3K miles per year at 15 cents per mile) with a decent money factor, you'll be ahead financially than if you had bought. The important thing is to get a 3 year lease with a residual above 50% and, preferrably, closer to 60%. I would run from a lease with a residual value in the thirties, such as MB's typical leases (the local MB dealer called me with a "hot" deal for an E63 -- the problem was that the residual was 38%).

But you also need to look at buying versus leasing in terms of what you need as there are many pros and cons to both. I never buy because I change my cars every 3 years, I don't mod (sorry everyone), I drive about 18K miles per year, I do not want a BMW out of warranty given the repair costs if it breaks down, I am fanatical at keeping them undamaged and I do not want to make a big downpayment on an asset that loses value rapidly.

But if you want to heavily mod the car, if you drive a ton of miles a year or if you want to keep a car until the wheels fall off, buying might be for you.

Good luck with your decision.