# Calling all lease experts, question about early buyout price please:



## M3-4ME (Oct 9, 2011)

Is the early lease buyout price based on MSRP or based on the negotiated sale price? 

For example, I'm getting ready to lease an M3 Monday. MSRP is 75,425, Sale Price is 68k. Say something comes up, and I need to get out of the lease in a month (extreme thinking) is my buyout price based on the 68k figure or the MSRP figure. I know they determine the residual at lease end, based on MSRP, so is my buyout anytime before that ALSO basee on MSRP? 

If based on MSRP, and if I like the idea of more readily being able to unload the lease for the smallest amount. I should finance the car, sure the payment is slightly higher per month on a 72 month term at 3.9% apr: ($1,061/month) lease price with also zero down is 889/month. BUT with the finance, I think I'm coming out ahead if I need to try and sell in a year or so. Thoughts? 

Thanks!


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## HypnoticS (Sep 27, 2009)

Based on MSRP


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## M3-4ME (Oct 9, 2011)

Thx, so if there's a chance I plan to sell in even say a year after picking up the vehicle. I'll have lost that discount from MSRP?


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## HypnoticS (Sep 27, 2009)

M3-4ME said:


> Thx, so if there's a chance I plan to sell in even say a year after picking up the vehicle. I'll have lost that discount from MSRP?


No, if you decide to turn your car in a year than it becomes a simple trade-in to the dealer. Which is based on wholesale prices (trade-in value). If you ever decide to buy the car out from BMW and keep it, then that value is also negotiable through the dealer.

Residual value reflects on your monthly payment and the projected value of the car at the end of the lease.

I recently traded in my 2009 X6 (3-yr lease) after 23 months into it. My payoff was $39k+, trade-in value was $44k+...in this case I walked away making $5,000.

Hope this helps.


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## M3-4ME (Oct 9, 2011)

HypnoticS said:


> No, if you decide to turn your car in a year than it becomes a simple trade-in to the dealer.  Which is based on wholesale prices (trade-in value). If you ever decide to buy the car out from BMW and keep it, then that value is also negotiable through the dealer.
> 
> Residual value reflects on your monthly payment and the projected value of the car at the end of the lease.
> 
> ...


That's great information. But why wouldn't the BMW dealer have to honor BMW financia's "buyout" price? And if Buyout is based on the MSRP to start, and only reduces the amount of your monthly lease payments, wouldn't it be higher than fair market value?
Or does a dealer have the right to tell BMW to throw away the lease BUYOUT value if they're buying?

I'd have thought the BMW Financail would want a set amount of money from any dealer, if they're choosing to buy it?

Here's my math, sorry for all the detail, is this not a fair way to figure?
--

Sticker price of the car is 75,425, HOWEVER I could finance it at 3.9apr with zero down and payment would be around 1400/month on a 4 year finance. OR lease it with zero down and payment would be 889/month. For a 3 year lease, with the option to purchase at the end of those 3 years, or walk away and lease/buy something else.

So that means residual (buy price at end, which you can sometimes negotiate) $44,500.75
If all my lease payments are=32,004.
My TRUE buyout if for some reason I wanted to get out of the lease at day one would be 76,504.75,

Reducing that payment each month by 889, I'm looking at a buyout price of say 65,836 (after spending a year's worth of 889 payments toward car, say something comes up in a year and I need to sell or want to sell)

By comparison, if I finance at 68k from the start, 1 year into the payments, my buyout would be roughly 53,600.

Here's the variable. I'd be paying 1400/month in the finance equation. VS. 889 in the lease equation. SO. 511x12=6132. That's money I got to hold onto during the lease. So if I subtract the 6132 from the 65,836 buyout price, I'm still at 59,704.

Meaning, if I REALLY wanted to sell in a year (not sure I would) I'll save about 6-thousand dollars financing the car. Make sense?

Any perspective I'm missing?


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## Kamdog (Apr 15, 2007)

M3-4ME said:


> That's great information. But why wouldn't the BMW dealer have to honor BMW financia's "buyout" price? And if Buyout is based on the MSRP to start, and only reduces the amount of your monthly lease payments, wouldn't it be higher than fair market value?
> Or does a dealer have the right to tell BMW to throw away the lease BUYOUT value if they're buying?
> 
> I'd have thought the BMW Financail would want a set amount of money from any dealer, if they're choosing to buy it?
> ...


