# Lease application denied?



## erictheman9 (Jun 28, 2007)

This is a question/rant of sorts:

I just filled out the bmwfs app for a 335xi lease, but was denied. My FICO is quite good (well over 700). Apparently, the issue is that I'm a first time leaser and have no history w/ mortgages and/or other types of car loans. This isn't too surprising, since for the past 8 years I've been a graduate student, so I've been renting apartments and driving the same car that I bought in undergrad.

Is BMWFS really this stringent? It makes no sense to me. First, even if I haven't had a mortgage, I've had 8 years worth of rent payments (and I haven;t been evicted...), so what;s the difference? And at the end of the day, it has to be someone's first time to lease, and the 3 series is an entry level car--these policies don't make sense to me.

My CA says that I can get approved if I put 10k towards cap reduction (which I can do--I can buy the car outright if I wish), but I'm reluctant to do so, because I'd prefer to earn interest on the money instead. He also says that going down to the 328xi might help get approval, since it costs less (true, but when equivalently equipped, the difrerence in price is about 3-4k==>that seems to be a very small margin in terms of getting me approved or not). Is going down to a 328xi likely to work? ALternatively, I'd consider ED, since hta twoudl reduce the price of the car as well.


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## bzap (May 15, 2006)

I believe you must also look at your income/employment situation. If you are still a full time student (listed as your employment status) you can have trouble getting an automatic approval. Also your debt to income ratio including the new car payment will be a factor.

To be honest though, I would try another dealer, who may have a more aggressive finance person to get you manually approved with bmwfs... before putting anything down on a lease!


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## guyatherton (Mar 30, 2007)

I am a first time lessee and was approved even though I didn't have a mortgage until last month (rented prior to that). I agree with the other posted look at your income/employment situation as that is likely to be more important as to whether you can keep up with you payments (from BMW FS perspective).


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## erictheman9 (Jun 28, 2007)

I put down researcher for employment (this is what I've been doing for the past two years), and my debt income ratio is pretty low (only credit card debt, and the sum of all my balances is ~6k==>and this only cause I bought an engagement ring...), while my income is no longer at grad student levels.

My finance guy says he's working hard at trying to make things work, so we'll see...


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## Silververtu (Jul 29, 2007)

A good credit co-signer will help you get through the BMWFS.


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## chrischeung (Sep 1, 2002)

Work with your CA. I believe that's the best chance you had.

My first BMW FS lease was 0 down, University Researcher, no mortgage, 6 months rental history, and had only been in the US for 6 months. I had to give the dealer a whole range of documentation as to my employment, visa etc., but in the end I got my deal. At the time I didn't think that I was close to getting rejected...but reading this, perhaps I was?

This was early in 2000 in NC, so things may have changed since then. The mortgage issues we are experiencing now may be leading to across the board credit tightening.


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## tturedraider (Nov 11, 2005)

Whatever you do, do not put $10k down on a cap reduction. The most economically sound decision is to buy and hold and take care of your car for a long time. Leasing only makes *true* economic sense for businesses that can write it off as an expense.

If it were me, I'd put down the $10k on a loan. If you can afford higher payments than that loan would give, then you can always pay yourself the difference and start your fund for your next car in 6, 7, 8, 9 or 10 years.

https://www.penfed.org/productsAndRates/loans/vehicleLoans/newAutoLoans.asp

https://www.penfed.org/membershipApplication/eligibility/elig10.1.2.asp


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## Orient330iNYC (Jul 30, 2002)

erictheman9 said:


> This is a question/rant of sorts:
> 
> I just filled out the bmwfs app for a 335xi lease, but was denied. My FICO is quite good (well over 700). Apparently, the issue is that I'm a first time leaser and have no history w/ mortgages and/or other types of car loans. This isn't too surprising, since for the past 8 years I've been a graduate student, so I've been renting apartments and driving the same car that I bought in undergrad.
> 
> ...


I had less of a rental history, no car loan or mortgage history, FICO in the high 700s. I had no problems getting my 335i lease approved even though its my first, 0 down

I have a feeling the reason they are asking for such a large down payment (you're basically paying for almost two years of the lease up front with a cap cost reduction of 10K) is that you're on the edge of their income requirements for approval, or your employment history isnt long enough at the right level to qualify. I would NOT put that much down as your exposure in case of a total loss of the car will be quite bad ( you may end up losing quite a bit of your downpayment if the loss happens early in the lease). are they willing to take multiple security deposits plus less of cap cost reduction?


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## erictheman9 (Jun 28, 2007)

Orient,

yeah, I was planning on doing MSDs (the max), so to them, that has to be the same as a cap cost reductions, in the case I default. Maybe I'll impress that fact on my CA.

tturedraider, I've certainly seen a lot on the lease vs. buy. I can buy the car outright (w/ cash), so the penfed loan isn't so attractive--I think the itnerest rate is 5.3%, which is a little bit higher than the risk free rate of return. the way I see it, the lease is a loan (for a portion of the car) at an attractive interest rate, plus insurance against potential losses in value if I crash the car or it turns out to be unreliable. If I like the car, then at the end, I'll just buy it off in cash and keep it (maybe it cost me a little more than buying outright b/c of acq fee+ I paid sales tax on interest, but then, the interest rate is lower+I got the insurance), if I crash it, etc., then I'll just return it.


