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New to leasing?

Tips and Facts here

I recently placed an order for my new 330i, which I will be leasing. I did a lot research to try and get the best deal
possible. Unfortunately much of the information I needed was scattered among many threads, so I put together what
I learned here, hoping that it would help those of you who are new to leasing. I welcome any additions, suggestions
or criticisms of my findings.

I included what factors to look at before entering negotiations and what I feel are the least important variable to the
lease equation and the ones I feel are the most important. I also included some notes down at the bottom that you
should keep in mind.

Before Negotiations Begin


What Car This may sound like common sense but you should know what car you are talking about. Some of the
figures explained below vary depending on what car you want. Even though they are both part of the 3-series the
325 and 330 do not use the same Money Factor or Residual Value.

Lease Terms Right after figuring out what car you want you should figure out what lease terms you want. Are you
going to lease for 24, 36 or 48 months? Will you need 12,000 miles a year or 15,000? Your answers to these
questions will also affect the Money Factor and Residual Value.

Least Important Factors


MSRP Many people place a lot of importance on this number but it's not as important as you may think. Negotiations
should never start here. You should however know what the MSRP of your car is, as it will factor into the lease
formula. Also note that MSRP should also include the Destination Charge, currently $695

MACO This is an advertising fee that all dealers charge. It ranges from $200 - $400 dollars. There is usually very
little negotiation with this number

Residual Value This will represent how much your car will be worth when the lease expires. Typically this number
is represented as a percentage. It varies depending on what car you get and what lease term you are looking at.
This number is basically set for a given car and lease term combination, and there is no room for negotiating here,
but make sure to check that the dealer is giving you the correct percentage, if they for whatever reason will not,
don't bother dealing with them, look for someone else. If this number is represented as a dollar amount on your
lease it is calculated by multiply the MSRP of the car by the Residual Value Percentage.

Most Important Factors


Money Factor This is equivalent to the interest rate in a traditional loan. Make sure you know the Money Factor
your dealer is giving you. There is a fair amount of negotiation that can be done with this number. Unlike traditional
financing there is a minimum a dealer can offer you called the "Buy Rate". Please note that the Buy Rate is set for a
given car and lease term combination, but what you can negotiate is how much above that Buy Rate they will charge
you. The maximum they can charge you is set at 0.0004 over the Buy Rate. Make the Buy Rate your target and try
to get as close to it as you can.

Invoice Price This is one of the most important numbers of the whole equation. Know the invoice price of the car
you want. All negotiations should start from this number. Currently negotiating $1,000 over invoice (Dealer Markup)
is a good deal, any thing under that just makes the deal that much sweeter. Also note that Invoice Price should also
include the Destination Charge, currently $695.

Down payment This is an amount that you will give to the dealer to reduce the Cap Cost of the car. A Down
Payment is not required but will reduce your monthly payment.

Cap Cost This is the negotiated price of the car. It is basically the Invoice Price plus Dealer Markup, MACO and any
fees (see note 1) and less a Down Payment. There really isn't any negotiation that is done here but you should make
sure to check this amount so that no unknown charges will make their way into the deal.

Inception Fees This is a fee charged by the dealer for paperwork, securing financing and the like. This number is
often overlooked but there is room for negotiation here too. As with the Money Factor there is a minimum ($625)
and a maximum ($825) that a dealer can charge you.

Security Deposit This amount is determined by your monthly payment, it is basically your monthly payment
increased

1/8
to the next higher $50 increment. (Example: if your monthly payment including tax is $524, then your security
deposit will be $550). Security deposits are typically only imposed on new BMW customers, returning customers
should not be charged this fee. Also note that your security deposit is refundable and will be refunded to you when
the lease ends.

Due at Signing This is the amount you will have to give the dealer when all the paperwork is signed and are ready
to take possession of the car. This can include various amounts depending on how you structure your lease.
Amounts that can be included are first month's payment, down payment, license and registration, inception fees,
security deposit and taxes. The ones I mentioned are the pricier items that can be included. There could be others,
but they are typically small amounts. Question anything over $50.

