I just got back from the Mini dealer I was going to order from. I was really taken back by how poor the financing was.

A little preface first. I have a '05 Nissan Pathfinder. It's loaded, Nav, Rear Seat entertainment, Heated Seat, Leather, every option available except 4wd. With TTL it was around $42k. I don't remember how much I put down exactly but it wouldn't have been much different that what I was willing to put down this time. It was 12k miles/year, a residual somewhere around 55-57% after 39 months on a lease. With that I'm paying in the low $400's.

Today at the Mini dealer it came out like this. If I was to place $4k cash (mor than what I put on the Nissan) down on a 15k mile/year lease on a fairly loaded Mini Club S ($32,500 was the assumed amount) for a term of 36 months. I was looking at an well over $500 payment.

I know that things like money factor and stuff come into play, but if I figure things right I think something is out of whack. With money down, I financed over $16k on the Nissan. The financed amount on the Mini would have been below $11k with signing money. How can financing $5k+ less equal a over $100 a month increase? And there wasn't any super money factor on my Nissan, I want to say it was in the 6% range.

Can anyone explain this? I was really really excited, and now I'm kinda heart broken. Part of the deal with my wife was that the payment can't go up, and I thought "well, $10k less expensive car.... no problem".

 

If it was a lease, the payment is going to be less, naturally. Because you're essentially, for lack of a better metaphor, paying on an interest only loan. You're not paying the full cost.

Shop around other place and see if you can get a better interest rate. MINI's was pathetic compared to others that I've seen. Your bank or a local credit union can probably do better. You may also want to look into a longer loan-- yes, you pay more over time, but you can often have a slightly lower payment.

There is a really good calculator on Edmunds.com to figure out monthly payments, etc. based on lower interest rates and more money down.

 

Why not buy?

 

First off, never sink that much money into a lease. If you are willing to put 13% cash down of the value of the car, why not finance it? You are still looking at financing $28K and even at 60 months your payments will be north of $550 (Give or take). Maybe, you can't realistically afford a car this expensive (Just an assumption). If leasing is to your advantage (It rarely is for most people) only seek to pay first month+ security dep+down payment no more than $700. Your out-of-pocket outlay on a car like the MINI should never be more than $1,500-$2,000 to get started on a lease. Make sure your credit is in good shape and your FICO credit score is at least 750 to qualify for the best money factor rates. But again I comeback to the question? Why do you lease? Leasing is the most expensive way to finance a car. Last week I took delivery of a new 2008 Clubman S. Sticker was $26,200. With taxes and fees $28,700 out-the-door. Put down $13,000 cash. Financed the rest with MINI Financial services at 6.04% interest for 36 months. Monthly payments will be around $471 per month. At the end of the 36 months (Or sooner as I tend to payoff my vehicles ahead of schedule) the car will be mine, free and clear. In 3 years this car will still be worth around 65%-70% off original MSRP (In other words an asset). My 2005 R53 S is paid off, free and clear as well. Bought it new 3 years ago. Put down $10,700 cash (The total out-the-door cost of the car was $24K) and financed the rest at 4.00% interest for 30 months. Monthly payment was around $511. Paid off the car in 25 months. Its been a little over a year with no car payments on my ride, still have warranty and tons of equity on it. My wife's 2002 Cooper was paid off in less than a year. We enjoyed that car for 5 years, payment free and sold it last month for 60% off the original MSRP after 66 months of use! We are not millionaires. Just people that have developed discipline and understanding of personal finances. We have good salaries but not CEO incomes. Normal people all around. I guess the point that I am trying to illustrate is that leasing these cars is not really of much benefit to anyone, outside of a business owner who can deduct vehicle use (or the lease payments) in their income tax. MINIs hold their value so well that they make better buys than most cars in their immediate price bracket. Just food for taught...

 

Yeah-- pretty much my point... I've never leased a vehicle-- but we've always had pretty crazy lives and couldn't know what sort of mileage we'd put on a car. Feels better to pay it off and know you own it.

 

Back in the 1990's you could lease a near luxury car with just $700 down and have payments in the $350 or so range. The problem is that most of those close end leases were heavily subsidized by the manufacturer to move out slow selling models from dealer lots. Also, another problem (and still is to some extent) is that the residuals (The projected value of the car at the end of the lease contract) were inflated, meaning, in reality the car was going to have a lower market value than what the bank had estimated when they wrote the lease. So when the customer decided to return the leased vehicle at the end of the contract (And not get a new one), the bank or dealer had to buy back the car at the price stated in the contract! So if the projected residual was $20K and the car was worth $15K that was an immediate $5K loss!! So the banks (after taking many baths with these out of lease vehicles) decided that in order to protect themselves from future "drops" in projected resale value, the customer wanting to lease that shiny new car will have to pay for this "projected loss in value" upfront. And hence the "Capitalized cost reduction" fee was born! This is yet another reason why leasing is sooooo expensive now days. On top of everything else, the banks want you to pay for any future losses upfront, ensuring full profits and minimizing risks. If the dealers and car manufacturers love leasing, CONSUMERS BEWARE!

