[MKParris]

Originally Posted by mattssi

You are contractually obligated to pay the 28k (in my case). The balloon payment is based on a % of the MSRP amount.

Now, if magic happens and the car is worth more than the 28k at the end of 5 years, you could trade it in for that higher amount, yes. But behind the scenes, that 28k is getting paid off. It will never change.

This is my first balloon, but I did some math and I should be able to do much better with the 15K I originally planned on putting down on a standard finance (60 or 72 mo) and investing it over a 5 year period to use towards the balloon at the end. Going to be weird being so upside down for the entire time I own the car, but who cares. Kind of a YOLO thing for me.

I’ve done this for13 years….worked well for me.

[chicagofan00]

Originally Posted by MKParris

I’ve done this for13 years….worked well for me.

How much (if any) have you usually put as a down payment? Has there ever been an instance where the vehicle wasn't worth more than the balloon? What kind of mileage do you typically do on your vehicles?

[mlover789]

I'm looking to get some msrp discount hopefully when the car arrives in July.. (hopefully) I'm carless and this sucks.. Gonna do 50% down, not sure if that's a good idea. I want to purchase, I want to do some mods to it and drive it for good 6+ yrs.

[Axix23]

I see they offer a 0.9% financing for 60
Months. That’s amazing.

[hz101]

I have great credit (800+) but the dealer I ordered my M3C from is saying the best he can offer me is 1.9% because "that is what is available in their area." I think that's BS because when I enter their zip code on the BMW website it still gives me 0.9% in the financing offers. Also when I estimate a payment it uses 0.9% for that zip code. I'll show these to the dealer and see what he says. Anyone else experience this?

[Multimodal]

Yes, they’re marking up your interest rate.

[barryc365]

Originally Posted by hz101

I have great credit (800+) but the dealer I ordered my M3C from is saying the best he can offer me is 1.9% because "that is what is available in their area." I think that's BS because when I enter their zip code on the BMW website it still gives me 0.9% in the financing offers. Also when I estimate a payment it uses 0.9% for that zip code. I'll show these to the dealer and see what he says. Anyone else experience this?

Yeah that's him just trying to make an extra few k

Just demand the rate that's on the BMW site, call him out. Worked for me...

They initially said no one gets that rate in reality and it's just advertising...well I got it in the end!

[hz101]

Originally Posted by barryc365

Yeah that's him just trying to make an extra few k

Just demand the rate that's on the BMW site, call him out. Worked for me...

They initially said no one gets that rate in reality and it's just advertising...well I got it in the end!

Yeah you can't trust what they say. I'll see what happens when the car is here, but buying a custom order car in this market when it's hard to even get an allocation doesn't really help me!!

[barryc365]

Originally Posted by hz101

Yeah you can't trust what they say. I'll see what happens when the car is here, but buying a custom order car in this market when it's hard to even get an allocation doesn't really help me!!

Get it in writing now because once you go in there and the car has arrived they'll just sell it to the highest bidder.

They refused to give me the .9 on the select but I had the .9 in writing on regular finance so they had to honour it

[xlover]

Originally Posted by Mr. Maboomba

I am considering the lease or purchase of a 2021 M3. BMW provides a number of interesting incentives and financing programs (leasing, low-rate financing, BMW Select, Owners' Choice) that aren't always straightforward in their puts and takes. I wanted to outline my personal analysis here to provide an opportunity for the community to point out any errors and, if accurate, as a resource for others in the future.
I hope someone gets value from me writing all of this out.

Quality analysis, the only feedback I have is around defining your personal requirements for vehicle useful utility life upfront. You premise seems to be that keeping the vehicle for 5 year utility cycle using a 5 year financial horizon is both acceptable and optimal. For readers their personal financial horizon and opinion on vehicle utility will change a few of the dimensions you analyzed.
-sliding personal utility scale, as the vehicle gets older how much more useless does it feel, For some of us at month 36 the vehicles useful life to us is essentially near 0. (have to have the latest/greatest thing factor is real... after all this is not a corolla message board)
Some examples that someone else might use with a different horizon:
-Considering a standard (and value optimized) lease is 36 months when comparing to a lease how do those other options look at 36 months?
-Also taking a longer term approach how do they look at a 72 month snapshot (2 completed leased vehicles vs 1 60 month loan + 1 year into a second 60 month financing option)

[Multimodal]

Thanks for the feedback. I agree that the desired time horizon for getting a new vehicle is essential to determining the right model. On a subsequent post I do some sensitivity analysis and find that a lease is the best financing solution for ownership periods up to 34-36 months and a loan is the best financing solution for ownership periods of 36 months and beyond. At least in my case.