A few additional notes


Note 1: Make sure you know when you will be paying the various fees you will be charged. With some fees you can
pay them up front or you can roll them into the lease. If you roll them into the lease they will increase the cap cost
thereby increasing your monthly payment. The advantage to rolling then into the lease is that you will have to pay
less at the start of the lease (Due at Signing). Some fees that you can roll into the lease are inception fees and
license and registration.

Note 2: Don't forget Sales Taxes. These will very depending on where you lease your car. Make sure to get your
quote with sales taxes already included on your monthly payment amount or your may be in for a surprise when you
go to sign the paperwork.

Note 3: A down payment is not required and most people would advise against giving one for a leased car. The
logic behind this is that if you get into an accident and the car is totaled you will loose any down payment you have
given. If you have extra money lying around and would like to lower you monthly payment, a better option would be
to take advantage of the Multiple Security Deposit program described below.

Note 4: BMW's Multiple Security Deposit program allows you to give up to 7 extra security deposits for your car.
These will not be used to lower the cap cost, but instead for every additional security deposit you give, your money
factor will be dropped by 0.00007, thereby lowering your monthly payment. These security deposits are also
refunded to you at the end of the lease.

Note 5: Remember to get your floor mats and a full tank of gas. Some dealers will try to charge an additional fee
for these. Try to negotiate for them upfront, don't wait until you are about to leave the dealer to ask for them.

Note 6: If you would like to save even more money on your lease and have the time, try the European Delivery
program offered by BMW. I don't know all the details about this program so I won,t go into it, but you can find out
more about it on the BMW website.

Note 7: Some of the necessary figures like Invoice Prices, MRSP, Money Factors and Residuals can be found at the
top of the Ask A Dealer forum of this great site. They are reffered to on this site as Sticky's.

I hope some of you find this useful.


Last edited by Teo : 05-09-2006 at 05:14 PM.

I say give the man a sticky after 11 posts.

Here's a couple embelishments upon your summary:

Are you a candidate for leasing?

To be a good leasing candidate, you should drive a predictable amount of miles per year, and take good care of your
car. A few scratches and chips here and there are no problem, but curb rashes and dents will cost you (not that it
won't cost you when you own the car).

Negotiating

When leasing a BMW, you are negotiating more than just the purchase price. You are negotiating the sale price (cap
cost), markup on the inception fee, and markup on the finance rate.

Don't get stuck on one number, like the purchase price, only to get screwed on the finance rate. Consider them all,
and plan your moves carefully. If you push for an unrealistic sale price ($5 over invoice!) you may find that you're
stuck with an unfavorable finance rate that destroys your beautiful deal.

2/8
Beware of and refuse to pay documentation fees, prep fees, etc. These are fees the dealer tacks on to make it
appear that you got a good deal, only to have it evaporate in $500 of add on fees. You cannot negotiate away the
$625 inception fee, and you'll have to pay your state's title and registation fees.

Spreadsheet

Download the lease payment spreadsheet, and really understand how the payment is calculated. You should be able
to arrive at the same number the dealer computes.

State Taxes

Some states have laws that make it very unfavorable to lease a car. Texas and Illinois come to mind, but I can't
give you specifics. Several other force to pay sales taxes up front, or some other scheme like that.

European delivery (ED) and leasing.

ED gives you a 7% discount on the car, calculated from MSRP. So, if your car had an MSRP of $40,000, you would
get a discount of $2800. This discount comes from BMW, not the dealer. So if you can ordinarily buy that $40k for
$37,500, you should be able to get $37,500 - $2,800 = $34,700.