 

Mileage is another cash cow of leasing, followed by return fees and wear and tear fees. Trust me, if leasing was a good deal for the average consumer, car companies and dealers would not offer it, ever!

 

Buying a car and financing it for 4-5 years and holding onto to it for as long as you possibly can is the cheapest way to own a vehicle... Period. I did lease a car once (1997 Acura 2.5TL sedan) but never again! Every single car I have put in my driveway has been owned and enjoyed free and clear. leasing is just renting out a car and a sure way to have a never ending monthly payment threadmill, without building or having any equity to show for.

 

Asking for financial advice on a car enthusiast web site?



Call me, I've a bridge to sell.

You can get better advice other places my friend.....

 

Man, what a helpful post!

 

Real financial advise? Buy used, buy it with cash and keep it 20 years.

 

AlexMoultonIs My Man - sounds like the dealer's gouging you every which way on this lease! If you need to put $4,000 down, and your monthly payment is "over $500.00 per month", you're leasing a $32,000 car for three years for $22,000+!!! You could probably put $4,000 down and BUY the car for around a $500.00 payment for five years! I know you'd have payments two more years, but you'd also have a MINI worth around $15,000!

 

It's not a lease, it's a FLEECE.

 

I agree, with the resale value of the MINI, leasing just does not makes sense.
Besides if you DO have financial issues down the line, its easier to sell the car than try to get out of a lease.

And like others said above ... putting $4k down on a lease is a no-no. You're better off paying a higher monthly payment. Why give them a large down payment upfront for a car you are not going to own.

 

First, opening post by the way was more of a rant about how the math wasn't working how it did for my last lease and not asking financial advice on a website. I was venting.

As to leases. I lease because I have a habit of switching cars a lot. I get restless. It isn't so much about the financial sense in the long term as I don't keep cars for long. Since 1991 I've had at least 12 cars that I can think of off the top of my head not counting my wife's. The last two of which have been leases (the Pathfinder and an IS300). I have been really ready to change cars at the end of those leases. I like my cars to always be in warranty and enjoy having a current body style. It's vanity... sue me.

The $4000 was a payment that the dealer wrote up as an option, not an amount that I would actually consider placing down on a lease. I was really expecting to spend more like $2500 total out of pocket. I was just frustrated that a less expensive car was costing more than my current pricier car. Still am somewhat.

After writing the post above I went out and looked at a couple of other cars. I drove a WRX 5-door and an STI. Wow, really fast, but yuck. No soul, only cheap plastic. I also went by two other makes to see what they had. Nothing that had the quality feeling of a german designed vehicle. British made or not.

I gave a little thought (my wife helped ground me) and have decided that in no way do I need a fully loaded Mini. In fact, I'm thinking of going the opposite route. Just a few minor options and getting my payment down below well my current one.

I guess I have to also factor in that the cost of operation is much less than my Pathfinder. That and my insurance will drop quite a bit too (almost $1k/year after finding a new rate). That is money in the pocket too.

Thanks ClubmanS for your words of wisdom.

 

Lease payments are tied to many factors, chief among them is the depreciation rate of the car. The less depreciation the car experiences, the more "favorable" the lease payments will be, at least in theory.

When you make payments on a leased car, you are being charged for its monthly depreciation, plus interest, plus taxes (If you don't pay the sales tax upfront, it can be spread over the life of the lease, making it more expensive.

Rarely you are in a situation where you have positive equity on a leased vehicle. You either are "even" (meaning the car's market value and what is owed to satisfy the lease is about the same) or "upside down" (meaning your owe more to the bank than the car is actually worth)

 

You are very welcome Alex

I would say that getting a new MINI with fewer options is a good first step. In fact, I believe MINIUSA currently has subsidized leases on new 2008s that may be more financially sensible to you.

At any rate, avoid leases that require more than $1,500-$2,000 in total upfront inceptions. Anything over that is quite frankly money down the drain.

I read with interest your comparison of the MINI vs other cars.

Best of luck.