[Kminor2578]

Originally Posted by Mr. Maboomba

Certainly not - there's a good bit of cryptocurrency and angel investments in my portfolio too. Is that what you mean?

I appreciated the sarcasm

[Kminor2578]

Originally Posted by Mr. Maboomba

I did a little bit more work comparing my options last night. The options are a bit complicated because the cost of financing varies based on time horizon (not everyone wants to own a car forever) and the available incentives vary depending on your financing choice. You can see my math in the screenshot below. Key impressions:
* BMW's Military Appreciation/PenFed Incentive program (which almost anyone can access by getting a PenFed account) is really compelling right now with a $2500 rebate if you don't finance with BMW and a discounted APR if you use their Car Buying Service. This results in the lowest 3 year ownership cost (marginally better than leasing with max MSDs) and lowest total ownership cost (meaningfully better than BMW financing or leasing).
* If I were planning to own for only three years, given the current interest rates, incentives and residuals, I would go with leasing with max MSDs. This is only $275 more expensive than a 60 month loan with the Military Appreciation incentive but it offers less complexity and lower monthly payments and certainty around depreciation.
* If you think you might want to buy the car, leasing with a plan to buy it out is much more expensive than the other options.
* BMW Select is quite a bit more expensive ($2000 more than the cheapest path and $1000 more than a traditional 60 month loan with BMW) but the lower monthly payment might be worth it.

I appreciate the math and the numbers, I just don't think the 1.49% interest rate is going to realistic in 3 years. It will probably be closer to 2.5-3% for a 24 month for tier 1. I am no fortune teller though. Certainly eye opening though, I know you aren't for select but you indirectly convincing me to go towards select over leasing.

[Kminor2578]

Originally Posted by Mr. Maboomba

Thanks for the feedback. I agree that the desired time horizon for getting a new vehicle is essential to determining the right model. On a subsequent post I do some sensitivity analysis and find that a lease is the best financing solution for ownership periods up to 34-36 months and a loan is the best financing solution for ownership periods of 36 months and beyond. At least in my case.

Crystal ball for sensitivity analysis?

[SintAFM]

CA just told me military appreciation isn't available on M cars. Looks like the website supports his claim as M models aren't listed after I did the Troop ID thing.

Or is it dealer dependent?

[RckyMtnBMW]

They're wrong. Multiple members have used it on an M car purchase and my CA has worked it into my deal (I'll take delivery in the next 6-8 weeks).

I've attached what the site says. Also, if on the BMW site you select Build your own, select 3-Series, and scroll to the bottom- you'll see the M cars.

[TrevorM3]

so the .9 is available to every dealer in US no matter what? or is territorial?

if the dealer says 1.9, obviously it's markup. So either call them on it, and they fold, or walk... if the 1% difference is a deal breaker.... kinda sucks.

[TrevorM3]

how do they determine the balloon balance at the end of the bmw select financing option? what is it based off of?

[SpeedyATL]

Really great post, OP. Very helpful.

I'm not a financial moron and found what you presented to be clear and enlightening. I'm about to have to make this decision for my G23 and I think I'm going purchase with penfed $2,500 rebate. But I was thinking about BMW Select and although interesting, I think I will go straight purchase.

[Randy Johnson]

So how much money do you all make that you can afford a $1000+ car payment?

[Bestore]

Originally Posted by Multimodal

I am considering the lease or purchase of a 2021 M3. BMW provides a number of interesting incentives and financing programs (leasing, low-rate financing, BMW Select, Owners' Choice) that aren't always straightforward in their puts and takes. I wanted to outline my personal analysis here to provide an opportunity for the community to point out any errors and, if accurate, as a resource for others in the future.

