Did you recently take on (or consider) a loan of 84 months or longer on a car purchase?
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DL
first off, i agree with one of the last commenters, let people do what they want with there own money.
that said, there are two things i think one considers when "getting" a car, or anything else:
opportunity cost and consumption smoothing.
It seems the issue of leasing must be taboo around here.
Skobola asked about it three times and even complained to the moderator that nobody was responding to him! That's what led me to engage the issue - I was giving him a little respect and company.
Next thing I know, after contributing a rather dispassionate and considered point of view, I'm attacked with all kinds of immature and personal invective.
I can only infer that a bunch of you have a lot of discomfort about how deeply you're stuck in the financing trap.
By way of further response, I would first point out that the only reason that I indicated that I am an attorney is to explain that the image that I portray to clients and colleagues is important to me. This fact is evident from the original text of my post. Your limited re-post is misleading, as you seek to imply that I was somehow boasting when I was not.
Second, you say that 99% of all luxury car financing deals are at very high interest rates. I frankly find this to be highly unlikely. BMW's basic financing rates have been in the 6-7% neighborhood for at least the past year. Moreover, inexpensive car loans and home equity loans are abundant, especially right now. Indeed, I am currently paying 3.85% (before the tax deduction benefits) on my home equity line, the APR of which is calculated as prime rate minus 90 basis points, adjustable monthly. Note that, even if prime rate goes from the current 4.75% to 10% -- a HUGE jump which would take years to occur -- the effective post-tax rate on this loan would still be approximately 6%, only 4% higher than the prevailing inflation rate.
I suspect you are a decent fellow who was simply hoping to impart some wisdom on some fellow posters. There is no need for this to become unpleasant or adversarial. I think that if you were to simply concede that every individual has unique preferences and circumstances, and that there really is no one right answer here, you would find the forum much more inviting and pleasant.
Perhaps a survey is in order for how many of the current participants lease their BMW's! :-)
Odds are that roughly half do, and probably don't like to be told that they may have made a mistake. No one likes to hear bad news, even when it is the truth.
FWIW, my local Credit Union had been promoting Balloon Loans as a competitive alternative to leases on a "per-monthly-payment" basis. Any comments on these?
As far as the other comments, I'm looking for risk-free investments that are in excess of 6.75%. For those who claim that they can lock in such yields, lets Name Names, gentlemen.
-hh
"I would hardly call my post above 'immature and impersonal invective'. Rather, I think I gave a rather measured response to your analysis."
Agreed. I was referring to other comments I received like "I'm sure that if you prefer a true Monarchy where the little people know their place", "BLAH, BLAH, " and the like.
(Nor do I take issue with your stating that you are an attorney, and I only quoted you about it in response to your saying "what a condescending, 'If you're not as rich as me, you shouldn't be driving this car' sort of fellow" I am. But I regard that as a fun caricature, neither true nor something I take offence to.)
Returning to the merits:
" you say that 99% of all luxury car financing deals are at very high interest rates."
No, I said 99% of drivers who finance/lease expensive luxury cars are not able to pay cash for them, and as a result of the highly leveraged financing that’s available to so many people as an alternative "a lot" of them are on the road at rates above 6%.
You refer to home equity loans, but I think it’s a mistake to assume a high degree of home ownership among BMW drivers, especially of the 3 series, a car that attracts a lot of yuppie social climbers who are deeply into highly leveraged consumer purchases and less interested in prudent long-term equity. I’d bet (though I admittedly don’t have the figures) that there is a higher percentage of home ownership among persons acquiring new 4-door Accords.
I still maintain the basic proposition that whatever your wealth, you’ll go though your driving career with a limited range of resources to spend on cars. By financing/leasing your cars, you end up spending a major part of those financial resources on interest costs, etc. rather than the cars themselves. That inevitable equation is not refuted or even addressed by platitudes like "it’s a free country" or "it’s an individual choice." The advantage of delayed gratification and avoiding financing is that you end up having a more rewarding series of cars over your driving career. And isn’t that every car enthusiast’s primary objective?