Yes. If you purchase, you are missing the perspective on what price you could actually get for your car after one year. That price has nothing to do with either the purchase price or MSRP, it is the wholesale market price.


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## HypnoticS (Sep 27, 2009)

Just to add, I always recommend covering all fees up front, without bundeling into lease payment. Essentially you are paying interest on it. Also consider MSDS, great way to reduce your Money Factor.

Leases are designed for you to trade in the car prior to lease end, they want you to cover the majority of depreciation.


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## M3-4ME (Oct 9, 2011)

Kamdog said:


> Yes. If you purchase, you are missing the perspective on what price you could actually get for your car after one year. That price has nothing to do with either the purchase price or MSRP, it is the wholesale market price.


But if I purchase, isn't that irelevant? Since I've already agreed to the purchase price I financed?

Or did you mean if I lease?

If I lease the car, and decide to buy the car prior to lease end, is it true that BMW Financial will void the "buyout" price, if market value is lower? What would be their incentive to do that and lose money? I'd have thought they'd want every penny they could get?


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## 01Byte (Jun 22, 2003)

There seems to be some confusion here.

The buyout price isn't based on the MSRP. It's based on your residual amount (which is a percentage of the MSRP) plus any monthly payment that have not been made. This will always equal the negotiated purchase price, not the MSRP of the vehicle.

Just wanted to clear it up.


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## M3-4ME (Oct 9, 2011)

Arkady said:


> There seems to be some confusion here.
> 
> The buyout price isn't based on the MSRP. It's based on your residual amount (which is a percentage of the MSRP) plus any monthly payment that have not been made. This will always equal the negotiated purchase price, not the MSRP of the vehicle.
> 
> Just wanted to clear it up.


Thanks I think we're clear on that. My big question is what's the buyout price if I seek it early in the lease, say the first month into the lease. Was it based on the 68k (price I negotiated for the lease) or the 75,425 (MSRP) As stated earlier it's MSRP, but others have told me it's in fact based on the negotated price?

I'm trying to determine what will give me my best option if I need to sell the car in a year or 2 (earlier than the 3 year lease) If I finance price starts at 68, and goes down from there, if I lease, I'm afraid it starts at 75k? Taking much longer to get any potential equity in a year or 2?


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## 01Byte (Jun 22, 2003)

M3-4ME said:


> Thanks I think we're clear on that. My big question is what's the buyout price if I seek it early in the lease, say the first month into the lease. Was it based on the 68k (price I negotiated for the lease) or the 75,425 (MSRP) As stated earlier it's MSRP, but others have told me it's in fact based on the negotated price?
> 
> I'm trying to determine what will give me my best option if I need to sell the car in a year or 2 (earlier than the 3 year lease) If I finance price starts at 68, and goes down from there, if I lease, I'm afraid it starts at 75k? Taking much longer to get any potential equity in a year or 2?


lol... no, I don't think you're clear on that. re-read what I wrote.

the buyout price (regardless of when you execute it) is always based on the residual amount plus the total amount of your payments which you haven't yet made as part of your contract.

in other words... let's say the MSRP is $70k and the negotiated selling price is $60k. let's also say the the residual is 50% (this will make your residual value of $35k), and it's a 24 month lease ($1041 per month - the difference between the residual and the negotiated price).

Now, you want to buy the car out after making one payment. Your buyout will be based on the residual amount plus the total value of 23 payments.

Does that answer your question?


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## SARAFIL (Feb 19, 2003)

Arkady said:


> lol... no, I don't think you're clear on that. re-read what I wrote.
> 
> the buyout price (regardless of when you execute it) is always based on the residual amount plus the total amount of your payments which you haven't yet made as part of your contract.
> 
> ...


Your example isn't totally realistic since you didn't include interest.

On an early lease termination, you don't pay the interest on the remaining payments... it's worth pointing that out.