Incentives

BMW offers a number of incentive programs: loyalty, military, college grad, OL codes you obtain by attending events, etc. I won't try to detail them all but I will describe the incentives I personally qualify for, how they're valued on a 2021 M3 in April 2021, and how they can be combined with one another and BMW financing programs:

• Military Appreciation: $2500 if you do not finance with BMW FS, $500 if you do finance with BMW FS, stackable with Loyalty and CCA
• Loyalty: $500 if you do finance with BMW FS, stackable with Military and CC
• BMWCCA: $500 rebate if you've been a member for 6 months, claimed after delivery and paid directly, stackable with Military and CCA
• Corporate Incentive: $500 if you do finance with BMW FS, but not stackable with other incentives or rebates
• OL code: $1000 (technically $500 from BMW and $500 from the dealer, which means some dealers only honor BMW's $500 contribution on these), but I don't have a voucher

One interesting element of this is that some incentives are tied to using BMW Financial Services while the Military Incentive is much larger if you pay cash or bring your own financing.

Financing

Before getting into the options I should share my principle on financing: I try to allocate my money efficiently, which means doing whatever is cheapest considering the direct costs of borrowing (interest charges and fees) and opportunity costs of what else you could do with that money. To put it simply, I try to borrow as little as possible unless interest rates are a lot lower than what I can earn on my investments, in which case I try to borrow as much as possible so I can avoid dialing back savings and/or selling investments. (US stocks, based on the S&P 500, have earned 10.9% per year over the past 50 years or 13.9% per year over the past 10 years. Most financial advisors say it's safe to assume you can earn 6-8% per year.)

It is also worth considering financing in crypto, as such payments are more secure than in traditional currencies. After reading the article "how to pay with bitcoin" you can shed light on this topic and understand all the advantages of the board in crypto.

I have never leased a vehicle before but I've always been curious about it because it seems to provide drivers with a lower monthly payment and a call option (i.e., the right but not the obligation to buy the vehicle for a specific price at a specific time) which could have value if the market value of the vehicle is higher than the residual at the end of your lease. So one thing I tried to look at was how the financing cost of a lease + purchase compared to a simple up-front purchase.

I won't try to explain all the levers that impact the cost of a lease but I will call out that BMW's Multiple Security Deposit program can be quite attractive. BMW lets you put down up to 7 security deposits (a security deposit is equal to your monthly payment, rounded up to the nearest $50) which will be returned to you at the end of your lease. For each MSD they will reduce the money factor (interest rate) used to calculate your lease payment. Even at the relatively low money factors / interest rates we have today this program is still pretty appealing because by putting down a few thousand dollars you can reduce the interest rate charged on tens of thousands of dollars.

BMW also offers a "partial amortization" financing program in some states called BMW Select which provides drivers with a lower monthly payment for up to 5 years and then leaves you with a remaining balance equal to 25-35% of the original loan amount, which you can pay off in one lump sum or refinance through another loan. This kind of product can be quite "dangerous" for the average consumer if they do not prepare for the final balloon payment or appreciate the additional interest costs paid but with BMW offering very low interest rates (0.9% when I wrote this in April 2021) I think this is actually a very interesting way to keep money in my investments which are earning far more gains than the interest on an auto loan costs me.

I used Leasehackr's calculators to compute the cost of various lease options and BMW's Car Payment Estimator to compute the cost of various loan options. Here's what I came up with, assuming a $3500 dealer discount and qualifying for the incentives described above:

Lease with no MSDs: $74750 MSRP - $3500 dealer discount = $71250 net selling price - $500 military incentive - $500 loyalty credit = $70250 capitalized cost = $976/month with tax + $909 up front ($796 CA DMV fees and $113 CA taxes) - $500 CCA rebate + $350 disposition fee = $997/month effective.
If I want to buy the car after the lease, I will have to pay the agreed residual value of $42607 (57% of MSRP) and $3622 of sales tax. Financed at 1.49% for 36 months results in a payment of $1314/month in years 4 and 5.

Lease with max MSDs: $74750 MSRP - $3500 dealer discount = $71250 net selling price - $500 military incentive - $500 loyalty credit = $70250 capitalized cost = $941/month with tax + $909 up front ($796 DMV fees and $113 taxes) - $500 CCA rebate + $350 disposition fee = $962/month effective with 7 MSDs. (7 MSDs costs $6650 and this is saving me $1260 over three years, which is kind of like 6.3% per year. That's about the same as I can reliably earn on investments after income taxes so I could go either way on it, but the attractive thing is that this is a guaranteed savings whereas you never know what will happen with investments.)
Same situation as above if I want to buy the car after the lease - I will have to pay the agreed residual value of $42607 (57% of MSRP) and $3622 of sales tax. Financed at 1.99% for 36 months results in a payment of $1314/month in years 4 and 5.