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## tturedraider (Nov 11, 2005)

You're right. Leasing can be seen as a form of insurance/risk shifting. One of the main downsides is you're paying interest on the residual value over the entire term of the lease the same as you would with a balloon note, but that's kind of the "premium" for shifting the risk.


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## erictheman9 (Jun 28, 2007)

tturedraider said:


> You're right. Leasing can be seen as a form of insurance/risk shifting. One of the main downsides is you're paying interest on the residual value over the entire term of the lease the same as you would with a balloon note, but that's kind of the "premium" for shifting the risk.


I thought about that, but aren't you paying interest on the residual regardless of what you do?


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## tturedraider (Nov 11, 2005)

erictheman9 said:


> I thought about that, but aren't you paying interest on the residual regardless of what you do?


Yeah. The difference is on a regular loan more of your payment (albeit a higher payment than that of a lease) would go toward reducing the principal. So, after the same about of time (say 36 months) the principal balance on your loan should be lower than the residual/balloon amount on the lease. So, say the residual on the lease is $25k, at that point in time on the loan the principal balance might be only $20k - $22k.


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## erictheman9 (Jun 28, 2007)

tturedraider said:


> Yeah. The difference is on a regular loan more of your payment (albeit a higher payment than that of a lease) would go toward reducing the principal. So, after the same about of time (say 36 months) the principal balance on your loan should be lower than the residual/balloon amount on the lease. So, say the residual on the lease is $25k, at that point in time on the loan the principal balance might be only $20k - $22k.


I see what you're saying, but I'm not sure how it affects my circumstances.

Let's say that my risk free return (a nice baseline to analyze, although I'll probably put some of the money in the S&P 500) rate is 5%.

Pen Fed is offering 5.29% (now NavyFed is offering 3.5%, I'd love to jump on that, but no way I can join NavyFed).

If I buy the car outright, in effect, I've taken a loan on it for 5%.
If I buy through penfed, I've taken a loan for 5.3%

Now for leasing, let's say the current mf is 4%. So, If I lease, I initially pay a loan at 4% for 3 years, them buy it in cash, so that's a loan of 5% afterwards.

It seems to me that, no matter what, the average interest rate on leasing (some average of 4% and 5%) turns out to be the least expensive way of financing?


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## b-y (Sep 14, 2004)

erictheman9 said:


> I see what you're saying, but I'm not sure how it affects my circumstances.
> 
> ...
> 
> ...


There is an error in your logic. Although it appears that there is a 1-to-1 relationship between the MF and the true cost of funds in a lease, this is not correct. The actual true cost can only be determined by a complex calculation that includes cap reductions, security deposits, and so on, in addition to the MF and the residual value. There are calculators for this that sometimes show up on the web. I have an old one, but it was driven by Lotus 123 macros, so is of little use anymore. (I used to teach a gradiate finance course for several years.)


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## tturedraider (Nov 11, 2005)

*erictheman9* - yes, you are correct overall; although I would not consider leasing the least expensive way of financing. I was just pointing out that the interest you pay on the lease is the premium you pay to shift the risk to BMWFS. Of course, if you were to buy the car outright and then make payments to yourself, that is the best long range financing arrangement, if you are not too risk averse. But, as you point out, then you take all the risk upon yourself. I tend to operate on the principle that I'm willing to take that risk and that I'll pay for whatever "losses" (e.g. accident damage or mechanical repairs) with the money that I would have otherwise paid to shift the risk. But, I also tend to keep my cars for as long as ten years.


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## bzap (May 15, 2006)

What is surprising is that I have heard of bmwfs doing some crazy stuff with leases, such as rolling in lots of negative equity, finance 3 very high-end vehicles at a time to a single buyer, higher mileage leases, and do deals for persons not living very long in the country. So it is truly surprising they can't get you done. Just be prepared to verify income/job history for them.


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## erictheman9 (Jun 28, 2007)

No dice, so far. The finance guy that I'm working with says that it's not my income (I mentioned that I under-reported my income a bit on the app, which is true), just my lack of history with car loans/mortgages. WHen I asked how I might obtain such a history, he mentioned considering the 328xi, but this just makes no sense to me. If I do go for the 328xi, I'll likely option it up so taht the price difference isn't that much.

Grrrr....believe me, idiotic policies like this (I know it's not the finance guy's fault, it's BMWFS) make me think more about going to the esteemed competition. I'd be curious to see if they're as mercurial about things.


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## erictheman9 (Jun 28, 2007)

b-y said:


> There is an error in your logic. Although it appears that there is a 1-to-1 relationship between the MF and the true cost of funds in a lease, this is not correct. The actual true cost can only be determined by a complex calculation that includes cap reductions, security deposits, and so on, in addition to the MF and the residual value. There are calculators for this that sometimes show up on the web. I have an old one, but it was driven by Lotus 123 macros, so is of little use anymore. (I used to teach a gradiate finance course for several years.)


b-y

I can understand to some degree why security desposits and cap cost reductions matter--but, consider a simple lease where there's no money down. In that case, the mf, which is basically an interest rate, really is the cost of capital, it seems to me. The more common case might be no cap reduction+1 month security deposit. So, the cost of capital in this case is the interest rate (or mf)+the foregone earnings on the secuirty deposit--but that doesn't seem like it would change the calculation much, to me.