So... let's say that using your example, with a rate of 0.00200, the actual payment would be $1231 plus tax. That is what you pay each month. But, if you want to pay if off early, the payoff is calculated as ($35,000 residual) + ($1,041 * remaining months) + (any outstanding interest for that current month). Or, you might see it shown for the full amount ($35,000) + ($1,231 * remaining months) and then they will list a "unearned interest" credit for [($1,231 - $1,041)*remaining months]


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## 01Byte (Jun 22, 2003)

SARAFIL said:


> Your example isn't totally realistic since you didn't include interest.


I was trying to keep it simple. Just wanted to show the OP what the buyout price was based on. :thumbup:


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## M3-4ME (Oct 9, 2011)

Thank you all so much. I'm obviously a bit fuzzy with this, and am scheduled to lease/finance/BMW Select Finance tomorrow for delivery.

Please correct any potential errors/perspective below.

I think based on your help. If I lease tomorrow and want to determine buyout in as early as even 1 day. The numbers are as follows: 75,425 MSRP, Sale price: 68,060. Residual is 59% of MSRP=44,500.75

Monthly negotiated payment for 3 years at 15k miles=889.00
So 36 payments X 889= 32,004 + 44,500.75(residual) = 76,504.75. That's more than MSRP, and certainly MUCH more than the buy it now price of 68,060. Even if I financed that amount at 3.9 apr over 48 months at 1473.60 that's 69,292.80. 

So if there is ANY debate about needing to sell this car, be it for uncertainty or otherwise in say 1.5 years, and I've decided I want this car, it's MUCh smarter to finance. Does anyone disagree? 

That being said, if I keep this lease for the full 3 year duration, I can potentially negotiate the buy price, and save some money. But I can't ever really negotiate the buy price DURING the lease, correct?

Thanks a bunch!!


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## SARAFIL (Feb 19, 2003)

M3-4ME said:


> Thank you all so much. I'm obviously a bit fuzzy with this, and am scheduled to lease/finance/BMW Select Finance tomorrow for delivery.
> 
> Please correct any potential errors/perspective below.
> 
> ...


re-read my post. you DO NOT pay the interest portion of the remaining payments if you payoff early. $68060 - $44500 / 36 = $654 depreciation portion of payment each month. Your payment of $889 includes interest. It might also include tax... not sure.

So, your payoff is $44,500 + 654*remaining payments.... meaning your payoff after 1 month is approximately $67,390.


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## M3-4ME (Oct 9, 2011)

SARAFIL said:


> re-read my post. you DO NOT pay the interest portion of the remaining payments if you payoff early. $68060 - $44500 / 36 = $654 depreciation portion of payment each month. Your payment of $889 includes interest. It might also include tax... not sure.
> 
> So, your payoff is $44,500 + 654*remaining payments.... meaning your payoff after 1 month is approximately $67,390.


Thanks much! How did you determine the depreciation portion? 
Also, to confirm, it's 68,060 I use in determining early pay off, NOT the MSRP 75,425? That's only used to determine the residual amount?

Also, comparing the lease vs. finance. Which would you say makes more sense if I know I may need to get out of the lease OR sell in say 1.5 or 2 years?

Thx!


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## Kamdog (Apr 15, 2007)

I was only talking about your purchase option. If you buy the car now, and then decide to sell it in a year or so, you simply cannot figure out what it will be worth when you sell it. In your description, you might do a purchase, as you said:


> If based on MSRP, and if I like the idea of more readily being able to unload the lease for the smallest amount. *I should finance the car, sure the payment is slightly higher per month on a 72 month term at 3.9% apr: ($1,061/month) lease price with also zero down is 889/month. BUT with the finance, I think I'm coming out ahead if I need to try and sell in a year or so.* Thoughts?


This tells me you are contemplating a 72 month finance term on a purchase. I submit that if you do that, and want to sell in one year, you might very well be upside down, and owe more than you can sell the car for.

Unless I am misreading your purchase option plan.


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## M3-4ME (Oct 9, 2011)

Thanks again all. I'm debating both a lease or purchase. It's unlikely I'll need to get out in a year, just wanted to consider what the best options were.

The items I believe are clarified now, as it comes to a lease are what price they use to determine my buyout, MSRP or Negotaited sale price. I'm hearing mixed reports, but believe it's the sale price-MINUS the residual, withOUT the interest, so that would make it a lease very possible to build some equity in this car I think in say a year's time. I was worried buyout was starting at MSRP, NOT my negotiated sale price.