Military Incentive with Third Party Loan: $74750 MSRP - $3500 dealer discount - $2500 military incentive (it's more if you don't finance with BMWFS) - $500 CCA rebate + $6056 taxes + $796 DMV fees = $75102 financed = $1292/month at 1.24% for 60 months or $1104/month at 1.89% for 72 months (these are PenFed's discounted rates as of April 2021 if you connect with a dealer via their TrueCar Car Buying Service)

BMWFS 60 Month Loan: $74750 MSRP - $3500 dealer discount - $500 military incentive - $500 loyalty - $500 CCA rebate + $6056 taxes + $796 DMV fees = $76602 financed = $1306/month at 0.9% for 60 months

BMW Select 60 Month: $74750 MSRP - $3500 dealer discount - $500 military - $500 loyalty - $500 CCA rebate + $6056 taxes + $796 DMV fees = $76602 financed = $884.53/month at 0.9% (BMWFS) plus a $25863 balloon payment due at the end of year 5
Balloon: $25863, refinanced at 1.49% for 24 months = $1100/month.
BMW anticipates two options at the end of the five year loan: you either sell or trade in the car, which hopefully is worth more than your remaining balance, or you refinance the residual balance with a new loan. Assuming I want to keep the car, for the purpose of this exercise, I assumed I would finance the remaining balance at 1.49% for 24 months (one of my credit unions, Digital Credit Union, offers really low used auto rates). This results in a payment of $1094/month in years 6 and 7.

I looked at the pure financing costs of each scenario:

• If buy up front with PenFed 60 month 1.24% loan: $918, net of extra $1500 rebate (if you finance via a third party the military incentive is $2000 higher but you lose the $500 loyalty incentive)
• If buy up front with BMWFS 60 month 0.9% loan: $1758
• If buy up front with BMWFS 60 month 0.9% Select loan then refinance balloon for 24 months at 1.49%: $2333 + $393 = $2726
• If buy up front with PenFed 72 month 1.89% loan: $2886, net of extra $1500 rebate
• If lease for 36 months then turn in the car: $4642
• If lease for 36 months then finance buyout on 36 month 1.49% loan: $4642 + $1075 = $5717

It looks like buying up front with third-party financing is the least expensive option and leasing or lease-to-buy is the most expensive option. I was pretty surprised by this since the Leasehackr calculator said the money factors used for BMW leases were equivalent to 1-2% interest rates. I guess the various fees involved in leasing (e.g., $925 acquisition fee, $325 disposition fee) add up and you are paying to finance the full value of the car.

Leasing seems to only make sense if I expect the market value of a 2021 M3 in 2024 to be $3750 higher than BMW's residual value estimate of $42607. If it was I could sell the car private party or trade it in to a dealer like Carmax for more than my residual value and the profit on that sale/trade would reduce some of my out of pocket cost for the lease. That doesn't seem like a great bet to me, especially with the controversial styling of the 2021 M3. I have never leased before but I understand BMW residuals tend to generally be set higher than typical market values to make leases cheaper, so underestimating the residual value by 5% would be a big miss for BMW.

I think BMW Select is the best option when BMW is offering interest rates as low as 0.9%. I can reduce my monthly payment by $422 relative to a conventional 60 month loan and keep money invested earning a much higher rate of return. I think there are four ways to deal with the residual balance: (1) sell the car to pay off the loan, (2) finance the residual balance for an extra two years at a pretty low rate, (3) put $360/month into investments which should add up to enough money by the end of the term to pay off the balance or (4) put $17,500 into investments (instead of, say, a $25K down payment) on day one and let it grow over five years into enough money by the end of the term to pay off the balance.

For those of you who have used BMW Select before - what has been your experience?
It feels like leasing should be cheaper since it's so popular - what am I missing, other than the ability to turn in the car every 3 years?

I hope someone gets value from me writing all of this out.

Good day. Thanks for the great post, it has a lot of useful information.