White Roof Radio #197
The BMW Halloween Apple BMW Show.
We spend a good amount of time talking about the upcoming BMW 1 Series and how it will affect the MINI, the MINI Community and Gabe in general. Even though he is holding out for a Z4 M Coupe.
We also talk a bit about lease vs. buy. None of us are fans of a lease, but it really wouldn’t suit us. If you lease, let us know why below.
We finish off talking about Motor-Tober events that Gabe and I attended. Todd went to his this last weekend and I’m sure he’ll report next week.
I’m currently working with a listener who is having trouble downloading the show through iTunes. Besides you guys in ZA, is there anyone else that is having problems with iTunes or downloading the show in general? Let us know below.
Woofcast #197 [audio:http://www.whiteroofradio.com/podcasts/woof197.mp3]
If it appreciates, buy it. If it depreciates, lease it.
A little abrupt on the editing guys ;). Great show with some interesting questions. i personally think that the 1 series BMW will be a good car, although I personally have to say I don’t ever expect to see it in anyways attached to the Mini community. Guess thats not to surprising though knowing my personal dislike of the SUV being part of the community lol.
<em>If it appreciates, buy it. If it depreciates, lease it.</em>
To an extent, yes, but it’s too simplified as a blanket statement. The rate of depreciation matters.
For example, I’m picking up my new MINI today. (!!) Part of my down payment is coming from the proceeds of selling my Jetta. I drove the Jetta for almost 5 years and received more than 40% of the total payments I made when I sold it recently.
A car is an “investment” with a terrible return, obviously. My 40-plus percent return of capital ignores a significant loss in return on capital. But the owner’s use of the car is a benefit of ownership, and how the owner uses the car matters. If you must have a new car every 3 years, don’t drive a lot of miles, and don’t care about extra features, then leasing can be effective. But if you keep the car longer, drive more, or need extra features, buying will almost always be better.
Another example: My girlfriend just bought a new car. She’s always leased but she now drives about 18,000 miles per year since we moved. When calculating the lease vs. buy decision, the lease would’ve saved about $9 per month over a purchase. The rate of depreciation will still leave equity when her loan is paid. Her return on the first several hundred dollars each month will be negative, as it would be with a lease. But the return on the extra $9 per month for the loan will be exceptional.
In the end, look at the option the dealer pushes when you buy a car. I’ve never encountered a dealership that pushes a loan. Every dealership is a business, in pursuit of profits for itself. I think this is a good thing, but I don’t pretend like its interests are always in my interest.
I had leased my ’03 S – my first time ever leasing. At the time, I was hesitant as to whether it was a car I would like to keep, how it would hold its value & I only drive about 11,000 miles/yr – wanted to be able to “unload” it with ease. Being a convert, when the lease was up on my ’03, I bought my ’06 S. Unlikely that I would ever lease, again.
<blockquote>If it appreciates, buy it. If it depreciates, lease it.</blockquote>
I suppose, but with car leases most of the time you pay for the depreciation anyway, and you come out with no equity at all.
Unless you run into substantially subsidized lease deals with astronomical residuals, most banks/lease/manufacturers make you pay for the “capital Cost reduction” (aka as depreciation) upfront upon signing the lease papers. Notice that the vast majority of leases now days require a 20%-30% down payment for activation. The banks protect themselves this way just in case the vehicle depreciates below the projected residual value at the end of the lease contract
Leasing is rarely beneficial for the everyday consumer. Most people go into leases with very little understanding of what a lease deals entails and all the hidden costs/fees that are usually tucked away until the very end (Disposition fees, wear and tear fees, etc).
Leasing is attractive for most folks because it is a method of car financing that allows them to get more car than they can actually afford in real life. They are also lured at the promise of easy vehicle swapping every 3 or 4 years, full factory warranty, no worries about repairs post-warranty period, no worries about selling/trading and depreciation… Oh and that vaunted new car smell every 36-48 months.