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## M3-4ME (Oct 9, 2011)

Also, for any of you not paying cash, have you ever considered the BMW SELECT option?


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## Andrew*Debbie (Jul 2, 2004)

M3-4ME said:


> Thanks again all. I'm debating both a lease or purchase. It's unlikely I'll need to get out in a year, just wanted to consider what the best options were.
> 
> The items I believe are clarified now, as it comes to a lease are what price they use to determine my buyout, MSRP or Negotaited sale price. I'm hearing mixed reports, but believe it's the sale price-MINUS the residual, withOUT the interest, so that would make it a lease very possible to build some equity in this car I think in say a year's time. I was worried buyout was starting at MSRP, NOT my negotiated sale price.


You are confusing paying off the lease, selling the car at market value and buying the car at residual.

A lease is like paying off any other contract. You owe the balance of the lease which may be more or less than the value of the car. The dealer or some other purchaser buys the car and you use that money to pay off the loan. If the loan amount is less than the sale price of the car, you get a check. If you sale price is less than the loan payoff, you write a check.

Early termination of the lease or any finance contract can be VERY expensive during the first few months. That is because the actual value of a new car takes a large drop as soon as you buy it.

With a short term purchase (3 or 4 year) you usually build up equity in the car. With a lease you usually don't.

With a lease you have the option at the end of the contract to buy the car for the residual value. Residual is some percentage of MSRP. Often the residual value is higher than the car's true value. If this is the case you can either turn the car in or negotiate a better deal.


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## SARAFIL (Feb 19, 2003)

M3-4ME said:


> Thanks much! How did you determine the depreciation portion?
> Also, to confirm, it's 68,060 I use in determining early pay off, NOT the MSRP 75,425? That's only used to determine the residual amount?
> 
> Also, comparing the lease vs. finance. Which would you say makes more sense if I know I may need to get out of the lease OR sell in say 1.5 or 2 years?
> ...


yes... your payoff is based on the amount financed, which is based on the 68060 in your case.

depreciation portion of the payment is (selling price - residual) / lease term.

if you know you need to get out in 1.5 or 2 years, it'll probably cost you either way. You'll probably be upside down in a lease or a 72 month finance. At least with a lease, you can easily transfer the lease to someone via a site like swapalease as long as you have a good lease payment.


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## SARAFIL (Feb 19, 2003)

M3-4ME said:


> Also, for any of you not paying cash, have you ever considered the BMW SELECT option?


Select is not a good financial move for most people.

You pay tons of interest on a Select. Traditional finance is the way to go if you can afford the payment.


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## haskindm (Jun 1, 2011)

Leasing is the most expensive way to procure a car. There are some accounting considerations that may offset the higher costs (talk to your accountant or tax preparer), but if you are looking for the most car for your money, avoid the lease, especially if you think you may terminate the lease early or if you intend to purchase the car at the end of the lease anyway. If you purchase the car at the end of the lease, you have given the dealer two opportunities to profit from your purchases and you have had the privilege of paying sales/title tax on the car twice....


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## HypnoticS (Sep 27, 2009)

Can you buy a car for almost 60k and pay under $600? Not so sure that leasing is most expensive way. You know pay tax on the monthly payment...not the entire price of vehicle. In some states they all taxes up front, but its still based of monthly payments.


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## M3-4ME (Oct 9, 2011)

SARAFIL said:


> re-read my post. you DO NOT pay the interest portion of the remaining payments if you payoff early. $68060 - $44500 / 36 = $654 depreciation portion of payment each month. Your payment of $889 includes interest. It might also include tax... not sure.
> 
> So, your payoff is $44,500 + 654*remaining payments.... meaning your payoff after 1 month is approximately $67,390.


I liked these numbers a lot! I called BMW Financial to verify, and they couldn't confirm?
Also emailed my dealer and got the statement below. Can you confirm that your numbers are accurate? I mean they make sense. But I supose if there is a higher interest payment at the front of the lease, is it possible it wouldn't be simply adding 654-for the remaining payments? Really trying to decide whether to lease by tonight, the car is waiting at the dealership!  Thanks!!

