Leasing Vs. Financing Guide

Thank you for a very intelligent analysis of Leasing and Financing. I've been a very keen advocate of leasing for some time.

Important - Keep in mind
You also need to really understand residual values when you compare leasing to financing. As you stated, the Bank (or credit facility) guarantees the residual at the end of the term. In a finance, you are on the hook if ever you want to sell/trade in the car. If the car's value drops for whatever reason, the Finance customer is left holding the bill.

In my case, my lease is coming due in June. The residual is CAD$26,500, but actual wholesale value is $CAD$22,000. If I would have purchased the car and financed it, I would stand to lose an additional $4500 in depreciation if I chose to trade-in the car... in the leasing scenario, BMW Finance will take the $4500 hit.

If the reverse were true (ie. residual is lower than wholesale/market value), you could buy out the lease and trade it in (or sell it privately)

Finance = More Risk
Lease = Low Risk -> Finance company assumes the risk

The original post is heavily biased towards leasing, so I would suggest to take it with a grain of salt. Notice that the APR on the lease on the 5-series is ~4% lower than the APR on the finiancing. That alone works out to be about 4 grand over 3 years. Also keep in mind that you're comparing a 60-month loan to a 36 month lease, meaning that you're borrowing money for much much longer on the loan. If you only consider only a 3-year loan, financing starts to look alot better.

Also keep in mind that if you when you lease going over your mileage will screw you, and that 3-years is a very long time. So even if right now you are only doing 10k a year (or 12 or 15k) halfway through the lease you might find yourself in a situation where you're doing 20k a year, and the lease will end up costing you a fortune.

Assuming there are no special deals for leasing (like a reduced intrest rate) if you are planning on keeping the car for a long time, you should finance it. If you like getting a new car every 3 years or so, then you should lease it. (but keep in mind that the 3-years when a car is new are the most expensive).

Originally Posted by jaguar

The original post is heavily biased towards leasing, so I would suggest to take it with a grain of salt. Notice that the APR on the lease on the 5-series is ~4% lower than the APR on the finiancing. That alone works out to be about 4 grand over 3 years. Also keep in mind that you're comparing a 60-month loan to a 36 month lease, meaning that you're borrowing money for much much longer on the loan. If you only consider only a 3-year loan, financing starts to look alot better.

Also keep in mind that if you when you lease going over your mileage will screw you, and that 3-years is a very long time. So even if right now you are only doing 10k a year (or 12 or 15k) halfway through the lease you might find yourself in a situation where you're doing 20k a year, and the lease will end up costing you a fortune.

Assuming there are no special deals for leasing (like a reduced intrest rate) if you are planning on keeping the car for a long time, you should finance it. If you like getting a new car every 3 years or so, then you should lease it. (but keep in mind that the 3-years when a car is new are the most expensive).

your response here tells me you didn't really read my post--because I covered everything you just stated.

I have a question. If the dealer's listed lease monthly payment is less than what is advertised on the official website, but the down payment, term of lease and residual are the same, does that mean that it is a special lease deal? If yes, do they just charge less interest or they are selling it less than MSRP? In negotating for a lease, do you just negotiate a price first and then come up with a lease term or do you just go straight talking with them about the lease?

thanks for the read, learned a lot today.

HOLD UP... I think you made a HUGE mistake in your calculations..


MSRP $35,220
Selling Price $35,220

Finance Terms:
Payment $937.17
Down payment $2,000
Rate 6.99 (700 plus fico)
Term 60 months

Your payment IS NOT 937.17 a month when you finance a car $35,220 with 2k down and at 6.99% for 60 months. You are waaaaaaaaay off.. This COMPARISON is WRONG.. You basically are telling people they are going to pay $57k+ for a car after financing or lease with a sticker of $35k. Come on guys. Do the math...

Originally Posted by gqii4you

HOLD UP... I think you made a HUGE mistake in your calculations..


MSRP $35,220
Selling Price $35,220

Finance Terms:
Payment $937.17
Down payment $2,000
Rate 6.99 (700 plus fico)
Term 60 months

Your payment IS NOT 937.17 a month when you finance a car $35,220 with 2k down and at 6.99% for 60 months. You are waaaaaaaaay off.. This COMPARISON is WRONG.. You basically are telling people they are going to pay $57k+ for a car after financing or lease with a sticker of $35k. Come on guys. Do the math...

Interesting....

After plugging in the numbers here at Bankrate.com it would appear that the monthly payment is only $657.64 which means at over 60 months, the total spent is $39,458.40.

WOW...I can't believe the huge mistake I made. The thread won't let me edit the original post, so let me fix it here

...The huge mistake wasn't in the payment, is was in the MSRP.

The MSRP of the 335i shouldn't have read 35,220, it should have been 45,220. Sorry for the confusion...

Make the MSRP correct, and everything will line up as initally posted.

I just read something on Edmunds CarSpace about making multiple security deposits to lower your money factor (and your monthly payment) and that you get that money back at the end of the lease. Do you know anything about this? It's the first I've heard of it.

So did you lease or purchased the car???

whoa... thanks.

what about refinancing?

“I drive too many miles to lease.” You can still benefit from leasing if you can keep your mileage under 100,000 in any term (at least that’s the way it is for BMW).

Can you elaborate on this?

I was planning to buy because I am a high mileage driver. On my current cars I am running about 20,000 miles per year.

