Let's face it, leasing a new BMW can be complicated. I mean the lingo itself; it feels like one must have a master's degree in finance to be able to understand it - money factor anyone? And that makes it hard to tell whether you are getting a good deal on a lease or not. As a result, people don't even consider leasing a car as an option.

For that reason, we decided to write this article in an attempt to make the process of leasing a car easier to understand. And it's not that complicated, really, when you have the basics down.

The very first question people ask themselves is whether they should buy or lease. In general, if you intend to keep the car for more than six years you should buy it, otherwise, it makes more sense to lease (check out our Buying vs Leasing - What' Better article).

Most customers understand the car buying and financing process pretty well. On the other hand, most people find the venture of leasing a car to be intentionally confusing.

If you are new to leasing, there is much more you need to pay attention to besides the monthly payments alone. You also need to consider:
  • The upfront cost of a lease
  • Interest rate being paid 
  • Rebates
  • Incentives
Before we dive in, it's important we define some of the most common terms when it comes to leasing a car:
  • Capitalized (Cap) cost - the price you agree to pay for the vehicle
  • Residual value - how much the car will be worth at the end of the lease term
  • Money factor - the interest rate of the lease (think of it as an APR). 
  • Cap cost reduction - the lease equivalent of down payment - the goal is to reduce the monthly payments
  • Acquisition fee (aka bank fee) - fee charged by the dealer or financial institution underwriting the lease.
Leasing Basics

Leasing a car is basically paying to use it for a certain period of time. Say, you want to lease a BMW X3 with a negotiated price of $45,000 with an estimated residual value of $27,000 three years from now.

When leasing, you are only paying for the difference between the cap cost and the residual value (in this case $18,000) plus interest, fees, and taxes.

In addition, sales tax is not paid on the full price ($45,000) like you would if you purchased the car, but the difference ($18,000) which means you'll be paying less. At a tax rate of 6%, this results in a net savings of $1,620 (in this example for the purchase $45,000 x 0.06 = $2,700 and for the lease$18,000 x 0.06 = $1,080; $2,700-$1,080 = $1,620). 

Now, you can see why the monthly payments for leasing a car are much lower than when you are purchasing the same vehicle. Assuming $3,000 in upfront cost and 2.89% APR in both cases, the BMW X3 from the example above will lease for around $585.94/month over 36 months (including tax).

If you were about to buy the same BMW X3, you would have paid around $636.07/month including tax over 60 months. That's a difference of $50.13/month or $636.07/year to drive the same car. In addition, to incentivize lease, manufacturers will often offer rebates or lower interest rates to drive down the monthly lease payments even more.

But paying less a month isn't the only benefit to leasing a car. There are other advantages as well, such as:

  • Safety - it comes without saying that every new model has more safety features than the previous one. So, driving a newer BMW means both you and your family are protected by the latest safety devices.
  • Fuel Economy - better fuel economy means fewer stops at the gas station and less money spent on fuel
  • Maintenance - leasing a new car means that it's always under warranty so you won't be surprised with any unexpected repair bills. 
  • Technology - all these new in-vehicle apps make driving much more pleasant
All of this sounds great but there's a caveat to it - after the end of the lease term, you won't own the BMW, you'll have to return it. If you want to keep the vehicle, you'll have to purchase it at the residual value.

So, what's best - leasing or buying

It depends. They both have their own advantages and which way you go depends on your personal circumstances, but to help you make a better decision we have summarized the pros of each:
  1. Pros of leasing:
    • Always drive a newer BMW with the latest safety features
    • Lower monthly payments compared to when buying the same vehicle
    • No maintenance cost as maintenance is covered by manufacturer's warranty
    • No need to sell the car at the end thus avoiding listing it, fielding calls from potential buyers and scheduling showings
    • Can be expensed if used for business

  2. Pros of buying:
    • You own the vehicle once it's paid-off
    • Less expensive if owned for a long period of time
    • No mileage limits to worry about
    • Don't have to worry about the costs of damage or wear and tear to the car

>> Still Undecided Whether Leasing a BMW is Better for You than Owning? Give us a Call and Speak with One of Our Finance Specialists to Find Out - call (570) 338-6955 <<


BMW of Wyoming Valley

1470 Highway 315
Directions Wilkes-Barre, PA 18702

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