A lease deal revolves around three different structures.
1. Annual Mileage
2. Guaranteed Future Value
3. Understanding the difference between financing to own and financing to rent
With a Lease Deal, like the deal presented above your expenses on the deal are 100% calculated up front. Forget about this overpriced 1er and take the numbers into consideration:
R530k
10.5% dep
36×4999
11% linked
310k residual
Max 60000km over 3 years
The deposit is covered by BMW "Trade Assistance". You would never put a deposit down on the lease deal because you will never get a return on the money, why, because the entire point of a lease deal is to create a revolving market. You buy the car to rent it, to use it for the duration of the 36 month period and to return it, walking away at 36 months debt free.
They do this by providing a criteria:
1. You may not do more than 60 000km in the car in the time you have it, if you do its R1.50 odd per km they bill you when you hand the car back.
2. You must return the car to BMW to qualify for 100% settlement of the finance agreement and to honour the guaranteed future value of the car.
Now you can sell the car out of hand or trade it in elsewhere but you will be liable for the ENTIRE financed amount including the residual. So, a lease deal has a very specific customer in mind, a customer that:
1. Keeps the mileage on his car rather low.
2. Likes to buy new cars every 3 years.
3. Wants to have a guaranteed settlement on the car.
So. That means, that unlike traditional finance deals where you HOPE you can break even on the car at say, 3 years, these deals guarantee you that. The future value is calculated at the time of sale, based on the options and cost of the car.
At 36 months, you return the car to BMW, they inspect it, they make you sign some paperwork and you walk away.
So, that BMW 118i is R5k a month over 36 months. Your cost of ownership (assuming no changes to the linked interest rate because South Africa) is then R180 000
Included is a Motorplan, included is 60 000km worth of travel and the benefits of owning a brand new BMW.
What car can you buy for R180k thats brand new and offers all of that AND you have 100% guarantee by BMW Financial Services that at 36 months you can hand it back and walk away debt free.
If you financed that car traditionally you would benefit only in that you would own the car after the 36 months period, but then your payment would be closer to R10k a month and you would be paying 11.5% interest in FULL to BMW Financial Services, which makes no sense especially given most of us would prefer a new BMW ever three years anyway.
Should you sit with an F&I at BMW they will also accommodate your usage - The lease deals allow you to increase the total mileage of the deal, you can even do it over 48 months, the fact remains that there is minimal risk in leasing vs traditional financing because the guaranteed future value SETTLES the entire deal when you return the car.
Therefore, the residual is a moot point unless you are stupid enough to try and get out of a lease deal privately, or think its a great idea to keep the car longer than the lease period. The deposit is also a moot point, no financial house will expect you to pay R53k deposit on a car you dont keep, hence they cover it for you.
The only thing with lease deals is that the prices are pretty much non-negotiable on the cars because of the amount of pay in from BMW Financial Services and the Dealer to make the deals so irresistible.
Hope it makes more sense now?
The other great thing about lease deals is that in 36 months time, a 118i, valued at say R300k is going to hit the used car market with 2 years plan which can be extended by time for very little money with less than 60 000km.
And lets face it, if your 118i treats you well chances are you will lease another BMW on the spot when you hand the current back in - Its an insanely clever way of keeping the used car market regulated and the new car market revolving.
On the insurance side, because at any point of the lease deal the finance amount owed will be incredibly high, it is mandatory that you take out GAP cover on your insurance.
This ensures that in the case of a total loss, your insurance will cover the balance owed to BMW Financial Services as the rate at which the car depreciates vs your settlement amount is MUCH less than traditional financing deals. So something to consider is a slightly higher insurance premium and excess when leasing like this.