---Response from dealer, after sending note below----
I visited with my BMW Financial Services Rep yesterday and he clerified with me that BMW does not have an amaturazation schedule (i.e. no, they can't tell you the confirmed buyout after a specified period of time), however, I do know that BMW does not charge you the intrest if you pay it off early. Keep in mind that you're paying a very small money facto, so the intrest is minimal. He also told me that BMW Financial Services will be able to sell you the vehicle back for the contracted residual amount at lease end, they do not negotiate that figure. Based on the information that I recieved from him yesterday, what you are reading online is false.

---my note to dealer--
I'm still leaning toward leasing for the low payments. Just need to confirm my options for lease buyout, and I believe BMW Financial is closed today? Can you verify what I'm finding online, specific to my scenario? Can you find out if there are any prepay penalties to buy or sell the car early within the lease? 
Can you confirm total buyout after 1 month, if needed, based on the numbers below? (unlikely, but want to understand the formula)
Thx!
"you DO NOT pay the interest portion of the remaining payments if you payoff early. $68060(sale price) - $44500 (residual) / 36 = $654 depreciation portion of payment each month. Your payment of $889 includes interest, but you don't pay that interest portion for early pay off.
So, your payoff is $44,500 + 654*remaining payments.... meaning your payoff after 1 month is approximately $67,390."


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## SARAFIL (Feb 19, 2003)

M3-4ME said:


> I liked these numbers a lot! I called BMW Financial to verify, and they couldn't confirm?
> Also emailed my dealer and got the statement below. Can you confirm that your numbers are accurate? I mean they make sense. But I supose if there is a higher interest payment at the front of the lease, is it possible it wouldn't be simply adding 654-for the remaining payments? Really trying to decide whether to lease by tonight, the car is waiting at the dealership!  Thanks!!


A lease is not like a loan... your payment each month consists of a consistent amount of interest, depreciation (principal), and tax. So you pay the same amount of interest in payment #1 as you do in payment #18 or payment #36.

So yes, you take the *residual* plus *(remaining # of months * $654)* and that is your approximate payoff using the numbers you gave us in the scenario above. If could vary by a little bit here and there due to timing (outstanding interest for that month, other outstanding charges, estimated property taxes, etc.)


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## M3-4ME (Oct 9, 2011)

Thx! But the dealer thought there was no way my 889 payment would have 240 dollars of interest in it? And if you're saying 654 is the "rental amount" is there any doubt about that 654 number? Money factor is .00175 x 2400=4.2% apr equivalent. 

Also, should I do 10k miles for 830/month, since I can always buy more? Or start at 889/month for 15k. I'll use as many miles as I can afford, probably.


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## SARAFIL (Feb 19, 2003)

M3-4ME said:


> Thx! But the dealer thought there was no way my 889 payment would have 240 dollars of interest in it? And if you're saying 654 is the "rental amount" is there any doubt about that 654 number? Money factor is .00175 x 2400=4.2% apr equivalent.
> 
> Also, should I do 10k miles for 830/month, since I can always buy more? Or start at 889/month for 15k. I'll use as many miles as I can afford, probably.


well, I just used your numbers.

in this post, you said 68000 selling price and 44500 residual (using rough approximates).

(68000 - 44500) / 36 = ~650 depreciation per month

(68000 + 44500) * 0.00175 = ~196 per month of interest

not sure what your tax rate is, but the sales tax probably accounts for the difference of about $50 or so per month

this is pretty easy math... I'd be disappointed if your salesperson didn't get it. Sounds like he failed Lease Math 101.


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## SARAFIL (Feb 19, 2003)

M3-4ME said:


> Thx! But the dealer thought there was no way my 889 payment would have 240 dollars of interest in it? And if you're saying 654 is the "rental amount" is there any doubt about that 654 number? Money factor is .00175 x 2400=4.2% apr equivalent.
> 
> Also, should I do 10k miles for 830/month, since I can always buy more? Or start at 889/month for 15k. I'll use as many miles as I can afford, probably.


you would have to do the math, but I've found that 12k miles is a sweet spot for a lot of leases, at least in my case. I did some math for 10k, 12k, and 15k and 12k made the most sense.


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## M3-4ME (Oct 9, 2011)

thx, but can you explain every step of how you get the interest? You actually ADD the 68k+44,500?
then what? 

