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.
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.
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.
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.
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.
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.
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.
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.
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.