If you do put alarge cap reduction down, then that matters, because you need to incorporate foregone interest on the cap reduction--but that's exactly why I don't want to do one!


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## erictheman9 (Jun 28, 2007)

tturedraider said:


> *erictheman9* - yes, you are correct overall; although I would not consider leasing the least expensive way of financing. I was just pointing out that the interest you pay on the lease is the premium you pay to shift the risk to BMWFS. Of course, if you were to buy the car outright and then make payments to yourself, that is the best long range financing arrangement, if you are not too risk averse. But, as you point out, then you take all the risk upon yourself. I tend to operate on the principle that I'm willing to take that risk and that I'll pay for whatever "losses" (e.g. accident damage or mechanical repairs) with the money that I would have otherwise paid to shift the risk. But, I also tend to keep my cars for as long as ten years.


But it seems to me that leasing and loans are indeed the least expensive ways of financing.

If you self-finance, the cost of finance is the foregone earnings on the money you spent on the car. Now, me, what I am planning to do is to put that money in the S&P 500 (and do this for all cars that I buy). Over the (hopefully) long course of my life, the risk, while not zero, is pretty small. And the S&P 500 is an annual 10% return on average, I believe,. net of tax, 7% return.

So cost of self-financing is (with a little risk) 7%. Loans and lease rates are far lower...


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## cvb (May 10, 2006)

Don't forget that even when buying with cash (or doing a traditional loan), you pay all the sales tax up front. On a $60k car (up here in WA at 9.1% new car sales tax), that's $5500. 

If you sell the car 4 years later for say, $30k (half of what you bought it for before taxes), you aren't going to get half of your $5500 back. Unless you drive you car into the ground, you will have paid taxes on something you won't have "used". 

If you lease, you only pay tax on each months the payment.


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## tturedraider (Nov 11, 2005)

erictheman9 said:


> But it seems to me that leasing and loans are indeed the least expensive ways of financing.
> 
> If you self-finance, the cost of finance is the foregone earnings on the money you spent on the car. Now, me, what I am planning to do is to put that money in the S&P 500 (and do this for all cars that I buy). Over the (hopefully) long course of my life, the risk, while not zero, is pretty small. And the S&P 500 is an annual 10% return on average, I believe,. net of tax, 7% return.
> 
> So cost of self-financing is (with a little risk) 7%. Loans and lease rates are far lower...


I absolutely agree with you as far as taking a loan at an interest rate lower than what you can earn. That's exactly what I did.

But, imho, the "balloon factor" of leasing makes it an inefficient way to finance. As we've discussed, there may be other viable reasons for choosing to lease, but efficient financing is not one of them. When you lease (or buy with a balloon payment. It's the same thing, really. The reason GMAC came out with the "Smart Buy" was just to make people feel better emotionally about "owning" their car.) you are paying interest on a big lump of borrowed money for the entire term of the lease without anything ever reducing that big lump of borrowed money. So, you got say (to use the amount I used in a previous post) $25k borrowed for 36 months that your are being charged interest on for the entire 36 months. Of course, it is possible for a preferred leasing interest rate to offset that as compared to a higher loan interest rate.


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## XJSChris (Jun 28, 2007)

cvb said:


> Don't forget that even when buying with cash (or doing a traditional loan), you pay all the sales tax up front. On a $60k car (up here in WA at 9.1% new car sales tax), that's $5500.
> 
> If you sell the car 4 years later for say, $30k (half of what you bought it for before taxes), you aren't going to get half of your $5500 back. Unless you drive you car into the ground, you will have paid taxes on something you won't have "used".


You'll also pay taxes when you sell the car, or, at least you do in Florida...


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## mclaren (Jan 5, 2005)

erictheman9 ... Once I started a thread about one of the least appreciated advantages of leasing, namely that you get a free option to buy the car ( or not ) at the end of the lease. This option has value as anyone who has dealt with options on stocks or real estate knows. For example my son leased a 2004 Lexus RX330 3 years ago and now he has the option to buy the vehicle for $20,400 and it is worth at least $2,000 more than that. The other side is if the car is worth much less than the buy out you can walk away. If you buy the car you can't do that.
As far as your situation goes why not pay the entire lease up front. You get a slight reduction in money factor.


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## BigPimp (Sep 27, 2003)

erictheman9 said:


> I put down researcher for employment (this is what I've been doing for the past two years), and my debt income ratio is pretty low (only credit card debt, and the sum of all my balances is ~6k==>and this only cause I bought an engagement ring...), while my income is no longer at grad student levels.
> 
> My finance guy says he's working hard at trying to make things work, so we'll see...


 If researcher for employment means you are unemployed, how are you planning to pay the lease? Obviously, you can live off your assets, but maybe BMWFS does not want to take that chance of a future repo even if you have good credit. Also, really sounds like your DTI (debt to income) is too high because you probably have student loans which might be deferred right now, but will be due soon. The fact that you do not have previous car loans/mortgages, while could have some impact in credit decision, that is not the reason you are not approved. The monthly payment for a 335i would be too much for you, thus a cheaper 328 could work. Your CA is being nice and trying to keep you on board but should be honest and let you know. A credit decision does not take days, especially for a car lease. Job first, new car second. Good luck.