If I leased I would lean toward buying it at the end of the lease, or I guess there is also an option to do a new lease or an extension? If I purchase, wouldn't the used car loan interest rate be substantially higher than for a new car, or is it different for BMW's?

I guess I can buy the extra miles at $0.15 a mile but I am not sure if I need to pay that up front, include the pro-rata with my payment, or wait till at least 4 months before lease end (or before going over the included miles?). For 30,000 extra miles the out of pocket cost is $6,000. I realize the extra miles will decrease a financed car's value.

If I turn it in with high miles, would BMW be more apt re-sell me the car at a lower market value?

But then there is the problem of exceeding the 50,000 mile warranty. If I finance I can consider extending it to 100,000 as it would have either value to me, or presumably a plus with respect to any trade-in amount. I don't want to be in a lease without a warranty.

How does extending the warranty work for a lease? It is available to original owners, but I am not an owner. Is the covered the same as the original 4yr/50k?

Then there is the question of tires. I have never had run flats, nor a BMW for that matter. I was planning to at least use them until they wore out. If I buy I have the option of buying normal tires should I not like the RFT's. But with a lease I am locked in to RFT's I suppose I could replace the RFT's before the thread is below the lease turn in amount and store them and remount them for the turn in. In any case at this mileage level I will need another set of tires and maybe two.

Any insights would be appreciated.

Originally Posted by TambourineMan

Can you elaborate on this?

I was planning to buy because I am a high mileage driver. On my current cars I am running about 20,000 miles per year.

If I leased I would lean toward buying it at the end of the lease, or I guess there is also an option to do a new lease or an extension? If I purchase, wouldn't the used car loan interest rate be substantially higher than for a new car, or is it different for BMW's?

I guess I can buy the extra miles at $0.15 a mile but I am not sure if I need to pay that up front, include the pro-rata with my payment, or wait till at least 4 months before lease end (or before going over the included miles?). For 30,000 extra miles the out of pocket cost is $6,000. I realize the extra miles will decrease a financed car's value.

If I turn it in with high miles, would BMW be more apt re-sell me the car at a lower market value?

But then there is the problem of exceeding the 50,000 mile warranty. If I finance I can consider extending it to 100,000 as it would have either value to me, or presumably a plus with respect to any trade-in amount. I don't want to be in a lease without a warranty.

How does extending the warranty work for a lease? It is available to original owners, but I am not an owner. Is the covered the same as the original 4yr/50k?

Then there is the question of tires. I have never had run flats, nor a BMW for that matter. I was planning to at least use them until they wore out. If I buy I have the option of buying normal tires should I not like the RFT's. But with a lease I am locked in to RFT's I suppose I could replace the RFT's before the thread is below the lease turn in amount and store them and remount them for the turn in. In any case at this mileage level I will need another set of tires and maybe two.

Any insights would be appreciated.

Yeah I will be in a similar situation: 20K to 21K miles/year and BMW is offering special financing rate of 3.90% on all 2008 335s. I have always financed due to my high mileage usage. I currently have a 2k2 330i and paid it off after 4 years on a 60 month term. I believe that leasing my 2008 335i wouldn't be as cost effective for me versus financing. I am due to take delivery of my new 335i coupe in a couple of weeks with an MSRP of $43,500, 60 month financing at 3.90%, and a down payment of $12,000 which would make my monthly payment including tax at 6.25% - $628.64. Any advice and/or comments would be appreciated. Thanks.

regardless of leasing or financing, you are always going to be way into the red in terms of the money coming out of your pocket, unless you negotiate a deal and pay cash for the car. the reasons why are: markup (profit) and interest (the ultimate profit booster). its amazing how much money you can save over years to come if you saved and paid with cash as a way of life. I'm sorry, but I can't help at gasp when I look at the cost of a car paying cash vs. the cost of the same car when paid with finance or lease. who in their right mind would raise their hands to volunteer for paying more as opposed to less ?

sorry, but I still see a lease (over a finance) as a total loss. because at the end of the term, unless you buy the car, there will never be anything in your driveway that you truely own. if you continue to lease, you are in effect, paying rent to drive a car-a better alternative to this is using zipcar "wheels when you need them" or something. do not forget that the cost of ownership includes gas, maintenance and insurance.

lastly, anyone who finances on a good price and pays double to triple the payment amounts and is done with the loan in 2-3 years is doing the next best thing to buying outright, because of the thousands in interest saved by paying down the principal really fast.

Originally Posted by DMan335i

Yeah I will be in a similar situation: 20K to 21K miles/year and BMW is offering special financing rate of 3.90% on all 2008 335s. I have always financed due to my high mileage usage. I currently have a 2k2 330i and paid it off after 4 years on a 60 month term. I believe that leasing my 2008 335i wouldn't be as cost effective for me versus financing. I am due to take delivery of my new 335i coupe in a couple of weeks with an MSRP of $43,500, 60 month financing at 3.90%, and a down payment of $12,000 which would make my monthly payment including tax at 6.25% - $628.64. Any advice and/or comments would be appreciated. Thanks.

I would wait until youve saved at least 21,000 as a downpayment prior to buying this car. when you buy, you can send 700-900 monthly to pay it off quicker.

Deff. well said 100% ..... i leased my self so its cheaper monthly and ill worry about my buy out when it comes time....MY lease aint goin back lol

Many of you worry about going over milage. I leased my 328i, but have only traveled 18,000 miles in three years. I think they said I'll get some credit if I return the car below the twelve thousand mile a year lease. Does low milage make leasing an even worse deal?