But it has been proven time and time again that leasing is more expensive than buying a new car (Whether in cash or traditional financing) and keeping the car for 6-8 years. Buying a car and holding out to it for the longest amount of time possible is the cheapest and most financially sound way to car ownership. Swapping cars every 2-3 years, even if the car has high resale value, is very expensive and this habit effectively eats into your savings and retirement funds!
I have only leased one car in my life. Personally, it is a waste of money. Lease makes more sense for business owners that can write off the lease and use of the vehicle as a tax deduction. Otherwise, lease is of little benefit for the average Joe and it is mostly a never ending monthly payment threadmill. You don’t build any equity either!
If the car manufacturers and dealers love leasing, consumers should approach it with a great deal of knowledge and caution. Leasing is an incredible money making machine for the car industry and they push it very hard onto consumers. Given that the average new car is $25K+ most folks can not afford a new car, so leasing is the only way to experience the new car smell on a tight budget.
Remember the golden rule…. “If you can not buy it (Cash/traditional finance), you can not afford it”.
<blockquote>If it appreciates, buy it. If it depreciates, lease it.</blockquote>
This is a ridiculous statement! If you are losing money on a depreciating asset there is no sense losing more money on the finacing and losing a great deal of control over the transaction when you sell
If you really are a motoring advisor you know and I know how much money the dealers make on leases. This is not a difficult equation, dealers make more money when I lose more money. A lease IS the most expensive way to drive a car. Every consumer advocate will agree and there are only very narrow situations where it breaks even. and even then there are a couple of bad ideas that were presumed good ideas before you got to the lease to make it plausible. such as buying brand new and then trading in after a few years was a good financial idea in the first place. two ideas that may make leases look more attractive but the premise that the “good” decision is based on is foolish
Unfortunately we have a population that only knows how to quantify cost by the monthly payment
dr, well stated post. The population lacks basic personal financial education and most consumers of big ticket items are mostly “Monthly payment” buyers. They do not understand “th rule of 78”, “Lease factors”, “Capitalized cost reduction”, etc.
No wonder now days 84 month traditional finance programs are all the rage!
DB and Todd show some sense over the 1 Series, but Gabe just steamrolls over them. Listen – there may be a some enthusiasts that see the 1 series as a Mini alternative, and many of them may read here. But the great majority of Mini buyers have performance on a second tier at best, and cost on a first tier. They are not competing with themselves, thats crazy. If anything tempting a certain class of customer into spending more at BMW.
I can see the motoring enthusiast buy a BMW 1 series for it’s potential as a racing car, but someone who buys a MINI for the unique feeling the car gives you, won’t be buying a 1 series. It is still a boring BMW that every 30k a millionaire buys, now with the 1-series it will be a 25k a year millionaire. I like to stand out and won’t get that in a 1 series…..
I beg to differ I don’t see any BMW as a boring car. Yes there are a lot of older and successful business men who lease BMWs but the real enthusiasts who buy BMWs for the drivers car that they are stand out in the crowd of BMW buyers & leasers. Sorry if that came off rude.
Car dealers like to lease ’cause it keeps customers rotating back in every few years, bringing back in a low mileage car they can sell at a hefty profit, and going back out with another lease, which is more profit. Doesn’t mean the customer is getting the short end. Depends on your length of time in the car. If you usually trade for the next MINI in 3 yrs. or less, leasing will be way cheaper than buying. If you keep a car for 5 yrs or longer, then buying is better.
Example. I buy a $23K MINI with $8K down, at 6% for 5 yrs (to keep the payments close to same lease vs buy ballpark). Payments plus downpayment = $19,500 over the first 36 months. Trade in at 36 months and all you will get in trade is about what is still owed on the car (personal experience on my MINI). So buy/trade at 36 months, out of pocket total (downpayment plus payments) = $19,500. Lease the same car for 36 months, lease charge plus payments = $14,500. Owners Choice lease the same car for 36 months, lease charge plus payments = $13,500.
No turn-in or over-mileage charges added here, as I always sell my lease car privately just as the lease is up, since what is “owed” at the end of the lease is the Dealer Wholesale price making the car easy to sell (and then the dealer can’t charge me for over-mileage or disposal). Most buyers looking for used, will snap up as a heck of a deal a car priced close to the wholesale price. (Even though I normally make a profit on the sale, am not including that $1K or $2K I could make here which would push out the difference even more).