But wait! There's more! The dealer does not have to pay the $200-$400 MACO fee, so you can negotiate another
$200-400 off the purchase price, now about $34,300. This really helps when leasing, since the residual value is still
computed off the original MSRP. A (very) crude approximation to leasing is that you only finance the difference
between the purchase price and the residual. Since the residual is fixed off the MSRP, ED makes for significant
savings. Another crude approximation is that $1000 on the purchase price is about $30/month on a lease payment.
Therefore, on our $40k car, you can expect to save around $100/month on the lease payment in the ED program.

The downside is you have to fly to Europe to get your car, and be forced to drive your car legally at speeds that
would put you behind bars here in "the land of the free" faster than you can whistle "Yankee Doodle." (For our
Canadian readers, please subsititute "the True North strong and free" and "O, Canada" in the previous sentence.
Canadians do get credit for the fact that 100 km/h does seem to be universally ignored on the 401, from my
experience.)

The downside of ED is that you must part with you car (which you own) during the 6-8 agonizing weeks required to
ship it back home. BMWFS does waive one lease payment while you wait for redelivery. However, you pay for this
in the form of a slightly higher money factor, which covers this "free" payment and a little bit more.

You can find out more about ED by moving one forum down to "European Delivery" forum.
__________________
2007 E92 335, color TBD, ED 7 September 2007.
2006 E83 X3, Silver Grey, ED 15 May 2006.
2005 E46 330i, Jet Black
Last edited by iversonm : 05-09-2006 at 08:35 AM.

A couple of things.

Can someone, maybe a dealer verify - once and for all - if the residual is calculated from the MSRP including the
destination or the MSRP before destination. That seems to be a gray area and obviously affects the monthly
payment which will be higher if the residual does NOT include the dest.

Capital cost reductions are subject to sales tax in some states. This is because it is treated as a payment. So in a
5% state (for example) your $2000 payment will be subject to $100 tax.

Different states have different tax laws regarding vehicle leases that can drastically change the payment given by
the generic lease calculators available here. In MOST states, the sales tax is applied to the payment, so for
example, in a 5% state, if your payment is $500, you add 5% or $25 for a total payment of $525. These are lease-
favorable states because you are only paying tax on the part of the car that you are leasing.

Several states that include Illinois, Virginia, Maryland and Texas (please chime in if there are more) require you to
pay tax on the negotiated price of the car. Yes, that's right, just as if you are buying it outright. In these states, you
either pay it all up front or build it into the lease. On a 24 month lease, this will kill your payment

Note also that if you decide to buy the car at the end of the lease, YOU WILL PAY TAX AGAIN!

3/8
Disposition fee: When you turn in a leased vehicle, you will be subject to a disposition fee of $400 (on a BMW). I
have leased many cars of different manufacture and there is always a disposition fee. So subtract it from the
security deposit - that's what you will be getting back. Note that if you re-lease a BMW, there is an unwritten
understanding that BMWFS will waive the disposition on the returned vehicle (and the security deposit on the new
vehicle)

Remember that a leased vehicle has to be returned in very good condition. BMW will send an independant inspection
'dude' to your location and he will generally go through the car very thoroughly. You are allowed a ding or two and
small scratches but one thing to note is that tears or rips in leather and tires that are either not a matching set, or
with less than 5/32" tread will be flagged. No mods unless you can remove them. Window tints will have to be
removed.
__________________
Probably more but I have a meeting. Nice write up.

Self appointed leasing guru and 'Top Gear' pimp. Too many posh cars over the years to bother mentioning.
Wife's current car: 2006 E90 330i - TiAg :: Blk w/Burl :: ZSP :: NAV/I-Drive :: Step :: Hot seats :: Full Sirius
Ordered 12/16/05 :: Driven away 2/7/06.

Looking at a new 535i or Z4 if they put the N54 in it..

Last edited by SteveinBelAir : 05-09-2006 at 09:40 AM.

