Lease Payment Calculation
Calculating a vehicle lease is not an exact science because there are a variety of factors that change lease payments, such as credit score, security deposit, down payment, and payment of fees upfront or rolled into the lease. However, it is possible to get very close to your expected payment and in some cases down to the dollar. The goal of calculating your lease payment is to be fully informed when going into the dealership. It allows you to have full transparency before going into the high pressure finance office.
Before accurately calculating a lease payment we need to find out three figures from the dealership:
1) Residual percentage on your model. Residual percentage is based on the model, model year, and lease miles per year. For example, in December 2014 the residual percentage of a 2015 535i with 12,000 miles per year was 60% of the MSRP.
2) Money Factor. The money factor is the figure that allows us to calculate the finance charge. Ask the dealership what the base money factor is for your expected model and lease term. For example, in December 2014, the money factor for a 39 month lease on a 2015 535i was 0.00130.
3) BMW Incentives. Manufactuer incentives change on a monthly basis (sometimes more frequently). It's a good idea to ask what the specific BMW incentives are for your model. Manufacturer incentives will reduced your net capitalized cost.
*All three of these figures can be obtained by calling or emailing your local dealership. They are not secrets and should be freely given by the sales staff.
First, we have to calculate your Net Capitalized Cost. See our Pricing page to obtain an accurate Sale Price.
How to calculate Net Capitalized Cost
Sale Price: $60,000
BMW Incentive: $2,000
Bank Fee (if not paid at signing): $725 (BMW Financial Charges a $725 bank fee but individual dealerships may charge up to $925. See Pricing for details)
Document Fee (if not paid at signing): $500
Complete Net Capitalized Cost: $59,225
Next, we will go through an example of calculating lease payments. To start, you need to decide on what fees you are paying upfront and what fees you are rolling into the lease. At the bottom of this page, I have discussed the pros and cons of rolling fees into the lease, as well as putting a $0 down payment. For this example, I have rolled the Bank Fee and Document Fee into the lease.The line items below are the major factors that impact monthly lease payment but may account for all factors involved in lease calculations.
MSRP: (not to be confused with Sale Price): $65,000
Net Capitalized Cost: $59,225
Residual: $39,000 (based on a 60% of the MSRP)
Depreciation: $20,225 (net cap cost - residual)
Money Factor: 0.00130
Term: 39 months
Finance Charge: $127.69 per month (net cap cost + residual * money factor)
Total Finance Charge: $4,980.00 (based on 39 months)
Total Cost: $25,205.00 (depreciation + finance charge)
Monthly payment: $646.28 per month (plus tax if applicable). This final figure is based on the Total Cost divided by the lease term.
*Cash Due at Signing: Tax, Title, and any fees not rolled into the lease.
Rolling Fees into the Lease and Putting $0 Downpayment
When deciding if you are going to pay lease fees upfront and how much of a downpayment you want to fork over, it all comes down to money utilization. Meaning, what are you gaining by paying money upfront? Generally, if you have a low money factor, it makes more sense to roll every dollar into the lease possible.
Using the above example, we rolled $1,225 in fees into the lease. For the sake of an easy example, lets say we paid the fees upfront and paid $3,775 as a downpayment. This equals $5,000 subtracted from your net capitalized cost (also in turn reducing your depreciation by $5,000). This would save you $253.49 in finance charges over the 39 month lease term. It would also save the $5,000 in depreciation over the lease term, totaling $5,253.49.
To put it simply, paying $5,000 now will save you $5,253.49 over the course of 39 months, netting you only $253.49. This is roughly 0.5 percent.
What does this mean? It means that you only gain 0.5 precent for giving up $5,000 today. That is a horrific return on your investment. Even if it was 3 percent, I would caution against putting any money down or paying any fees upfront (if it's avoidable).
When should you pay fees upfront and a down payment: Consider paying the fees upfront and a large downpayment if you have a high money factor. If your money factor was 0.0016, the above example would show a net savings of $837.24 over the lease term. This turns into a gain of 16.7 percent, which is more than most people make in the stock market. This is only a money factor difference of 0.0003. It doesn't look like much but a large part of the money factor is the residual value, which does not change when the money factor changes.