So if I stick to this 3 yr scenario, buying, vs. best-lease, buying costs me an extra $6 grand over an Owner’s Choice Lease. (Add-in my possible profit on my end-of-lease sale, and that can go to an $8 grand difference).
A famous financial advisor once said: “Poor men buy their toys, rich men rent them.”
Is there anyway to cancel the lease, and finance to buy?
I leased my 07 Cooper S @ 22k I’ve had it for about 8 months now and it’s got 10k miles on it.
I need suggestions please, (there’s alot of experienced people here.)
Well said Mark (Texas)…I was a little surprised at all the lease-hating. Posers, really? Because they find a different way to own (or at least drive) the car that works our financially for them? Believe me – I know plenty of people out there who have BOUGHT, not leased, WAY beyond their means. Saying the leasers are the only ones not living in reality is oversimplification.
I’ll give you this though…leasing does seriously curtail the ability to mod you car almost completely so if you want to ding leasers for not being able to go totally “enthusiast” with their Bimmers or MINIs, sure, that’s fair.
But I am not about to apologize for enjoying the flexibility to get a new car every three years, pretty much hassle (and maintenance cost) free. And one that has the excellent driving characteristics of a BMW. It can work for some, depending on your situation and what you do with the car. I don’t put a ton of miles on my cars and I treat them very well, so I end up getting very favorable deals on the next one, and/or usually have the option to get out early by selling or swapping the lease if need be.
I will say this…leasing a MINI is not nearly as good a deal as leasing a BMW. Money factor is much higher as a rule. MINIs are priced to buy.
–Bill W.
I’m one of the friends potentially swapping out my lightly modded 06 R53 MCS for a 1-series. It’ll be a little while yet before I’d feel compelled to make the move, for a number of reasons, a lot of which are space related, so I have time to watch the pricing and speculation of future models.
That said, given what we know, and can surmise of pricing, I’d be hard pressed not to spec it one of 2 ways. First I’d look to the 135i with Bluetooth and the cold weather package, and depending on pricing the leather seating. That’s it. It’ll be sporty enough with 300+ hp and I can live without iDrive. I’d rather have it, but if pressed it’s low on the priority list. No sunroof. Take it European Delivery, if an option, and the wife and I will have a long weekend in Munchen, maybe a quick run to Stelvio via Davos. We’ll guess 32base plus 1k for CWP and 1k for Bluetooth so 35 plus tax etc… Second is a loaded 128i, lighter with a quicker revving engine, but weight savings negated by the extra equipment, also likely to touch 35 with ease. I prefer the former to the later but they’re both a bit of a long shot. Also consider what can be had for 35 in the CPO BMW market, particularly E46 330’s with the ZHP performance pack.
Further, questions to be answered before any self-respecting MCS driving enthusiast moves onto a 1. What will the tii concept mean when it hits production and will it make it to the US? Will it pay off to wait another year and discover the 135i get’s a power boost and a legit LSD or M-diff? Will MINI give us a factory JCW Clubman and at what price?
<blockquote>Example. I buy a $23K MINI with $8K down, at 6% for 5 yrs (to keep the payments close to same lease vs buy ballpark). Payments plus downpayment = $19,500 over the first 36 months. Trade in at 36 months and all you will get in trade is about what is still owed on the car (personal experience on my MINI). So buy/trade at 36 months, out of pocket total (downpayment plus payments) = $19,500. </blockquote>
Mark you are dreadfully wrong! Your comparison does not acurately acount for the value of the car! and I don’t think you calculated the loan corectly. (use one that shows month by month amorization) At the end of 36months the amount remaining on the loan is about $6500 and total payments plus down is $16,500…you trade in the car in your buy scenario but sell in your lease scenario…That is not a correct comparison, and you certainly will not get only $6500 on trade….SO for the sake of discussion you sell the car privately for 14k after 3yr (in either scenario) The cost of ownership is simply -down-payments-loan bal+sold value OR -8k-8.5k-6.5k+14k = 9k
lease was 4.5k mistake using your lease numbers
<blockquote>A famous financial advisor once said: “Poor men buy their toys, rich men rent them.”</blockquote>
Have you ever noticed that the financial advisors are never as rich as their clients? the REAL wealthy people dont care what anyone else thinks about the car they drive. Read the millionare next door or rich dad, poor dad….. the truly rich dont need to overcomplicate thier lives, they just pay cash. Those who finance wheteher lease or loan are really just living to far far beyond thier means.