I happen to agree with regchase in principle. We can, of course, do what we want with our money, but we are regularly given evidence in the press that our society has poor savings/spending habits. I've personally spoken with people who believe it was good to run their credit card to the limit and pay the monthly fee. Anyone want to defend that point of view?
Personally, we've been saving for a new BMW for the last two years while maxing our 401k contributions and putting money away for our 1.5-year-old daughter's college education. We haven't had a car payment in nearly 3 years and we don't want to start one now.
My personal feeling is you’re a fool if you buy, finance or lease a new BMW without first, paying off other high interest loans/credit cards and second, saving for retirement. I'm not going to mortgage my future to drive a luxury car today.
Regarding leasing/financing/buying, I've run the numbers for myself (without tax advantages) and I don't think leasing makes sense unless you can consistently beat the historical stock market returns. Again, I didn't take into account writing off the cost on your business taxes.
Again, do what you want with your own money and flame me if you wish, but personally I'm not going to work until I'm 65 to pay for my fun today.
-Murray
In 21 years,I've only bought 3 cars for myself(and a 4th for my new wife). Each car I've paid cash for,each car brought me a lot of joy when I bought it,and each car has been better than the last.
Next one,I'll still be just middle-aged,but it will be some kind of big one I've been reading about for years,like an S430 or a LS430.
That's how a public school teacher has to do it,anyway.
Has anyone out there done performance center delivery? I am really looking forward to it.
I agree that the majority of American people out there live beyond their means. I come from the side that believes you should only drive what you can truly afford and should aggressively save for retirement since I wish to retire at an early age. My thoughts are not what is right for everyone so I do not preach to them unless asked for advice (hint, hint...).
I disagree with you completely that you should never finance/lease a vehicle and only pay for it with cash out front. This is terrible financial advice to bundle everyone in this scenario. There are many exceptions to your view point...
What do you guys think?
Congrats!! Very soon you will be enjoying watching the BMW films with Jason:) My 2 yr old daughter likes to watch it more than I do!!
Welcome to the world of fatherhood!! It is the best thing that could change a man's life.
Dan
mitchs3; The sensor for outside temperature is located somewhere in the inner driver's side fenderwell. I found this out the hard way when my dog dropped a log in front of my car which I preceded to run over. The plastic inner piece was destroyed and the sensor was gone.
Forgetting for a moment that I lease through one of my businesses, and as a result, pay for 95% of my lease payments with pre-tax income, I think leasing or financing a car (as opposed to paying cash for it) is a very smart thing to do.
Over the years, I have consulted with several financial planners, and to a person, every one of them has subscribed to the “Cash is KING” philosophy of money management. In essence, that means, spend as little as possible upfront for any large capital item you want/need and stretch out the payments for as long as possible (obviously at the lowest interest rate possible). In my case, that meant going with as little down on our house as possible to avoid PMI (and financing it with an interest only mortgage), and zero down on my cars. By following that philosophy, I am then able to keep the rest of my hard earned cash and wisely invest it in various financial instruments. Given that a well-managed portfolio has historically (for the last 60 years or so) yielded better than 15% growth on average, this advice seems well founded.
The nay Sayers will immediately jump on this and point out investment returns of late, and to this I say that a short-term look at said returns is irrelevant. Talk with a good financial planner, put together a plan, keep your hard earned cash working for you and enjoy the finer things in life NOW and LATER.
On a slightly different note, I sometimes feel a little guilty (only just a little ;-)) being able to drive my 328i for so little per month. As a counterpoint to my leasing experience, one of my business partners REALLY likes the Dodge Intrepid, so much so, that he just leased his third in 7 years last summer. Given that the residuals on the Intrepid (as well as most other domestics) are so low, his lease payment is only $3.00 less than my 328i ($510 vs. $507) per month (both cars were leased with zero down).