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## Orient330iNYC (Jul 30, 2002)

erictheman9 said:


> No dice, so far. The finance guy that I'm working with says that it's not my income (I mentioned that I under-reported my income a bit on the app, which is true), just my lack of history with car loans/mortgages. WHen I asked how I might obtain such a history, he mentioned considering the 328xi, but this just makes no sense to me. If I do go for the 328xi, I'll likely option it up so taht the price difference isn't that much.
> 
> Grrrr....believe me, idiotic policies like this (I know it's not the finance guy's fault, it's BMWFS) make me think more about going to the esteemed competition. I'd be curious to see if they're as mercurial about things.


That makes no sense... my 335i is my first lease. I have 0 history with car loans and dont have a mortgage. BMWFS approved my app within 15 minutes of submission. The only difference i can think of is employment history-- I've been working continuously since i graduated college, decently paying jobs in advertising and financial services.

Have you called BMWFS directly to find out? BMW and BMWFS want, more than anything else, to sell cars/finance-lease cars.... not decline apps. there's a piece of this equation thats triggering them to balk.


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## erictheman9 (Jun 28, 2007)

BigPimp said:


> If researcher for employment means you are unemployed, how are you planning to pay the lease? Obviously, you can live off your assets, but maybe BMWFS does not want to take that chance of a future repo even if you have good credit. Also, really sounds like your DTI (debt to income) is too high because you probably have student loans which might be deferred right now, but will be due soon. The fact that you do not have previous car loans/mortgages, while could have some impact in credit decision, that is not the reason you are not approved. The monthly payment for a 335i would be too much for you, thus a cheaper 328 could work. Your CA is being nice and trying to keep you on board but should be honest and let you know. A credit decision does not take days, especially for a car lease. Job first, new car second. Good luck.


Big Pimp,

As I noted, I have no student loans and only credit card debt. Thus, my debt to income ratio is extremely low.

I can buy the car outright--I am mainly choosing to lease for the following reasons:

1) Leasing is built in insurance against (a) the car being a dog, reliability wise, and (b) me crashing it (or someone crashing into me). In either case, i can just return the car at the end of the lease. I'm particularly worried about (a), given the oil cooler issues.

2) As someone else pointed out, leasing has an option value, since in effect, you're given an option to buy the car at the end of the lease. Since the residuals are set are pretty high, it's not clear how much this would be worth. But if the car does work out, I'd seriously consider buying it at lease end (I would pay cash, so no issues with the fact tat used car interest rates are higher).

Btw, since when did "researcher" mean unemployed? I enjoy my job quite a bit, thank you...I could write "economist" if I wanted to be technical, but I decided to write "researcher" instead.


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## erictheman9 (Jun 28, 2007)

mclaren said:


> erictheman9 ... Once I started a thread about one of the least appreciated advantages of leasing, namely that you get a free option to buy the car ( or not ) at the end of the lease. This option has value as anyone who has dealt with options on stocks or real estate knows. For example my son leased a 2004 Lexus RX330 3 years ago and now he has the option to buy the vehicle for $20,400 and it is worth at least $2,000 more than that. The other side is if the car is worth much less than the buy out you can walk away. If you buy the car you can't do that.
> As far as your situation goes why not pay the entire lease up front. You get a slight reduction in money factor.


Mclaren,

You're exactly right, this is the main attraction of leasing to me. Note, however, that you do pay a bit for this option. mfs on the 335xi are pretty low (0.0019), but even then, I ran some models, and basically, leasing still works about to be about $500 more than paying with cash outright, assuming I buy the car at the end.

I don't deny the option has some value, but since the residuals are set pretty high, it's unlikely that I'd be in a positon where i can buy the car and turn it back for profit. My sense is that, given the high residuals, I'd prob be better off buying a CPO at lease end--I'm reluctant to do so, b/c I doubt I'd find one with the options/color combo that I want. The option is mainly usefult o me in the event that the 335 turns out to be unreliable (oil cooler issues...) or I suffer a loss int he value of the car due to an accident--I can just return the car at the end.

You can prepay the lease, but (I think I've read this elsewhere), it doesn't reduce the mf if you're using the subsidized mf's (such as the current 0.00190). In any case, I'm not sure why it would be efficient to prepay interest--i.e., if I take out a loan for 15k at 5%, while would I prepay the interest? Another purpose of leasing (for me) is to take advantage of the low mf's and put my money elsewhere.


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## turbonium (Jun 18, 2007)

This is a surprisingly collegial discussion of lease vs. finance. Christ, doesn't anyone know any good personal insults to get the flame-war going? :flame: I do hope you're all aware that none of you _deserves _a BMW unless you can pay for it up front in gold Krugerrands you've minted with your own gluteus muscles! :angel:

I wrote out a huuuge xls sheet to compare lease, lease w/ buyout, and loan...with sales & income tax rates, short- and long-term capital ROI for opportunity costs, and all the specific BMWFS lease MFs and adders/discounts. Got so complex I'm not sure _I_ even understand what it's telling me.

