[digitalnoah]

Lot's of people get screwed by dealers because they get drawn into the dealership with an advertised lease price, only to get a much higher price when the deal closes. Not understanding how leases are calculated is the biggest advantage the dealer has over you. If you know what you're talking about, you can go in confidently, state the terms of the deal you want, and find a dealer who's willing to agree with those terms.

For those of you who don't feel like reading the whole explaination, here's the link to the dynamic spreadsheet I built to calculate lease prices:

docs.google.com/bmw_lease_calculator

FULL EXPLANATION:

There's a couple important factors when calculating a lease. The final price after all discounts and down payments (adjusted capitalized cost) is where the car's value begins on day 1. And the MSRP multiplied by the residual value percentage is where the car's value ends up at the end of the lease term (known as residual value). You pay the difference (depreciation), divided into each monthly payment, plus a financing fee and sales tax.

The secret to calculating the lease is knowing the variable parts of this equation. How much you can negotiate off asking price. How much the residual vale of the car is, based on the BMW price sheet that month. How much the finance rate is. How much the sales tax is in your home state.

In an example such as this advertisement for a 2014 528i {
$449*/month for 36 months.
$1,500 Holiday Credit
$1,000 Loyalty Cash are included in payment.
$449 First months payment
$3,000 Down payment
$0 Security Deposit
$725 Acquisition fee
$4,174 Cash due at signing},
let's assume the following:

$60K MSRP
+ $925.00 destination fee
-$3655.50 (negotiated 6% discount off MSRP + destination)
-$2500 discounts
-$3000 down payment
= $51,769.50 final adjusted capitalized cost

$60K MSRP * 60% residual value (12K miles/year, 36 months)
= $36K RESIDUAL VALE

$51,769.50 - $36K (SALE PRICE - RESIDUAL VALUE)
= $15,214.50 DEPRECIATION

$15,214.50 / 36 months
= $422.63 depreciation per month

($51,769.50 + $36K) * 0.0013 (ADJ CAP COST + RESIDUAL VALUE * MONEY FACTOR)
= $114.82 financing fee per month

($422.63 + $114.82) * 6.25% (depreciation + financing fee * sales tax rate)
= $33.59 sales tax per month

$422.63 + $114.82 + $33.59 (depreciation + financing fee + sales tax)
= $571.04 lease price per month

(Note that this assumes the fees like acquisition, title, and registration are all paid out of pocket in addition to the down payment, rather than being folded into the lease.)

So you may ask, why is the advertised price ($449/month) lower than the calculated price ($571/month)? That's because they do everything they can to make the advertised price as low as possible. If the lease is calculated based on 10K miles per year, you can improve the residual percentage by a point (to 61%). If the promotional money factor gets even lower than normal, the financing fee can get reduced from $112 to half that. And the advertised price never includes taxes, as it differs by state.

The above calculations are spot on, to the penny. Here's a handy spreadsheet that does all the calculating for you. Just put in the key numbers (in purple) and it spits out the final price (in green).

docs.google.com/bmw_lease_calculator

You will have no control over the residual value, as that is determined by the finance company (like BMW finance), but you can search around in the forums or ask your dealer to get a sense of what the residual is for the car you want on that given month. Your credit score will affect the finance rate/money factor, and probably will never be as low as the rate used to get the super low advertised price. The taxes are fixed based on your state. So the key thing you can impact through the art of negotiation is the % discount off of MSRP. It's basically impossible to get more than 7% off, as that gets you down to dealer invoice price. This is especially true if you order a custom build. If you buy old inventory that is essentially being sold below cost to make room for new cars, you might be able to do better, but those deals aren't always available for a lease and you end up with a car that is the last model year or a weird configuration that no one else wanted (like a 535 hybrid in sky blue with the m-sport package).

I used the above method and spreadsheet in my recent car purchase and had an estimated price identical to what the dealer calculated. It was incredibly empowering to walk in with so much knowledge and basically tell the dealer what I wanted and then get it.

Good luck with your car purchase!

[Carrozzeria]

Wow, excellent write up! GREAT information!

[metrathon]

Hey man, amazing write-up. The single most organized, most detailed, most practical guide to calculate the lease I ever saw. God sent.

[twelve535i]

Good info

[OnlyTruth]

($51,769.50 + $36K) * 0.0013 (ADJ CAP COST + RESIDUAL VALUE * MONEY FACTOR)
= $114.82 financing fee per month

If you pay attention that you pay a finance fee on cap cost PLUS residual leasing stops making sense in comparison to buying where you pay finance fee ONLY on cap cost...

[marsb007]

Your numbers are mostly accurate. You should calculate depreciation based on MSRP and not purchase price though...

See http://www.edmunds.com/car-leasing/c...e-payment.html

[i_max2k2]

Thank you, great write up!

[Mr Clean]

Excellent info, thank you sir!