Destination IS included...I don't even know why they bother calling it out anymore. It should just meld with the price
of the car and we shouldn't even see the word any more.
__________________
2001 530i/5 (E39), Topaz Blue/Stone Green/Black
2005 545i/SMG (E60), ED Order, Titanium Grey/Grey (lease transferred)

Quote:
Originally Posted by Teo
Before Negotiations Begin
What Car This may sound like common sense but you should know what car you are talking about. Some of the
figures explained below vary depending on what car you want. Even though they are both part of the 3-series the
325 and 330 do not use the same Money Factor or Residual Value.

Lease Terms Right after figuring out what car you want you should figure out what lease terms you want. Are you
going to lease for 24, 36 or 48 months? Will you need 12,000 miles a year or 15,000? Your answers to these
questions will also affect the Money Factor and Residual Value.
One should quickly see that BMW lease terms longer than 36 months are very, very expensive. BMW wants these
cars back after 3 years as they still have the full factory warranty.

Quote:
Originally Posted by Teo
Least Important Factors
MSRP Many people place a lot of importance on this number but it's not as important as you may think. Negotiations
should never start here. You should however know what the MSRP of your car is, as it will factor into the lease
formula. Also note that MSRP should also include the Destination Charge, currently $695.
This is important because it provides your residual amount: Residual percentage times (base MSRP+dest+MSRP

4/8
options) equals the residual number in dollars. Note that this may have zero to do with the actual price of the car
you negotiate or it could match it exactly.

Quote:
Originally Posted by Teo
MACO This is an advertising fee that all dealers charge. It ranges from $200 - $400 dollars. There is usually very
little negotiation with this number.
Correct...this is a regional number determined by BMWFS and the dealer has no control over it. Sneaky dealers, to
get you into their dealership, may not bring this number up in order to give you a low phone/email quote only to
bring it up later.

Quote:
Originally Posted by Teo
Residual Value This will represent how much your car will
be worth when the lease expires. Typically this number is represented as a percentage. It varies depending on what
car you get and what lease term you are looking at. This number is basically set for a given car and lease term
combination, and there is no room for negotiating here, but make sure to check that the dealer is giving you the
correct percentage, if they for whatever reason will not, don't bother dealing with them, look for someone else. If
this number is represented as a dollar amount on your lease it is calculated by multiply the MSRP of the car by the
Residual Value Percentage.
Correct, the Residual numbers are provided by BMWFS and are 100% non-negotiable. Everyone in the US uses the
same residual numbers so they are a constant in all lease figures.

Quote:
Originally Posted by Teo
Most Important Factors
Money Factor This is equivalent to the interest rate in a traditional loan. Make sure you know the Money Factor
your dealer is giving you. There is a fair amount of negotiation that can be done with this number. Unlike traditional
financing there is a minimum a dealer can offer you called the "Buy Rate". Please note that the Buy Rate is set for a
given car and lease term combination, but what you can negotiate is how much above that Buy Rate they will charge
you. The maximum they can charge you is set at 0.004 over the Buy Rate. Make the Buy Rate your target and try to
get as close to it as you can.
I hate the way MFs are represented. Too many zeroes mess people up. Actually, the max bump a dealer can do is
0.0004. There are often Promotional Rates available that are well below the base rates, too. Also, there can be add-
ons for things like European Delivery (0.0003) and for first time lease buyers (0.00015).

Quote:
Originally Posted by Teo
Invoice Price This is one of the most important numbers of the whole equation. Know the invoice price of the car
you want. All negotiations should start from this number. Currently negotiating $1,000 over invoice (Dealer Markup)
is a good deal, any thing under that just makes the deal that much sweeter. Also note that Invoice Price should also
include the Destination Charge, currently $695.

Down payment This is an amount that you will give to the dealer to reduce the Cap Cost of the car. A Down
Payment is not required but will reduce your monthly payment.
IMO, Down payments on leases should be avoided. If the car is totalled early in the lease, you will never see that
money back. It is better to learn about MSD - Mulitple Security Deposits. It is a sticky near the top of the
forum...read it well. Further, the whole point of a lease is to put as little money down as possible...my opinion of
course.