People often make blanket statements about leasing, but if you get a subvented rate and negotiate to near-invoice with all the MF-lowering tricks, you can fare pretty well in the near term with a lease. Much depends on whether you have a good place to invest your money (not just a 5% money-market fund).

Of course, in the end nothing beats driving a paid-off car into the ground, but then you have to weigh the prospect of driving an old car vs. "new every 2". You won't make money on cars no matter how you finance, so it's just a question of what you're willing to pay for refinement.


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## Orient330iNYC (Jul 30, 2002)

turbonium said:


> This is a surprisingly collegial discussion of lease vs. finance. Christ, doesn't anyone know any good personal insults to get the flame-war going? :flame: I do hope you're all aware that none of you _deserves _a BMW unless you can pay for it up front in gold Krugerrands you've minted with your own gluteus muscles! :angel:


leasing is for sissys. real men pay cash!


(i'm kidding)

Gold is for sissys too. I paid with platinum eggs i laid myself.
:throw:


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## Mets335 (Jul 31, 2007)

cvb said:


> Don't forget that even when buying with cash (or doing a traditional loan), you pay all the sales tax up front. On a $60k car (up here in WA at 9.1% new car sales tax), that's $5500.
> 
> If you sell the car 4 years later for say, $30k (half of what you bought it for before taxes), you aren't going to get half of your $5500 back. Unless you drive you car into the ground, you will have paid taxes on something you won't have "used".
> 
> If you lease, you only pay tax on each months the payment.


Yes, and you must also include the interest lost when you take $50k out of your investments to buy a car. That's worth another $2,500 minimum each year. This is true whether you finance the 50k or take it out of your investments (paying it to a bank or losing it due to taking the money out). Leasing is not ONLY for businesses. If a car company has a low money factor and a high residual, a lease can be very attractive. Moreso if you typically buy and sell in just a few years of course.


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## mclaren (Jan 5, 2005)

erictheman9 said:


> Mclaren,
> 
> You're exactly right, this is the main attraction of leasing to me. Note, however, that you do pay a bit for this option. mfs on the 335xi are pretty low (0.0019), but even then, I ran some models, and basically, leasing still works about to be about $500 more than paying with cash outright, assuming I buy the car at the end.
> 
> ...


Read my sticky thread in this section "Buy or Lease Check this out".


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## BigPimp (Sep 27, 2003)

erictheman9 said:


> Big Pimp,
> 
> As I noted, I have no student loans and only credit card debt. Thus, my debt to income ratio is extremely low.
> 
> ...


If you have a job, maybe your income is not sufficient, maybe your credit is not as good as they need. I don't think they consider assets on hand if you are leasing versus financing, maybe your CA does not know what he is doing but the best reason I can come up with is the DTI being too high.


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## erictheman9 (Jun 28, 2007)

BigPimp said:


> If you have a job, maybe your income is not sufficient, maybe your credit is not as good as they need. I don't think they consider assets on hand if you are leasing versus financing, maybe your CA does not know what he is doing but the best reason I can come up with is the DTI being too high.


Big Pimp,

I'm not sure what you mean by "if" I have a job--I do have a job...there's no need to discuss numbers, but broadly speaking, the income is the same as a first year law associate in a big firm. Regardless, since my only debt is credit card debt (and I don't charge that much to begin with), the debt to income ratio for me would be less than 5%, no matter what my income was (almost).

My CA said the only issue is lack of history. He said that my credit score is fine. In addition, I mentioned that I under-reported my income on the app (which is true), and he said that isn't an issue either. The app doesn't ask about assets, so they don't know. It certainly may be the case that my CA doesn't know what he's doing, but then, I've made it clear that this is a sticking point for me, so it's in his benefit to do all that he can.

My main point is that I think the lack of mortgage/car loan history is (and should be to BMWFS) irrelevant. The credit history should capture (mostly) all there is to know. For example, what's the difference between paying a mortgage and paying rent? Why is the former more impressive to BMW than the latter? If I had problems falling behind on my rent, then this would show up in my credit history, and it hasn't. Moreover, if I were to max out all my credit cards, this would be well above what the value of the car is. Why is it that all these banks have no problems lending me $xxxx on an *unsecured* loan, while BMWFS is worried about lending me the same amount on a loan that's at least secured by the car? At least to me, these policies don't make a whole lot of sense. Indeed, my sense is that I could get a loan for the amount of the car from another bank w/ no problems at all.


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## tturedraider (Nov 11, 2005)

Orient330iNYC said:


> That makes no sense... my 335i is my first lease. I have 0 history with car loans and dont have a mortgage. BMWFS approved my app within 15 minutes of submission. The only difference i can think of is employment history-- I've been working continuously since i graduated college, decently paying jobs in advertising and financial services.
> 
> Have you called BMWFS directly to find out? BMW and BMWFS want, more than anything else, to sell cars/finance-lease cars.... not decline apps. *there's a piece of this equation thats triggering them to balk*.


I agree with this. You need to find out what it is.



BigPimp said:


> *If* you have a job.....
> 
> 
> 
> ...


What he means my *"if"* is that he hasn't taken the time to read all the posts in your thread before responding.

