When getting a BMW, or any car, one decision we often need to make is whether to lease it or finance it. Paying for a vehicle is a big part of car ownership cost, and it can get expensive. Lease or finance, there are upsides and downsides to either option. Let’s explore the advantages and disadvantages of leasing and financing a car.
The Difference Between BMW Lease and Finance
Leasing a car is equivalent to paying a fee to use the car for a defined period, but you do not have ownership of the vehicle at the end of the lease. Many BMW lease plans require a down payment in addition to monthly payments, which usually include the lease factor or money factor (similar to the interest rate), security deposit, and fees associated with the lease. The amount of down payment and monthly payments can vary depending on the deal offered by different institutions.
Financing a car allows you to take out a loan so you can pay for the car you are buying in installments. BMW financing plans can require a down payment in addition to monthly payments with interest on the loan, and the interest rate is referred to as the Annual Percentage Rate or APR. There are many different financing plans out there, and the amount of down payment, as well as the APR, can differ from one institution to another.
4 Advantages of a BMW Lease
- Lower Monthly Payments: Usually you can get lower monthly payments on leasing comparing to financing the same car
- Worry-free Termination: Depreciation cost and resale value of the car at the end of the lease term does not affect you when you opt for a lease plan because you do not own the car
- Warranty Coverage: Your leased car is usually covered under warranty, so you don’t have to worry about
- No Commitment: No attachment to the car you lease and the ability to upgrade to the latest models every few years
4 Disadvantages of a BMW Lease
- Higher Insurance Cost: Leasing a car can result in higher insurance cost on your part, since many institutions require you to fully insure the car and purchase gap insurance. See our complete guide on how to save money on BMW Insurance Cost
- Mileage Restriction: A leasing plan usually restricts the number of miles you can drive on the leased vehicle per year. So, if you have long commutes or frequent road trips, leasing may not be the best option
- Long-term Cost: If you are leasing a car on a long-term basis, there can be more costs to you such as high maintenance cost, penalties and fees such as early termination or wear and tear. At the end of the lease, you do not retain value on the vehicle since you don’t own it
- Bound by the Lease: When you lease a car, you cannot make modifications to it and must keep it in good condition according to lease terms to avoid unnecessary fees
Advantages and Disadvantages of BMW Finance
4 Advantages of BMW Finance
- Car Ownership: One of the biggest advantages of financing a car is retaining ownership of the car after the loan is paid off. The money you paid in financing goes towards an asset which you can make use for a long time or sell it later to get money back
- Resale Value: An upside of financing your car through a loan is the resale value of the car. When you keep your car in pristine condition, you can retain more resale value. See our complete guide on How to Keep Your BMW Resale Value
- Personalization: the advantage of financing your car instead of leasing it is the flexibility of customization. When you own the car you drive, you can change it up with modifications, cosmetic upgrades, and accessories. See our list of Top-Rated BMW Accessories
- Long-term Cost Saving: You can save more money, in the long run, taking out a car loan versus a lease. After your car is paid off, the cost of ownership per year can significantly reduce. Especially when you plan to keep the car for a long time, you can save money by avoiding fees and payments associated with a car lease
4 Disadvantages of BMW Finance
- Higher Monthly Payments: Typically, the cost of financing a car is higher than the cost of leasing it, because, in a car lease, you are mostly paying for the car’s depreciation during the period of the lease term. With a car loan, you are paying down towards owning the car along with paying the interest on the loan
- Limited Warranty: After a few years of financing a car, the limited warranty on the vehicle will eventually end. You are then faced with no warranty or having to purchase an extended warranty. To learn more about BMW warranty coverage, see our complete guide on the latest BMW Warranty
- Depreciation Cost: We know that depreciation of a car starts the moment it leaves the dealership. Buying a car through a loan means you are taking on the cost of depreciation. Even after you have paid off the car, the resale value of the vehicle continues to decrease year after year due to depreciation
- Cost of Exchange: One downside of financing a car through a loan is that if you change your mind or want the latest model, you will need to sell your old car first. The resale value may not be enough to cover the outstanding amount of your loan, so you may end up paying more money in the event of an upgrade
7 Things to Consider Before Going with a BMW Lease or a BMW Finance
1. How Much Down Payment Can You Pay?
Budget what you can pay down on a car before committing. Down payment on a Leased car compared to a financed car can differ. Down payment on a leased can include a security deposit, payment of the first month, and various fees in addition to what you initially put down. Down payment on a financed car usually, including fees and the upfront down payment. Sometimes there are deals out there with no down payment on a lease or finance, so always shop around for the best deal.
2. What is Your Budgeted Monthly Payment?
Think about how much monthly payment you can afford. Financing your BMW through a loan usually cost more than leasing the same car in terms of monthly payments. That is because, in a car loan, you are splitting the total cost of the car plus interest and fees in a set number of installments. As for a car lease, you are only paying a monthly rate to use the car and basically paying for the car’s depreciation cost.
3. How Long Do You Plan to Keep the Car?
Consider if you want to keep the car for short term or long term. If you like the latest and greatest BMW models and is looking to upgrade every three years or so, a lease may be a better option than a loan since you are not tied down to the car and do not have to worry about its resale value. On the other hand, if you are looking to keep and drive your car for many years, financing it is usually the more cost saving way to go.
4. Do You Drive Often and Have Long Commutes?
Factor in the number of miles you are driving per year. Mileage matters when your BMW is in a lease contract. Most car lease agreements restrict the number of miles you can put on the car annually. If you go over the mileage mark, you can face penalty fees. So, if you have long commutes and spend most of your time on the road, then a car loan may be a better option.
5. Do You Have Adequate Cash Flow for Long-term Monthly Payments?
Make sure you budgeted in enough cash flow for monthly car payments. Whether to lease or to finance your BMW, you will need to set aside an amount out of your monthly spending long-term to pay for the car. Payment terms of a lease are usually shorter than a loan. If you are unsure of long-term commitment, a car lease provides more flexibility on your cash flow.
6. Can You Consistently Keep Up with Car Maintenance and Care?
Take the cost of car maintenance and care into consideration. Keeping your leased BMW in excellent running and cosmetic conditions are necessary to avoid fees from a car lease. Most car lease contracts require you to have the car maintained on a regular schedule and to keep the wear and tear to a minimum. Of course, you should always maintain your car on a regular basis regardless if it is leased or financed, but you do have more leeway when you have ownership of the car.
7. What Is Your Budget on Car Insurance?
Think about how much you can pay to insure the car. It is always important to carry adequate insurance coverage no matter if the car is a lease or finance. Typically, you have more flexibility on insurance coverage requirements for a loan than a lease. Most lease contracts require you to carry a more robust coverage with a car lease. You should always consult a licensed and qualified agent when choosing a car insurance plan that’s right for you. Also, see our complete guide on How to Save Money on BMW Insurance.