Best Regards,
Shipo
All of my reasons revolve around the fact that metallic paints in general and BMW’s implementation in particular, use one or more layers (I believe it is at least two) of real hard clear-coat over the base paint. At the least, said clear-coat paint will show the inevitable swirl marks and such that washing and general wear and tear generally do to a cars’ finish far less than flat paint. At best, it is my understanding that said clear-coat finishes are actually less susceptible to said wear and tear when compared to flat paint offerings. Either way, the metallic paint offered by virtually all manufacturers has more layers between the hostile outer world and the sheet metal. Contact that might cause a scratch in flat paint may very well not (by the nature of the thicker/harder paint surface) cause a visible scratch on the same car painted with a metallic paint/clear-coat combination.
As such, paying a little extra for a 3-Series to be painted in metallic (its free on the 5-Series) seems like a worthwhile investment.
Best Regards,
Shipo
I've said otherwise in the past (ok, lied) because I didn't want to sound like a braggart yuppie, but after my PeopleFirst loan fell through, I actually ended up paying cash for the new '02 330i. At first I intended to replenish my funds with a HELoan, but I ran the numbers and given current conditions it was almost a wash for me, not to mention that the paperwork (writing 2 checks) was certainly easier. An added benefit is the satisfaction I get knowing that I worked and saved hard to own my car outright. I may well change my mind if/when financial conditions improve, but for now I don't regret my decision at all.
Re: why my PeopleFirst "Blank Check" car loan fell through, it's because they won't release funds until they're listed on the title. An ED car isn't titled in the US until it gets here, and unfortunately BMW needs payment about 60-90 days before that happens. That leaves the following options for ED customers: pay cash; finance through BMW; get a HELoan or HELOC.
For those who claim it's easy to make 3% or more (someone said 6%) on one's money these days, I want to see more details on that, PLEASE!
You can certainly never go wrong with a German car in flat black, but for me the extra $ for metallic is definitely worth it.
Best Regards,
Shipo
Interestingly enough, the happiest moment for me was driving my wife and baby home from the hospital. Holding him in my arms for the first time was unforgettable but I was practically helping like a nurse at that point and I did not have time to fully relax and enjoy the moment. Driving home felt like we had climbed seven mountains and swam seven seas to bring our baby home and mission was accomplished. He felt so cozy in his car seat (brand is Peg Perego) that he didn't make a sound the whole trip. Here's a picture -
Don't believe the dealer or BMWFS for docs regarding financing. I am in the same situation of ED with financing from non-BMWFS (picking up a 525 in Munich end-March).
I have been told by my bank that I should have an "Application for Title", not the Title itself in order for them to cut a check to the dealer. The dealer fills out the Application and faxes it to the bank. This is where you get out of the chicken-and-egg problem.
Of course, a key component of the Application is the VIN number. I currently have a "production number" from BMW and awaiting the VIN with much anticipation!
On a related note, is it just me, or do you guys think that Owner's Circle is a bad implementation, more geared towards marketing and flash-animation rather than content? Heck - they got our downpayment and/or check - why not provide something more useful? Basic order tracking is particularly lacking...anyway, hope the car is worth it!
He explains that “By following that philosophy, I am then able to keep the rest of my hard earned cash and wisely invest it in various financial instruments.”
That’s arguably a reasonable strategy for someone who genuinely has the option of paying cash for a car, or financing it thoughtfully instead.
Being in that position, like shipo and derprofi are, is surely the exception rather than the rule.
I would suggest it’s pretty obvious that most people who leverage themselves into leases of BMWs have nowhere near the cash on hand to buy it if they wanted to. They aren’t able to put the 40k cash into a lucrative investment because they don’t have it to start with, and if it wasn’t for a high leverage lease they wouldn’t have a new BMW either.
So they fall squarely into the rut of spending a major part of their limited financial resources available for cars on interest costs, etc. rather than the cars themselves.
Let me add, though, that the prevalence of highly leveraged financing of BMWs and their competitive brands really helps all enthusiasts of cars in the category. By driving up the available demand of these kinds of cars (including A4s, IS300s, etc) the respective manufacturers are motivated to compete vigorously and rapidly improve their cars to get a larger market share of this lucrative category.
