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How to lease a car

Car Tips | December 28th, 2008 by 12

A large percentage of the BMW vehicles we see on the road are being leased rather than financed or cash purchased. In Illinois, based on …

A large percentage of the BMW vehicles we see on the road are being leased rather than financed or cash purchased. In Illinois, based on data from local dealers, we learned that in the past few years, the number of BMWs leased passed the 50% mark.

Despite the large number of car leases, there are many buyers that are still confused about the whole leasing process, the financial terms lingo and most important, the advantages vs. disadvantages of leasing a car. Money Factors, Residuals, Lease Acquisition fees and Owner Loyalty are all terms that make the leasing paperwork and process a little bit more complicated than a regular financing purchase.

But this article is geared towards people that don’t want to learn all the ins and out of a car lease and even more important, they are not concerned about squeezing every last dollar. A future article will cover Leasing FAQ and will explain in detail all the terms aforementioned. And the second part of this “How to lease a car” guide will teach you how to negotiate the best lease ever.

So, here we go:

  1. Multiply the MSRP by .92 to get the approximate dealer cost.
  2. Add $1500 to the number calculated in the first step (1).
  3. Get the Money Factor and Residual from the current month – the dealer can provide you this or you can visit Bimmerfest leasing section
  4. Use the money factor plus .0002 or .0003 – the average markup at BMW dealerships
  5. If needed, you can calculate the actual APR: Money Factor x 2,400
  6. Use $925 for the lease acquisition fee. The acquisition fee can be waved with a .0003 markup in the Money Factor

Note: BMW Financial Services set the acquisition fee to $725, but the dealer is allowed to mark it up as high as $925.

Calculate the car lease payment as follows :

Continued

The BMW of your choice has an MSRP of $50,000, Residual 60%,  Money Factor .00225 .

  1. $50,000 X .92 = $46,000 . — The is the dealer’s approximate cost.
  2. $46,000 + $1,500 = $47,500  — The cost of the car.
  3. Money Factor .00225 — Money Buy rate .00225 x 2,400=5.4% APR
  4. .00225 + .0002 = .00245 – The Money Factor with the usual dealership markup
  5. Your money factor Cap cost $47,500 + $925 = $48,425 – We added the lease acquisition fee to the car’s price

So now we have the final price of our and we want a lease for 3 years, 15k miles limit and the residual is 60% or .6

NOTE : If you lease for less miles you adjust the residual: add 2% to Residual for 12k mi/yr and 3% for 10k mi/yr on all terms

  1. Calculate Residual – $50,000 X .6 = $30,000
  2. Monthly depreciation – $48,425 – $30,000 divided by 36 = $511.80
  3. Monthly interest – ($48,425 + $30,000) X (Money Factor of .00245) = $192.14
  4. Monthly lease payment – $511.80 + $192.14 = $703.94 plus TAX
  5. If sales tax is 10% total payment is $774.24

Note: Some States requires you to pay the sales tax on the car’s sales price rather than the calculated Monthly Lease Payment, as  a result, a higher lease payment will occur.

Drive off amount will vary based on the State you live in, but here are the number than need to be added added together:

  • First month payment $774.24
  • Doc Fee – variable based on State maximum $50-$500
  • Title and Registration – an average of $100
  • Security Deposit – one months payment rounded to the highest nearest $50 increment – not applicable to existing BMW customers

Please keep in mind that the lease payment amount can be lowered if you get into a negotiation game with your dealership and also, in these tough financial times, the dealers are more inclined to offer you the best deal, but the purpose of this article was to simply offer you an easy breakdown of a lease cost.

The alternative is to use one of the existing Car Loan Calculator to obtain an approximate monthly lease payment.

  • BMW sales

    This is fairly accurate, apart from any type of service, accessory, or any other item built into the price (tint, exhaust, floor mats, etc.), the vehicle will residualize differently. The dealer cost on rate and invoice price are slightly different too, but you’re on the right track Horatiu.

  • http://lotsamarkups BernardP

    Hmmm…Let’s see…

    There is $1500 dealer markup over his cost for the car. Why not say “start with the price the dealer sells the car”. The cost info is useful, but the $1500 is not a constant and varies according to model and market conditions.

    In principle, I have a problem with the dealer taking a markup on interest rate (money factor). Any profit the dealer wants should be reflected in the selling price.

    I also have a principles objection to the “lease acquisition fee” (and is there a termination fee?). Is there a “finance fee” when the car is purchased outright and financed? The lease acquisition fee looks like a surcharge, even more so if the dealer takes a markup on it.

    The dealer has every right to make a profit. This should be reflected in the selling price of the car, not in dubious surcharges and fees.

  • http://www.bmwblog.com Horatiu B.

    @BernardP: I tried to keep it simple and I used some “nice” numbers and I agree, the $1500 is a variable rather than a constant.

    Unfortunately, many dealers take the markup and BMW allows them to mark it up to a certain level – .0003

    Lease acquisition fee is imposed by BMW Financial Services, think of it as a closing cost.

  • BernardP

    Thanks for the reply. I know that the acquisition fee is imposed by BMW Financial. I wanted to point out that it is hard to justify. In the end, it is an additionnal cost that has to be considered, along with interest rate and residual, when comparing a lease to an outright purchase. Not all car manufacturers impose an acquisistion fee.

    • Anonymous

      which car manufactures dont pose a aquisistion fee?

  • Pingback: Auto Leasing Guide – Vocabulary()

  • http://www.howtonegotiatecarprice.org/ negotiate car price guy

    I love how the numbers are broken down so simply here. There are also lots of online calculators that can do this math for you though (for people like me that hate math) Just google auto calculator and your off !

  • linda k maisamari

    I will be married soon and need a used bmw 2series ,how much will it cost me to purchase and own one including the shipping fee to my country

    • Josephsaban

      Linda i got a great deal on this website neweraleasing.com they beat my local dealers price by alot

  • http://twitter.com/shrihari_patya shrihari pataskar

    h i, thank you for giving such important information , this site really helps for the peoples who are planning to lease a car.

    Car lease calculator

  • Guest

    Can you negotiate on a BMW national lease offer?

  • Samion Eric

    These blogs are valuable because these are providing such informative information for all the people. http://www.autoloanseattle.net

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