So….Act your wage, Live debt free!
“If it appreciates, buy it. If it depreciates, lease it.”
This is inaccurate. Depends on each persons situation and the value of the lease vs purchase transaction. In 2006 I leased a Toyota Highlander Hybrid because it was a great lease deal vs purchase and I like to “own/lease” newer vehicles and change them every few years. When we bought our 2007 Mini in July, purchase was by far the better deal FOR US. In both cases the particulars of the options (lease vs purchase) and the particulars of our situation were the critical factors.
<blockquote>Mark you are dreadfully wrong! Your comparison does not acurately acount for the value of the car! and I don’t think you calculated the loan corectly. (use one that shows month by month amorization) At the end of 36months the amount remaining on the loan is about $6500</blockquote>
…no way. This example was based on my own “real” ’04 MINI. I put $8K down, on a total purchase price of $23K, and financed the rest for 5 yrs. At 3 yrs old, I looked at trading for an ’06. Amount still on the note was just over $12K, which is basically what the Dealer offered for it on trade. If I had traded it it (did not) it would have been a wash. The lease amounts/figures in the example are straight from MINI/BMW Finance, so I suspect are accurate.
<blockquote>Have you ever noticed that the financial advisors are never as rich as their clients?</blockquote>
LOL…I think a financial advisor worth $52 Billion would count as being maybe as rich as his clients. It was Warren Buffett.
Mark
…Warren Buffet is THE investor not the advisor…he is good illustration of my point not yours.
On your bad financing decision….do the math yourself and show me if I am wrong….But
if you bought a 23k car put 8k down, financed the remaining 15k and still owed 12k after 3years …..YOU got ripped off!
Sounds to me as that your deal was a fee laden, rule of 78s (you pay intrest up front, about 75% of intrest is paid in the first halh of the term) bad idea dealer finance dept loan and is not a correct comparison
Leasing explained:
<a href="http://www.smartmotorist.com/lea/lea.htm" rel="nofollow ugc">http://www.smartmotorist.com/lea/lea.htm</a>
Dr, I could not agree with you more. Classic “Rule of 78” finance deal. Ouch!
For those of you not familiar with dealership lingo, here is an explanation of what “Rule of 78” means:
<a href="http://www.bankrate.com/brm/news/auto/20010827a.asp" rel="nofollow ugc">http://www.bankrate.com/brm/news/auto/20010827a.asp</a>
Was it Warren Buffet the one that said “People can not become rich borrowing money at 18% interest”?
Okay, do not try and do math problems after being up for 36 hours straight, and just getting off a 22 hour flight from South Africa. Now that I’ve gotten about 14 hours sleep, scratch my example above. Here is what it should have been :-p
Lease option for 24 months: $2500 down, $1000 lease fee, payments of 307 a month for 24 months. Total out of pocket = $9868.
Owners Choice Lease option for 24 months: $2500 down, $1000 lease fee, payments of $275 a month for 24 months. Total out of pocket = $10,100.
Purchase at 6% for 54 months (to keep payment in line with leases, and my “real” experience): $8000 down, payments of $317 a month, paid for 24 months. Total out of pocket = $15,608.
So when I went to “trade-in” my ’04 for an ’06, was offered what was owing on the note, about $12,000. Owning vs best lease (Owners Choice) costs me an extra $5508 over 24 months.
Lease option for 36 months: $2500 down, $1000 lease fee, payments of 303 a month for 36 months. Total out of pocket = $14,408.