 

I'd like your thoughts on this scenario:

Foundation: I never keep my cars more than 3 years. I like getting the newer model at the least and a car outside of 3-4 years old does not fit my desire. I was prepared to write a check for $34,300 yesterday for my new Clubman and walk away a happy owner. I went with the Finance person who then offered some alternatives, including the leases. Here was the deal:

1. Mini Clubman S configured at $31,130 (which is also the Cap Cost)
2. .002 money factor (aka 4.8% interest rate)
3. No Security Depost
4. Doc Fee $388 (same as my purchase option)
5. Acquisition Fee $825 (this is only applicable to leases)
6. 15,000 miles/yr and 35 month term

With the prepay they bump up the residual to .64 from .63 on a standard lease and bumped down the rate from a traditional 36-month lease from .00290 (6.96%) to .0020 (4.8%).

In sum, I end up writing a check for roughly $17,900 and that's that. In a sense, I was going to write a check for $34,000--so I have the extra $17,000 available to invest. An arguement may go many ways about investing and earning 7% one way or other--but to keep it simple, just think of it that I would get rid of the car in 3 years anyway. I was able to only pay taxes on 36% of the car and in Arizona the taxes would have been around $2560 whereas I only pay around $960 = savings.

With a residual at 64%, I don't see how its such a bad deal. If the car is worth 75%, and I want it, then I buy it at the already agreed upon price. I now have less risk when it comes to getting rid of it. I'm even a pro at using the swapalease and leasetrader sites--so I'm not afraid of changing my mind in year 2 if I really wanted something else (but the car isn't a $100k vehicle, so it wouldn't be so bad as a 3rd vehicle at that point anyway).

Is my exposure only the risk of getting out early and transferring ownership? Risk of totalling the car mid-lease and somehow not getting it covered and my remaining money not used back? Risk of paying the acquisition and $350 termination fees?

Sorry about all the writing---but I guess I'm searching for the answer as to if I was "taken" or that the deal was alright. From most of the posts, people believe leasing a Mini doesn't make sense, but to me this seemed like a really good plan. Thanks for your responses!!!

 

Pretty much

The bank is pretty good at keeping up with insurance to make sure this doesn't happen to them or you. More for them though.

'Bout it.

It sounds like a decent deal to me.

I ended up going to a third party lease brokerage firm. Wells Fargo is my lease bank now. Got a 3.6% rate, paid my last two payments of my previous lease (Mini wouldn't do that), less money at closing, and cut my payments by about $120/month for the same term (36 months) that Mini was offering. I was happy.

 

Jeremy, I occasionally see the "one payment" leases advertised, and they're usually discounted from what you'd pay month-to-month. I just can't get over the possibility of a "total loss", either theft, fire, or major collision. The lessor gets an insurance settlement, you get nothing. It probably doesn't happen too often, but I would be more comfortable with a traditional lease or loan. Also, please let us all know where your savings are going to be invested to get that 7% return! I'll be lucky to get a .7% return this year!

 

"The lessor gets an insurance settlement, you get nothing."

Let's say that after 12 months the car is stolen. I have paid $17,000 already and have used $5500 of the lease. I would expect that either my insurance company or BMWFS would get a replacement and I would motor on for the remaining 23 months of the lease. Right? Otherwise, I'm under the impression that the $11,500 that is "unused" would be returned to me. I would be out the up-front acquisition fees, doc prep and that stuff, but not my payment amounts.

Is this right? Also, to get 7% over time is simple...its just getting it this year. I'll give a call to Michael Milken to see if he's got any bonds worth investing in....

 

My understanding from other leasing forums is that you would lose any monies you had paid. However, there may be language in a "one upfront payment" lease that affords you protection if the vehicle is wrecked or stolen.

 

Where is a link to Wells' lease program? I wanted to take a look but I dont see anything on their website about leasing.

 

More research yields information that BMW pretty much puts the total sum into a bank account and pretty much makes payments for you each month. If something bad happens (total loss, stolen car, etc) then you'd be at the same place as a normal lease. There would be too much risk on the buyer otherwise.

On a sidenote, I dabbled with the numbers to compare the regular lease, the prepaid lease and a purchase. In short, at 4% opportunity cost of money, they all come out to be even. My MSRP was $31,000 and the total out of pocket after 3 years would be approx $18,000 either way I slice it (give or take a few hundred). That includes all the applicable taxes, fees, charges, ripoffs, depreciation, interest, etc...

 

Just a quick follow up....recieved my first statement and the prepaid lease is exactly as we concluded: BMW gives you a discount up front, takes the sum of all your lease payments, puts the money into an account and pays it for you every month. The disclose your credit balance, and I believe this would be the amount that people are scared about losing in the case of a total loss. You wouldn't lose your money in a total loss scenario and would get your credit back.

Anyway, just wanted to chime in.