Their acquisition fee of 725 and 500 doc fee probably make up the difference. No tax, I pay that up front. 300 max in SC


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## SARAFIL (Feb 19, 2003)

M3-4ME said:


> thx, but can you explain every step of how you get the interest? You actually ADD the 68k+44,500?
> then what?
> 
> Their acquisition fee of 725 and 500 doc fee probably make up the difference. No tax, I pay that up front. 300 max in SC


please go back and read my post. I put the calculation there.


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## M3-4ME (Oct 9, 2011)

Also, if we determine 650 of my 889 goes toward principal, that's how much my buyout is reduced monthly, right? 
Any early buyout penalties? 
As for miles, going from 10k to 15k costs 15 cents a mile, guess it's a wash. 
Can you email me? You've been a huge help, got a couple more questions.
Thx!
[email protected]


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## M3-4ME (Oct 9, 2011)

SARAFIL said:


> please go back and read my post. I put the calculation there.


Thx, saw it, just wanted to make sure both numbers were supposed to be added. Then multiplied by the MF. 
Where did you learn this was part of the equation? BMW financial acted like I was asking them to do algorithms when I asked them how to determine my early buyout price.


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## innovativeit (Sep 30, 2007)

SARAFIL said:


> well, I just used your numbers.
> 
> in this post, you said 68000 selling price and 44500 residual (using rough approximates).
> 
> ...


The interest embedded in the lease payment actually has two components: 1) $41 per month interest on the $23,500 being amortized; and 2) $155 per month interest on the $44,500 residual amount which is not being amortized.

BTW in the world of Internet disinformation, I find that SARAFIL is one of the folks who provides reliable information. Just my 2 cents.


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## M3-4ME (Oct 9, 2011)

innovativeit said:


> The interest embedded in the lease payment actually has two components: 1) $41 per month interest on the $23,500 being amortized; and 2) $155 per month interest on the $44,500 residual amount which is not being amortized.
> 
> BTW in the world of Internet disinformation, I find that SARAFIL is one of the folks who provides reliable information. Just my 2 cents.


Thank you, so would you also deduct that everything over the 196 I pay per month goes toward reducing the buyout price if the car, should I choose to purchase, prior to lease end?


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## innovativeit (Sep 30, 2007)

M3-4ME said:


> Thank you, so would you also deduct that everything over the 196 I pay per month goes toward reducing the buyout price if the car, should I choose to purchase, prior to lease end?


Please refer to posts 26 and 28.


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## M3-4ME (Oct 9, 2011)

innovativeit said:


> Please refer to posts 26 and 28.


Glad you're in agreement, thanks. In looking at the numbers, I don't see why more people wouldn't lease, if they're undecided about wanting the car after 3 years. It's a lower monthly payment than the finance significantly and it really gives you options, will still putting a fair amount of the lease payment toward the principal, if seeking an early buyout!


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## Andrew*Debbie (Jul 2, 2004)

Sounds like you are going to lease the car.

I have a few pointers and suggestions.



M3-4ME said:


> Also, should I do 10k miles for 830/month, since I can always buy more? Or start at 889/month for 15k. I'll use as many miles as I can afford, probably.


It will cost more to buy miles mid-term and even more at lease end. Lease the car for as many miles as you plan to use. If you can't afford to pay for the miles you need, you can't afford the car.

Have you gotten some insurance quotes?

M cars can be very expensive to own after 4years/50,000 miles. Don't buy extended cover now since you may not keep the car. Do research the costs before committing to keep the car long term.


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## M3-4ME (Oct 9, 2011)

Thanks! Actually miles are 15 cents up fromt and 16 cents in mid lease, 20 cents within the last 4 months of lease. So not too bad if I wait on miles? 

Don't plan to keep beyond warranty. Insurance cost actually less than my IS-F was!?


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## Andrew*Debbie (Jul 2, 2004)

M3-4ME said:


> Thanks! Actually miles are 15 cents up fromt and 16 cents in mid lease, 20 cents within the last 4 months of lease. So not too bad if I wait on miles?


15 cents per mile up front is for leases above 15,000 miles a year. (Yes you can do that and in certain cases it makes financial sense.)

I haven't looked at current lease numbers for an M3, but it is typically a lot less than .15/mile when you go from 10k/year to 12k/year.


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