Moreover, the high frequency of leases ensures that there is a vast pool of 3 year old cars in excellent condition available for purchase at very attractive prices. This presents a great opportunity for the prudent enthusiast to cash in on the backs of those who are willing to lease new cars.
By the way, just so you don’t think I have a one-track mind, my favorite color combo is steel grey and sand leatherette.
Not the leather – it’s a really poor grade. I’m sort of afraid to explain why
Bother way financing a house, makes sense unless you live in the bay area. Here some condos that are 1300-1400 sq/ft are fetching 500K. When you put 10% down, your payments are $4000.00 a month, on a 30year fixed, that would be almost $1.5 million (minus tax savings) that you will have plunged down at the end of 30 years, and then you will want to pray that the condo can be sold for what you bought it at 30 years from now(i doubt it). Nothing makes sense in the bay area at the moment. I'm just glad I bought a home pre dot.com boom.
it's no more bad than any other way of spending money. if you choose to spend your money on interest (vs. let's say quarter pounders with cheese), and you get enjoyment from what you are spending "interest" on, then, no, paying interest isn't "bad"...
everyone's financial situation and tolerance of risk is different. i personally wouldn't pay cash for a car, but that's because of my risk tolerance and financial situation.
paying cash is fine.
non-collateralized (other than the car itself) financing is fine.
using your home equity to buy a car, otoh, is foolish.
-Chris
It depends. (derprofi: see the PS below this)
If you're going to buy a car every 3-4 years, then the recommended investment strategy will be similar to the college fund of a child who's now a freshman in high school: increasing conservatism as the deadline approaches.
The fallacy with this approach is that it assumes a large lump sum (down)payment, and this doesn't exist under the strategy of $0 down and a steady monthly payment. With no large lump sum being risked, shipo's approach works just fine there.
But...the real question is if you can do better or worse than the offered rate of financing and/or lease. If we assume that the manufacturer will always have a sharp pencil by definition because its his bread & butter (a reasonable assumption IMO), then the answer to this is that the strategy can be no better than a push at equal investment risks.
But this also infers that we can do better, but will have to incur a higher risk to do so. No surprise there: after all, all approaches ultimately boil down to the basic question of what kinds & levels of risks an individual is personally comfortable with.
Talk with a good financial planner, put together a plan, keep your hard earned cash working for you and enjoy the finer things in life NOW and LATER.
Absolutely; no contest there.
Personally, I'm of the opinion that a little "delayed gratification" is not a bad thing, if for no other reason than developing character and discipline. Today's recurring pattern are people who seem to be all too willing to live hocked up to their eyeballs in debt to someone else in order to try to live the life that they believe that they somehow "deserve". Obviously, the job to have is the one who's charging top dollar to these people to borrow money :-)
The bottom line is that both a car and a house are a financial liability, not an asset and the amount that they drain your portfolio has to be consciously monitored and controlled.
Personally, I found regchase's "~25% lost (to others)" rule of thumb to be an interesting way of viewing the issue.
It certainly highlights the fact that if you don't have the money you need, that those who do have it will make you pay for the privilege of using theirs.
PS:
For those who claim it's easy to make 3% or more (someone said 6%) on one's money these days, I want to see more details on that, PLEASE!
I'm sure that Shipo will point out that this is a short term pertabation, as long term stock market yields was his basic point. Stock Market downturns only hurt if they hit when you have to cash out, and under $0 down, he doesn't need to cash out anything. The question is how comfortable you are with gaining higher yields through higher risk vehicles.
-hh
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Brave1heart: my belated congratulations. You're one lucky guy.
one is a depreciating asset (and can be referred to as an expense)... you cannot reasonably expect to sell your car 5 years from now and get what you paid for it...
one is an appreciating one (and can be referred to as an investment)... you CAN reasonably expect to at least have a chance of getting more money for it than you paid for it...
i agree with everything else...
-Chris
Interesting foray into the lease/finance/buy outright issue. Someone in an earlier post mentioned balloon loans, which is what I got on my CPO.
