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2Addicts | BMW 2-Series forum BMW 2 Series (F22) Forum Regional Forums CANADA How BMW Canada computes your lease payment

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      07-19-2016, 11:44 AM   #1
casualDIYer
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How BMW Canada computes your lease payment

This took a bit of figuring out since most web sites are devoted to US lease payment calculations but I've customized it for Canada. Note, I am using Ontario as the base example. If you know of a particulars for your province, post it here. If you find an error PLEASE point it out ASAP. Thanks.

Disclaimer: BMW Canada didn't call me up and explain this to me. I figured this out on my own. I was able to find a formula that got me within a dollar of BMW Canada's payment. There is nothing official about this. The title is a little misleading but since vBulletin doesn't let you mod a title, well, be careful when typing in a title.

Keep in mind most laws favour consumers when it comes to sellers trying to hide fees. If you can't figure out how your dealer got a number from a given set of posted numbers (like MSRP, discount, interest), he's got to explain it to you. If he can't, here in Ontario, OMVIC can explain to your dealer that ignorance isn't a valid selling technique.

The simple formula is

Lease Payment = Depreciation + Interest + Tax

Depreciation = (The price you will pay for the car after discount - stated residual value) / Term

e.g. A car costs $45,000. You are getting $2000 off. The residual is 53% @ 24000 km/yr. The term is 36 months and the interest rate is 2%

D = (43000 - 23850*) / 36 = $531.95

* - The residual value is either stated or calculated. If it's stated, always use that value. If calculated, $45000 x 53% (i.e. 45000 x .53). Note: The value used for residual is MSRP but I've found MSRP seems to shift a bit depending on how the price is calculated. With fees? Options? Remaining lease payments? I could never figure why MSRP would shift around. If the quote says residual is $X, use that number.

A little aside. Ever wonder why US cars have cheaper leases? The residual. Imagine a 63% residual after 3 years. Depreciation slides to $441.94 a month

The interest is where the finance company makes money. Sometimes a little, sometimes a lot. How it's calculated is a little mind boggling.

Interest = (Discount Price of car + Residual value of car) * Interest/2400

In the example

Interest = (43000 + 23850) * 2/2400 = 55.71/month or $2005.56 over 3 years

Where does that 2400 come from? Accounting fast math, I've been told.

Tempted to go for that 4% rate on a 3 year term?
(43000 + 23850) * 4/2400 = 111.42 or $4011

Wait, you got have that car, going 4% on a 4 year? $5348 in interest.

Of course, my example has a little slight of hand. I only changed term, not residual. The residual on a 3 year vs 4 year car at the same mileage is different. Suffice to say, at $4k or more, 10% of the car is interest.

Now tax 'er up

Tax = (Depreciation + Interest)
(in Ontario, tax is a total of 13%)

Tax = (531.95 + 55.71) * 13% (i.e. .13) = $76.40

Total = 531.95 + 55.71 + 76.40 = $664.06

Q: How does mileage factor into these payments?
A: The residual, which you cannot know based on the car's price. You need to ask. The manufacturer will change it to make a car more or less attractive to lease. So, an M3 will have a great residual for low KM but a terrible one for high KM because used M3s might not be that attractive. Please note, this is an example. I have no clue what residuals are on any car but my current vehicle.

Last edited by casualDIYer; 07-19-2016 at 11:49 AM..
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      07-19-2016, 10:47 PM   #2
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Whew, overwhelmed here but very informative. Is it really worth to lease any vehicles in any way? Or is it just good for a company stand point to write off monthly costs? Or does it really help the car buyer make a decision on to lease the vehicle and then possibly buy it out at the end? From my perspective, I like to purchase and own my cars knowing how much interest I paid for it over the term and how much I would get back from it if I re-sell separately. However I guess leasing the vehicle allows the buyer an easy way out to just return the car and purchase the next one. This is for those who like to change cars often and continue owning new cars every 3-4 years & have no hassle of trade-in or re-sell.
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      07-19-2016, 11:42 PM   #3
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Quote:
Originally Posted by siwo View Post
Whew, overwhelmed here but very informative. Is it really worth to lease any vehicles in any way? Or is it just good for a company stand point to write off monthly costs? Or does it really help the car buyer make a decision on to lease the vehicle and then possibly buy it out at the end? From my perspective, I like to purchase and own my cars knowing how much interest I paid for it over the term and how much I would get back from it if I re-sell separately. However I guess leasing the vehicle allows the buyer an easy way out to just return the car and purchase the next one. This is for those who like to change cars often and continue owning new cars every 3-4 years & have no hassle of trade-in or re-sell.
Leasing, in general, is the most expensive way to own a vehicle. Although, to be fair, modern leases are far better than the 'old world' totally screw over the customer leases of the past.

The advantages are:

1) Keep your cash liquid. By only outlaying the lease cost you do not use a large stash of cash all at once.

2) The residual is guaranteed. In other words, I could have 2 major accidents on a car, but when it's returned, I don't have to worry about selling it at reduced value.

For business, leasing has an advantage whereby instead of buying a vehicle and writing it off over 3 years, leases are year after year expenses. A business can reduce the amount of money being taxed by moving its vehicle fleet from owned to leased. Additionally, asset exposure to seizure is reduced as well. If the business gets sued, a creditor may attempt to seize assets. If they are leased, they cannot be seized because they are not owned by the business.

Stories about getting out early from a lease penalty free are that, stories. Pull ahead, buy back, etc are incentives. It is extremely rare when a dealer will give all advantages to a customer and make no money on a deal. There is no fantasy world of free money in leases. The money is just being shifted around in a different way.

If you can buy a car at a good discount, and sell it somewhere in the neighborhood of market value, that definitely is a good strategy. I had attempted to do this once but the car started to experience problems and the warranty ran out. Overall I paid a little less owning than leasing but with owning I had to deal with a lot of headaches getting the car prepped, fixed, etc. With leasing I avoided that hassle.

That being said I may try the buy-sell strategy in the future. It is a bit cheaper to own car this way.
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