Quote:
Originally Posted by Teo
Cap Cost This is the negotiated price of the car. It is basically the Invoice Price plus Dealer Markup, MACO and any
fees (see note 1) and less a Down Payment. There really isn't any negotiation that is done here but you should make
sure to check this amount so that no unknown charges will make their way into the deal.

Inception Fees This is a fee charged by the dealer for paperwork, securing financing and the like. This number is
often overlooked but there is room for negotiation here too. As with the Money Factor there is a minimum ($625)
and a maximum ($825) that a dealer can charge you.
Also known as an acquisition fee. Often, this is included in the cap cost and IMO, that is were is should stay!

Quote:
Originally Posted by Teo
Security Deposit This amount is determined by your monthly payment, it is basically your monthly payment
increased

5/8
to the next higher $50 increment. (Example: if your monthly payment including tax is $524, then your security
deposit will be $550). Security deposits are typically only imposed on new BMW customers, returning customers
should not be charged this fee. Also note that your security deposit is refundable and will be refunded to you when
Again, seeends.
the lease the sticky near the top of the forum about MSDS.

Quote:
Originally Posted by Teo
Due at Signing This is the amount you will have to give the dealer when all the paperwork is signed and are ready
to take possession of the car. This can include various amounts depending on how you structure your lease.
Amounts that can be included are first month's payment, down payment, license and registration, inception fees,
security deposit and taxes. The ones I mentioned are the pricier items that can be included. There could be others,
but they are typically small amounts. Question anything over $50.

A few additional notes


Note 1: Make sure you know when you will be paying the various fees you will be charged. With some fees you can
pay them up front or you can roll them into the lease. If you roll them into the lease they will increase the cap cost
thereby increasing your monthly payment. The advantage to rolling then into the lease is that you will have to pay
less at the start of the lease (Due at Signing). Some fees that you can roll into the lease are inception fees and
license and registration.

Note 2: Don't forget Sales Taxes. These will very depending on where you lease your car. Make sure to get your
quote with sales taxes already included on your monthly payment amount or your may be in for a surprise when you
go to sign the paperwork.
Be aware of your state's rules for handling sale's tax on car leases. In California, you only pay tax on the value of
the car for the amount of time you own it. In other words, you don't pay sale's tax on the full amount of the car--
only for the time you are driving it.

Quote:
Originally Posted by Teo
Note 3: A down payment is not required and most people would advise against giving one for a leased car. The
logic behind this is that if you get into an accident and the car is totaled you will loose any down payment you have
given. If you have extra money lying around and would like to lower you monthly payment, a better option would be
to take advantage of the Multiple Security Deposit program described below.
Obviously I didn't read through the whole thread as I responded. No biggie...it just reitereates the points!

Quote:
Originally Posted by Teo

Note 4: BMW's Multiple Security Deposit program allows you to give up to 7 extra security deposits for your car.
These will not be used to lower the cap cost, but instead for every additional security deposit you give, your money
factor will be dropped by 0.0007, thereby lowering your monthly payment. These security deposits are also refunded
to you at the end of the lease.
Again, those pesky zeroes mess everyone up: 0.00007 is the correct number to use.

Quote:
Originally Posted by Teo
Note 5: Remember to get your floor mats and a full tank of gas. Some dealers will try to charge an additional fee
for these. Try to negotiate for them upfront, don't wait until you are about to leave the dealer to ask for them.

Note 6: If you would like to save even more money on your lease and have the time, try the European Delivery
program offered by BMW. I don't know all the details about this program so I won,t go into it, but you can find out
more about it on the BMW website.

Note 7: Some of the necessary figures like Invoice Prices, MRSP, Money Factors and Residuals can be found at the
top of the Ask A Dealer forum of this great site. They are reffered to on this site as Sticky's.

I hope some of you find this useful.


Yes, and check the various forum for the specific car you are looking forum. I keep the the 5er forum up to date!