I wouldn't ever recommend a balloon loan as a viable option to anyone, but it made sense for me in my particular situation. I got a lower APR than I'd budgeted for, put down less than I planned and got the same monthly payments I'd expected, the only difference being the term (3 yrs instead of 4).
By the time it's due, I can either pay it off in cash, get a personal loan from my bank to cover the balloon or trade the car in and get a new one...
Just my .02cents.
Good Luck going forward.
I wish you and your sweetheart and your family the best !!
DanF
To think I started a "Leasing vs buying" topic in the Finance forum and nobody has posted there in days!
I think regchase's position is simplistic and leaves out psychological factors. For example, when I was 21 years old I bought a car I "couldn't afford" and it brought me more enjoyment than 10 Ferraris would today. Was that foolish? I don't think so.
LIFE IS UNCERTAIN -- EAT DESSERT FIRST
You will not be disappointed! When I asked the BMW salesman who picked me up last week (to get my 330i at dealership) if he had seen the car, he simply nodded and said "It is gorgeous". He was correct. It is! And Shipo's positive comments about the paint quality makes me feel even better!
Anyway, thanks to all for 'great' information shared over the past few months.
And, finally, all of us have varying viewpoints on different issues (and can get rather spirited at times in our responses), but I believe our spirits are in one accord regarding our BMW's.
TIA.
Just for fun, I did some calculations. Say you invested $20,000 when you were 21 at the 15% rate that shipo gets until retirement at age 61. That $20,000 would grow to $5,357,000!! Not that 10 Ferraris would be much more fun than one, but you could probably afford 10 with that kind of cash!
Just a little food for thought.
-Murray
Enjoy fatherhood, I guarantee it will more rewarding than any other part of your life.
Leasing/Financing/Cash: lots of good advice, but rarely are buyers financial situations exactly the same. The markets up, the markets down, one day your employed the next day your not. In general, for most all purchases if you can't pay cash, you can't afford it, not to say leasing or financing is inappropriate for all car purchases, but I genuinely believe if you don't have the cash to buy a car outright, you can't afford it. IMO a sports car is toy, not a necessity, as is many other extravagant expenses the more fortunate can enjoy, all of which should be purchased with cash after the true necessities have been responsibly fulfilled. This is my father's advice; wish I would have taken it 20 years ago. Oh well, better late than never.
Thanks everyone, for the intelligent comments and responses on this board.
Best Regards,
Shipo
When you first started out on your own, did you live in a cardboard box, eat generic oatmeal cooked over a camp fire and wear only clothes bought secondhand at the Salvation Army because that's what you had exact change for? I doubt that many of you did. (for the one guy that did, please accept my apologies for assuming - but we don't need to hear about it)
Most likely you made the conscious decision to spend more on upgrades on all of those things because they made you more comfortable, feel better about life and possibly even helped you along in your career. Why should a car like this be any different? While I am not advocating over-spending on a car to the extent that it breaks you now and into the future, I see nothing wrong with making some moderate splurge to insure one's happiness. That goes to what's called "quality of life".
For the one guy that got offended earlier, enjoy your dinner at the Western Sizzlin'. I'll be at Morton's tonight. Your's may be the right thing to do - but believe me - I'll sure enjoy mine more!
2001 Prelude Type SH, 2022 Highlander XLE AWD, 2025 Camry SE AWD
I appreciate the 325xi for its balanced feel in accelerated turns on dry roads as well as its pulling power in the current snow/slush conditions. In dry conditions in a turn, I can feel the front-end pull around the corner (and the beginning of oversteer) as I press on the accelerator. In the current snow and slush, it is truly uncanny how a pushing front end can gain traction and turn the car with gentle application of power.
I will never again want to own a front-wheel drive car because of the relative increased control of direction I have with the 325.
My $0.02
Brave...Congrats man! That is one cute kid!
2001 Prelude Type SH, 2022 Highlander XLE AWD, 2025 Camry SE AWD
Either way, I got back yesterday from Munich and from taking ED on a 330i. If you have any questions about the process email me. I'm also curious about how Patrick treated you (I also am from the Chicago area).