Your available unsecured credit _could_ be an issue here. It _could_ be that BMWFS (that is to say their point system) is uncomfortable with the amount of available "easy" credit you already have available.

Rhetorical question - why not pay off your credit card debt, since you have the money?


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## erictheman9 (Jun 28, 2007)

Hey ttured,

To the extent that bmwfs is uncomfortable with the "easy" credit, wouldn't this be reflected in my credit score (I believe it takes that into account). 

As for paying off the credit card debt, it's a nominal amount--I basically charge groceries to the credit card, andpay it off when I'm supposed to--it's not much, but might as well take advantage of interest free money while I can...


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## tturedraider (Nov 11, 2005)

erictheman9 said:


> Hey ttured,
> 
> To the extent that bmwfs is uncomfortable with the "easy" credit, wouldn't this be reflected in my credit score (I believe it takes that into account).
> 
> As for paying off the credit card debt, it's a nominal amount--I basically charge groceries to the credit card, andpay it off when I'm supposed to--it's not much, but might as well take advantage of interest free money while I can...


What is BMWFS's problem is a mystery right now. I agree with *Orient330iNYC*. There is something out of the ordinary making them balk. The only way you're going to get a lease through BMWFS is to find out what it is and resolve it with them. It must be something other than what your CA is telling you being that numerous people here have had the same circumstances as you and not had a problem.

Regarding your credit card debt, it sounded like you were actually carrying a balance. I don't even consider monthly convenience use as debt.


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## erictheman9 (Jun 28, 2007)

ttured,

Can I call bmwfs directly and discuss with them? I thought I had to work through my CA?


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## duggan (Aug 3, 2007)

BMWFS credit analysts will not talk to a potential customer. The CA should refer you to his Business Manager who could then state your case to FS


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## tturedraider (Nov 11, 2005)

I don't know how much BMWFS will communicate with you directly. You _*might* :dunno:_ want to start with the dealership finance office. I'm pretty much a believer in if you want something done right you have to do it yourself. I wouldn't be surprised if the dealer finance folks aren't the sharpest knives in the drawer.

Here's the contact info for BMWFS - http://fs.bmwusa.com/BMWFSPulp/ABOUTU_ContactUs.htm


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## exotics4fun (Sep 22, 2005)

Some notes from a former finance guy at a BMW store who understands your pain and sympathizes...

What BMWFS is doing isn't model-specific. They do not approve or decline based on model (328 vs. 335, etc). What they do is say "Ok, Mr. Smith hasn't ever had a car loan of significant size. Let's cap him at $xx,xxx dollars of total exposure". Guess what, you can lease a 5, 6, whatever series, so long as you do not exceed that exposure amount. Thus the need to put hefty down on the 335xi, less down needed on a 328. Ask your CA what the exposure cap is and shop based on that. He can give you a straight answer of an exact dollar amount; if he can't, something is wrong, run - don't walk - away!

Your scores aren't a problem. Your income is _kind _of a problem. What I mean by this is if you could provide pay-stubs showing you make some multiple of the purchase price each year in income (120k per year for a 40k car, etc.) that would almost certainly overcome their "cap" on amount financed. I could go into the "why" regarding capping first time buyers on lease/finance exposure, but it's not necessarily that relevant.

Barring a high documented income way beyond the vehicle value, there's no reason for them to extend huge credit on a first-time financer. It's like buying a 5 bedroom house on your first mortgage; possible, but not likely unless you swing huge cashola.

There are a few options here; 1.) do a short-term lease on a lesser brand to establish history. 2.) do a bmw lease with a lesser model that fits under the cap designated by BMWFS and trade it in on a ED 335xi after some months of making payments on time. 3.) do something else.


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## erictheman9 (Jun 28, 2007)

Exotics,

Thanks--the info you provided was really useful, so I'll check with the CA on those things. I think I'll harp on the income level a bit more (I really did underreport it, didn't think that it would cause this many problems). One quick question: I *had* a student loan (small amount, i think the principal was in the 4-5k range), which was paid off a year ago--does that count for anything? At the end of the day, a loan is a loan, whether it's for a car or a degree...(although the loan size was small, that's for sure).


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## mclaren (Jan 5, 2005)

erictheman9 said:


> But it seems to me that leasing and loans are indeed the least expensive ways of financing.
> 
> If you self-finance, the cost of finance is the foregone earnings on the money you spent on the car. Now, me, what I am planning to do is to put that money in the S&P 500 (and do this for all cars that I buy). Over the (hopefully) long course of my life, the risk, while not zero, is pretty small. And the S&P 500 is an annual 10% return on average, I believe,. net of tax, 7% return.
> 
> So cost of self-financing is (with a little risk) 7%. Loans and lease rates are far lower...


This is faulty reasoning. First the risk free interest rate is called that because treasuries are risk free, anything else is not risk free. The S&P 500 has not returned 10% on average because the dollar does not have constant purchasing power. Third, the returns on the S&P were mostly obtained when the U.S. was the dominant manufacturing economy in the world. We ain't anymore. Also there are other risks like terrorism. The best course in life is to avoid debt. If you do take on debt it should be for investment and then you have to be lucky for it work out. The other thing you should think about is if BMWFS does not want to lease you this car you probably shouldn't do it.