Nice write-up and worth a sticky.


__________________
2001 530i/5 (E39), Topaz Blue/Stone Green/Black
2005 545i/SMG (E60), ED Order, Titanium Grey/Grey (lease transferred)

6/8
options) equals the residual number in dollars. Note that this may have zero to do with the actual price of the car
you negotiate or it could match it exactly.
It should also be mentioned that you may be able to lock in the lease rate for 60 days, starting on the date of the
expiration of the current program. Could someone post on what happens if the rates drop during the 60-day period,
and whether you get the lower rate?
__________________
E90 330i --ED June 26, 2006-- Link to ED Trip Report

You should get the lower rate but you are protected from higher rates. Hopefully your dealer is looking out for you
but you should keep on top of it just in case.
__________________
2001 530i/5 (E39), Topaz Blue/Stone Green/Black
2005 545i/SMG (E60), ED Order, Titanium Grey/Grey (lease transferred)

The way to get a good deal is read this site and look for situations where BMW has bargain buy rates and trunk
money ( where the dealer gets money back from BMW ) like right now on the Z4 with a buy rate of .0005 and
$1800-$2000 trunk money.
These deals often don't last long so if you see one jump while there are cars available and the dealer may not
realize they are going to be selling their inventory soon.

Don't argue about every dollar, it is not that important. What is important is to know within about $10 per month
what the dealer can do and make a fair profit. Also know the approximate drive off.

Do the 7 multiple security deposits, it's a great deal.

Finally, the Z4 I just did would have cost over $800 per month with the normal MF and no trunk money but I got it
for $528.48 with just the security deposits, 1st payment and a couple of hundred drive off so you can see having
your ducks lined up means real savings.
__________________
2006 Z4 Roadster 3.0si , Alpine White , Beige Leather , Auto , Premium , Sport , Xenon , Heated Seats
2005 325i
1980 633csi This one hooked me.

7/8
to the next higher $50 increment. (Example: if your monthly payment including tax is $524, then your security
deposit will be $550). Security deposits are typically only imposed on new BMW customers, returning customers
should not be charged this fee. Also note that your security deposit is refundable and will be refunded to you when
the lease ends.
01-02-2007, 12:56 AM
#35

Join Date:
May 2005
schley Posts: 3,102
This is the Cubs
year) Mein auto: 06
Location: Z4si
Murrieta, CA View My
Garage
Quote:
Originally Posted by scotchontherox
While I think it’s important to be aware and knowledgeable of all the various factors (mf, residual, etc...) to
determine what you should offer the dealer, in the end doesn't it come down to the bottom line?

Bottom Line = Money down + (# of payments x Amount) + any costs at end of lease?

I'm not a fan of Money Down...so if you negotiate a monthly price x # of payments do you really need to negotiate
the variables? Just figure out what "Bottom Line" # is a good deal to you and offer that to the dealer...let them
figure out where they want to put their profit....maybe they give you a great Cap Cost and a high MF, or a low MF
and a high cap cost....make sense??? (assuming you don't plan on buying the vehicle after the lease ends)

Cheers.
Your offer makes sense as long as you know the numbers if after you run the numbers with acceptable levels of
dealer markup (if any) in MF and acquistion fee combined with the amount over invoice you are willing ot accept.
Once you find that number for say

1k over invoice
825 acquistion fee
buy rate

then offer them that for a monthly payment is OK, however be on the lookout for other extras.

I always build in an option for the dealer and let them select.

1k over invoice, 625 acquistion, buy rate


800 over invoice, 825 acquistion, buy rate
800 over invoice, 625 acquistion, .0002 mf mark up
600 over invoice, 825 acquistion, .0002 mf mark up

this is an example but the premise is exactly the same.


__________________
2006 Z4 3.0si -pickup 9/23/06, titanium silver, black leather, aluminum, step, premium, sport, heated seats
2006 330i e90 ED -Sold 10/23/06
BMWCCA # 350430

8/8