A few years ago I would have told you that I thought it was a waste of time to lease luxury cars unless you planned on putting one in a music video (haha). But since then my opinion has changed considerably. I moved out of the countryside to a major city and I leased my first car two years ago. In this article I will discuss the merits of leasing a BMW versus buying one, and at the end I will give you my recommendation based off of my experience. I should also note that although this article is oriented toward BMWs, it’s logic is applicable to other luxury car brands such as Mercedes Benz, Audi, Jaguar, etc.
Background on Leases
When you lease any vehicle, whether it be a BMW, an Audi or a Honda, you are paying to drive the car NOT to own the car. You are basically renting the vehicle for a certain amount of miles and a certain period of time. There is a mileage restriction on all leases and this will likely play into your consideration if you intend to dump a ton of miles on your 3 Series. The average car lease is three years with some variation, some are closer to four years and I have seen some as short as two years.
Leasing has become an increasingly popular choice for luxury vehicle owners and an increasingly important staple for luxury vehicle manufacturers. At this point more than 70% of new BMWs are leased and the percentage is even higher for certain models.
Benefits of Leasing
Leasing is an easier way to acquire a car and keep it for a short period of time. There is usually no required down payment for leasing a vehicle and the monthly payment is often substantially lower to lease a car than it would be to purchase the same vehicle. Of course, the reason why the monthly payment is lower is because you are paying for the right to drive the car, not to own the car.
Leasing in some ways is specially designed for millennials, or at least young, unmarried people. If you are someone that has commitment issues with long term automotive relationships, than leasing is likely an excellent option for you. Who want’s to buy a BMW, drive it around, let it substantially depreciate, and then resell it a few years later? What’s even worse is that BMWs depreciate so quickly you might not even be able to sell it for what you owe on the car. Instead of worrying about these ownership issues you can lease the car for two or three years and dump it off with no commitment.
Repair costs are often non-existent with leases, which is music to my ears if I am looking at a BMW. Lease agreements vary with what exactly is covered, but a lease with BMW will typically cover the vast majority of necessary maintenance and repairs on your vehicle. In fact, depending on the maintenance program BMW may even cover routine maintenance such as brake pad and oil changes!
Of course the downside is that this really is not a major upside when considering leasing a BMW, because you would receive the same maintenance program if you were to buy a BMW.
Another nice thing about leasing BMW is that the brand offers really attractive lease-only incentives such as loyalty and lease rebates. BMW really pushes its lasing program and part of the way it does this is through it’s special lease-only offers.
Negatives of Leasing
Typically leases will come with mileage limitations between 10,000-15,000 miles a year. The average American driver puts about 12,000 miles on their car each year so this mileage limitation is not an issue for most people. However, there are plenty of people who have to travel frequently for work or just tend to put more than 12,000 miles a year on their cars. If you do go beyond the mileage limit your lease charges will skyrocket. Alternatively, you may consider a high-mileage lease, which typically have a limit between 18,000-20,000 miles however the monthly lease payments will be higher.
The dealer will typically charge you for damages not covered in your lease. This is another major consideration if you have dogs, cats, or even worse CHILDREN. Young children destroy interiors and the dealer will make you pay for it.
Amendments to the Lease Agreement Can Be Costly
If you find that you no longer need the vehicle and you want to cancel the lease you will likely find that cancelling a lease early can be costly. Penalties for cancelling a lease early can include having to pay some or all of: remaining payments on your lease, early termination fee, costs to prepare the vehicle for sale, and potentially more!
So although one of the benefits to leasing a car is the flexibility, leasing can in-fact be less flexible than purchasing the car. Even if you are making payments on a car you purchased you can sell it, not so much with leasing.
The Equity Consideration
The argument whether or not you should own your car has gone on for years and years. Pundits on the ownership team argue that it’s always better to own the car because you are building equity in the vehicle and it is cheaper than a lease in the long run. On the other hand, are you really ever building equity in a depreciating asset?
Cars are not like houses, the house you buy today is likely to be more valuable in five to ten years as long as you maintain it. Some people will describe buying a house as an “investment” because on paper people often sell homes for more than they bought them after a few years of ownership.
What about cars? New cars can lose as much as 10% of their value within a month of driving them off the lot! It’s only downhill from there, cars continually depreciate as they rack up mileage and years. This is why lease advocates will argue that it is a waste of time to buy a new car for the sake of “equity” or “ownership”. It’s a depreciating asset! So why not rent the thing for a few years and then get rid of it?!
The equity consideration is why I argued for car ownership so stringently in the past. However, opinions must change with the times and the times have changed. The biggest difference between a 2020 3 Series BMW and a 2000 3 Series BMW in my opinion is that the 2020 has an enormous load of technology updates, forget voice activated controls and BMW personal assistants, BMW is now experimenting with advanced autonomous driving technologies that are turning these vehicles into roving supercomputers.
How are these additional sensors, switches and modifications going to perform after two or three years or 40,000 miles? Well no one really knows, except that we do know that BMW has consistently been getting more expensive to own over the long haul as maintenance costs begin spiking after several years.
This is why that old idea of “building equity” in a car does not apply so well to modern BMWs. That equity you are building is in a fast-depreciating asset that you may very well end up owning more than what you sell it for.
Benefits to Buying a BMW
Are you someone that likes to tinker with your vehicles and maybe add some performance upgrades here and there? Can’t do it with a leased BMW, but if you own it you can do whatever you want to your BMW as long as it’s still street legal.
You don’t have to worry about any excess mileage penalties, drive the car from New York to California and back, no one is stopping you!
If you get bored of the car you can always sell it. You might take a loss and you might still owe some money on the original loan, but hey at least your not getting fined by BMW for breaking your lease!
Negatives to Buying a BMW
The monthly payments are higher and the down payment will be considerably higher than the likely non-existent down payment on a lease.
Once the BMW manufacturer warranty expires you become responsible for all the repairs and maintenance on the car!!! What if the car turns out to be a lemon after 60,000 miles? That sucks, and unfortunately you are left holding the bag!
What Should You Do?
I continue to maintain in this article, as I have in others, that it makes the most financial sense to buy a used BMW with a few years of age and mileage on it. Because of BMWs high depreciation rate, you can save a ton of money buying a used BMW in good condition. But if you don’t want to deal with the potential maintenance and repair headaches that come with owning a used BMW with 50,000+ miles on it, than leasing is generally the best route to take.
As long as you do not plan on owning your new BMW for more than three or four years, leasing is cheaper and requires significantly less of a commitment to the vehicle than buying it outright. New BMWs are in a unique position to be leased compared to many other vehicles because of the faster depreciation and heightened maintenance. For these reasons my advice to lease does not extend past BMWs and other luxury cars with similar depreciation and maintenance issues. which is why it is so common for people to lease BMWs nowadays.