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## erictheman9 (Jun 28, 2007)

Mclaren,

I understand that the S&P 500 is not risk free. My only point is that if you hold on to it for a long time, I'm sure the variance on your average return over that time must be quite low. Thus, it's "reasonably" (where reasonable is in the eye of the beholder) quite close to risk free.

You give good reasons why future returns on the S&P 500 may be lower, but it's important to remember that

1) Everything that you've mentioned is presumably quite well known to investors, so to what extent are these factors already not priced in? They must be to some extent, otherwise, if you believe they aren't, then you should start shorting the index...

2) Average return on the S&P 500 should be higher than for US treasuries, since investors need to be compensated for risk.

The only reason why I would take on debt is to invest (in a house), or in other things. My point is that if it's not much risk, I'd rather do a lease/loan on a car (if the interest rate/mf is sufficiently low) and put that money in treasuries, or potentially even the S&P 500.

If BMWFS doesn't want me to lease the car, I'm not sure how much of an indication that is that I shouldn't. It's clear to me that (a) they don't have the full set of information that I do, and (b) the way they apply the information they have seems misguided. (a) doesn't bother me so much, since that's always going to be true. (b) does, because things don't make sense to me, and I'm sure BMWFS' competitiors (at least one or two) probably do use information better. Like I said, I'm not sure why it's rational to count previous car/mortgage history so much more over rent/other loan history. With a single call, they can verify from my previous landlords (or I'm happy to provide such verification), so how is this different from a mortgage? Or for example, why does the fact that I'm willing to do MSD's *not* count against the cap reduction they are asking me to do? This one really doesn't make sense, because if I default, the MSDs are the same as a cap reduction to them.

At the end of the day, I'm sure everyone says they're a good credit risk, whether or not that's true. Fair enough that BMW tries to parcel out who is and who isn't. But right now, I think the signals that they do (and don't) rely on are to some extent pretty silly.


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## mclaren (Jan 5, 2005)

erictheman9 ...
You should read the books by Nassim Taleb, Fooled by Randomness and The Black Swan. They are about risk. Your first statement indicates that deep down you think that over a long period of time the S&P 500 is a T-bill yielding 10%. Statement labeled 1) is incorrect. The money in the stock market is mostly people who believe as you do that the risk is minimal. 2) Contradicts the 1st statement. The truth is the stock market is risky today and it wouldn't surprise me in the least if counting inflation it was down 50% in the next 10 years. It wouldn't surprise me if it was up 100% either. The point I'm trying to make is people don't understand risk and they are trying to pick up pennies in front of a steamroller to quote Taleb. I like investing 95% in TIPs and 5% in highly risky stocks, warrants, and options that have the potential to go up 100X. This is a no lose strategy with an upside. Frankly, buying the S&P 500 is insane in my view because you are not compensated for what I view as substantial risk. Same with bonds that are not treasuries.


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## erictheman9 (Jun 28, 2007)

Mclaren,

I don't see how statments (1) and (2) contradict each other. Statement (1) is a statement about variance--it simply states that over the long run, the variance associated with investing in stocks must be lower. Suppose we take 100 people and randomly given them one year returns--i.e., give one the return from 1995 to 1996, given another guy the return fro, 1999 to 2000, etc. Similarly, take another 100 people and randomly given them 20 year returns. I would be very surprised if the variance in returns among the latter group was not less than the variance in returns among the former. Simply put, in one year, I can lose a lot or gain a lot in the S&P 500. Over 20 years, it's more likely the case than I gain a little or lose a little (an on annual basis). I never said that holding stocks over the long term is the same as a T-bill. I merely said that the risk (variance) is likely not super high, or at least within the bounds that I am willing to tolerate, espcially given the higher average return on stocks. I'm certainly open to the fact that I may be incorrect; if you can show me variance in returns over the long term, I would find that interesing. Don't forget as well that bonds carry risks (apart from default risk) of their own, although of course, these are far less for a 90 day bond. 

Statement (2) is a statement about means. Simply put, I thought you said that because of various economic factors that it is more likely that the stock market will fall than it will rise. My point is simply that this is may already priced in. If you believe the efficient market hypothesis, it has in fact already been priced in.

The word risk can be interpreted different ways. You can interpret it as the probability that you will lose money (a statement about means), or the variance associated with a given expected return (a statement about variance). When I've been using the word risk, I mean the latter. The average return on stocks will likely always be higher than the average return on bonds, because the former are riskier and investors demand a higher average return. I believe the equity premium puzzle suggests that historically (and perhaps even now), it has been the case that stocks have been a great value--the increase in returns to owning stocks have (in some sense) far more than compensated investors for the increase in variance.


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## mclaren (Jan 5, 2005)

Again, the books by Taleb would give you something to think about. His main point is statistical methods are wrong because the events that are 3 or more deviations from the mean occur much more frequently than they should. Taleb has a MBA from Wharton and a PhD in statistics and spent 20 years as a proprietary trader for investment banking firms. He has taught at the Courant Institute of Mathematical Studies. Books like A Random Walk Down Wall Street make the case for efficient markets but newer books on Behavioural Finance run counter. What matters is what events could hurt you. This is what intelligent folks focus on. If the market goes up 10% a year on average then everyone will have millions like the mutual fund ads say and all we had to do was buy an S&P 500 index fund. That doesn't seem probable to me. No one can predict anything and back testing investment ideas is folly as The Motley Fool found out with their classic The Foolish 4. So when you add it all up we humans know a lot less than we think we do and we better worry about that steamroller.