Owners Choice Lease option for 36 months: $2500 down, $1000 lease fee, payment of $283 for 36 months. Total out of pocket = $13,688
Purchase at 6% for 54 months (to keep payment in line with leases, and my “real” experience): $8000 down, payment of $317 a month, paid for 36 months. Total out of pocket = $19,412. Owed on note: $9000. Edmonds valuation for trade-in $12,900 (I know the Dealer won’t offer anything close to that, but lets use this “optimistic” number anyway).
Owning vs best lease (Owners Choice) costs me $1824 over 36 months.
So like has been said, leases make good financial sense if you are only keeping a car 2 to 3 years. I think break even is in year 4, and then 4 yrs plus, the benefits swing in favor of ownership vs leasing.
<blockquote>Warren Buffet is THE investor not the advisor</blockquote>
Actually he is THE Financial Advisor to the rich and shameless. If you own shares in his investment company (by invitation only) he provides you with financial advice and helps you manage your investments.
Mark,
What i tried to point out was that YOUR particular loan was a rip-off loan, It is not realistic comparison!….IF you financed 15k….paid 7600 in payments (24mths) and only reduced the principal 3k, Then you paid 4.5k in intrest and/or fees….thats a bad loan! your balance on the loan should not be 12k it is around 8.8k….In a realistic loan, you have equity in the car that you ARE NOT accounting for (because you put down 8k)and subtracting that from your out of pocket numbers at the end….your numbers are coming out around 4k skewed toward the lease because you arent subtracting the 4k in diffrence between the trade-in and loan balance because YOU hand no diffrence is a result of the bad financing…AND AGAIN, you said that you sell the car outright in you lease but trade in the car in your buy scenario…sell the car outright in BOTH scenarios or use dealer trade-in/residual values in each scenario….12k for a two year old MINI is not realistic at all! The MINI has held its value better than almost every car on the market…Next time you are ready to sell a 2yr MINI for 12k give me a call
Warren Buffet buys his cars and would advise the same for everyone else. Buy it, keep it until it wears out.
<a href="http://www.forbesautos.com/advice/toptens/billionaire2006/03-warren_buffett.html" rel="nofollow ugc">http://www.forbesautos.com/advice/toptens/billionaire2006/03-warren_buffett.html</a>
<blockquote>What i tried to point out was that YOUR particular loan was a rip-off loan</blockquote>
Too true, dr :-p. But then most consumer loans are. You pay the interest up front, then the principal. Take a look at your mortgage some time, and check out how much of your payment actually goes to paying off the loan principal in the first 10 yrs of a 30 yr loan for a real shocker. That $300K house is actually going to cost you over half a $ mill, if you stay the 30 yrs.
>Also consider what can be had for 35 in the CPO BMW market, particularly E46 330’s with the ZHP performance pack.
I’d be surprised if you couldn’t find that car for much less.
>Will MINI give us a factory JCW Clubman and at what price?
answers are coming…
<blockquote>But then most consumer loans are. You pay the interest up front, then the principal. Take a look at your mortgage some time, and check out how much of your payment actually goes to paying off the loan principal in the first 10 yrs of a 30 yr loan for a real shocker. That $300K house is actually going to cost you over half a $ mill, if you stay the 30 yrs.</blockquote>
No, some consumer loans are and few mortgage loans are
…i told myself that I was going to drop this but i can’t let this one slide either. unless you get a sub-prime rippoff this is not true. The intrest is only calculated on the principal, you do pay more in intrest than principal early on but thats because you simply owe more it is NOT like a “rule of 9’s” or a “rule of 78” loan….in other words a regular mortgage is calculated like a simple intrest loan. when you make a pre-payment or pay extra on the principal you dont pay any intrest in that payment, it applies directly to principal and slides you forward in the amortization schedule, where the other “rule” loans have you paying a disproportionate amount of intrest up front, there are prepayment penalties built into the very structure of the loans. when you make any prepayment it simply pays off the loan quicker but you still pay the intrest so you dont reduce your principal directly by the prepayment amount
ok im done ….we are far away from MINI’s now…but please learn about the diffrent types of loans and know what you are getting before you sign anything.