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## erictheman9 (Jun 28, 2007)

mclaren said:


> Again, the books by Taleb would give you something to think about. His main point is statistical methods are wrong because the events that are 3 or more deviations from the mean occur much more frequently than they should. Taleb has a MBA from Wharton and a PhD in statistics and spent 20 years as a proprietary trader for investment banking firms. He has taught at the Courant Institute of Mathematical Studies. Books like A Random Walk Down Wall Street make the case for efficient markets but newer books on Behavioural Finance run counter. What matters is what events could hurt you. This is what intelligent folks focus on. If the market goes up 10% a year on average then everyone will have millions like the mutual fund ads say and all we had to do was buy an S&P 500 index fund. That doesn't seem probable to me. No one can predict anything and back testing investment ideas is folly as The Motley Fool found out with their classic The Foolish 4. So when you add it all up we humans know a lot less than we think we do and we better worry about that steamroller.


I certainly don'ty mind giving the books a try, and I'm sure Taleb is an intelligent guy. But then, my profs in my grad classes were Thaler (behavioral economics man) and Fama (efficient markets man). So I've had experience on both sides from some pretty smart people (both are likely to win nobels). I'm not informed enough really to guage which side is "right," but I think it's simplistic to say that efficient markets is incorrect and behavioral economics/finance is the new way to go.

I'm also sure that Taleb uses/used statistics. The statement that "events that are 3 or more deviations from the mean occur much more frequently than they should" itself relies on statistical methods and simply means that the underlying assumed distribution (say a normal distribution) is incorrect. I wouldn't say it's a rebuttal of statistical methods, it's a rebuttal of the way some people apply these methods.

We wouldn't all have millions if everyone put there money in the S&P 500. 10% a year doubles in seven years--this is nice, but not ridiculously fast. Keep in mind median *household* income (i.e., mom+pop income combined) in the US is $50,000, so it's not like most people have much to save. Take into account inflation+taxes, and 10% a year just means that if you save a reasonable amount, you will have enough to retire on reasonably comfortably--and I think most people (like my parents) who put their retirement money in stocks would say that this is pretty much what happened. i would argue that (a) this would appear to be generally true and (b) people who invested in stocks over the long run did (in general) better than people who invested in bonds.

Finally, I agree that intelligent people focus on what events could hurt you (i.e., what could go wrong), but presumably they also look at the whole sum of risks, rewards and probabiltiies. In your example, yes, picking up pennies in front of a steamroller isn't so smart, but what about $5,000,000 bills, if such things existed? For most people, the deicision depends on how far away the train is. Thus, it seems to me intelligent people really focus on all aspects (risk/reward) of the choices that they are making. If your (and Taleb's) point is that people tend to overstimate the probability of good things happening and underestimate the probability of bad things happening, fair enough. But estimating these probabilities requires statistical analysis, so if your (and Taleb's) point is that statistical techniques are useless for estimating these probabilties, I would have difficulty agreeing.


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## mclaren (Jan 5, 2005)

This is his point, that things like Black-Scholes use the Gaussian normal distribution and the tails aren't fat enough so options are underpriced.

You don't know how far away the train is ! Look, Taleb and I see the world in two parts : risk and no risk. No risk is Tips or similar. Risk is fine but you don't take risk to make 10% when there is a possibility of a devastating loss. What you want with risk is a chance to win big. 

Finally, understand that the most important predictor of success is probably random events or luck. People that interview millionaires find they are hard working risk takers but if they interviewed bankrupt citizens they would find many more of the same. 

Taleb says Warren Buffet may just be a lucky fool. Consider if you paired off everyone in the U.S. and they flipped a coin. The ones that got it right move on. Eventually there would be a few who had called every flip correctly. They would be on TV explaining the fine points of calling coin flips. They would be heroes. 

We better end this, take a look at Taleb's books if you have time and good luck.


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## 335CiC_07 (Aug 6, 2007)

mclaren said:


> Look, Taleb and I see the world in two parts : risk and no risk. No risk is Tips or similar.


Are you arguing fiat currencies are risk-free?


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## dihedral (Jun 27, 2007)

Look at a Cadillac CTS. Good car, no more problems than BMW. Even if you do not lease a Cadillac, it gives you more experience in dealing with various dealers.

I like BMWs, but BMW dealers have an attitude problem. (I agree that the credit agencies hold the purse strings.)

Look at some other brands, just to see what is possible.

Sorry for the ramblings, but it is late, and the wine fuzzies up my mind.


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## mclaren (Jan 5, 2005)

335CiC_07 said:


> Are you arguing fiat currencies are risk-free?


I'm arguing that if you buy a treasury bond you will get back the dollars you are entitled too. Now those dollars may be worthless and certainly will be given enough time as all fiat currencies become worthless eventually.

The other point I was trying to make was a lot of people deep in their heart of hearts think an S&P 500 index fund is a T-bill yielding 10%.


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