multiple security deposits - The Unofficial BMW M5 Messageboard (m5board.com)

22nd May 2002, 22:34

Thanks to all who responded to my color scheme question. It seems my car is now 112 and it is unlikely the change to silverstone interior over lmb will go through. Either is fine, but I do think my heart is LMB exterior so all is well.

Todays question is about using BMW leasing option of multiple security deposits. I'm doing the car through my business and leasing makes sense. Reducing the money factor with 9 extra securities also makes good financial sense to me.

My questions;
has anyone used this option before? Has BMW been fair with your deposit considering they will have an extra $9000 of my money? Is anyone aware of other leasing companies which offer multiple security options?

22nd May 2002, 22:36

Sorry, I'm new at this and cut myself off. Anyway that was about all.

Thanks

Frank

M5manny · 22nd May 2002, 23:00

Multiple refundable Securities has been around since BMW financial was started.They are more than fair with giving them back to you.As long as you can keep the car in reasonable condition.Mercedes Credit and Jaguar leasing also does the multiple securities.It's a way of getting about a 14% return on your money (tax free).If the car is stolen or totalled in an accident you're not in risk of losing your money.If you would like to PM me I'll give you a little mor detail.
We do alot of business with the security plan

Johnny D · 23rd May 2002, 03:49

Can you explain how this differs than just giving them moe money at the front end of the lease? I've never heard of this technique before.

RGCohen · 23rd May 2002, 04:51

Multiple deposits are different in that they are refundable, unlike "capital reduction" upfront lease payments.

When I leased my previous BMW in 1998 I analyzed the financial aspects every which way - I am a CPA with good analytical skills. It made the most sense in terms of time value of money to make the maximum number of deposits allowed. This bought down the cost of funds in the lease by a significant amount and clearly was best at that time.

More recently I leased my M5 through Chase. Chase's deal was considerably better! First, the residual was somewhat higher (that is good). The cost of funds, called the money factor, was lower (also good). Finally, the fine print was better. They give you a $1,500 forgivness of minor damage, so you don't have to be quite so worried about upholstery damage or small dings (of course, we are all fanatics about those things anyway, but it is still nice). Chase has high credit standards, so you may not qualify. If you do, you may get a deal that is better than the BMW deal, but without the need to pay those additional deposits.

Johnny D · 23rd May 2002, 08:20

Thanks RC for the explanation.Will definitely shop around next lease. Maybe a Z4 is in my wife's future and leasing makes sense.

M5manny · 23rd May 2002, 17:13

The problem with a Chase lease is that they do not have any lease loyalty. To someone in the Auto industry like myself(BMW sales for 11 years) that's very important. Say you want to get out of your lease a couple of months early, BMW has owner loyalty programs to facilitate this transaction,Chase doesn't. The only way for you to break a Chase lease is for you or a dealer to buy the lease out. Now, because the residual is so high(as you mentioned) you most definitely will have to pay negative equity to get out of your lease anything short of your last payment. With BMW they will usually forgive the last 3 payments as long as you are within 120 days before the end of your lease.There are stipulations to this program like,you must lease another BMW through BMW financial services,and the fact that the car must be in reasonable condition for the dealer to buy the car.Normally with most BMW customers,this always works out because we already know how loyal BMW customers are

The bottom line is,even though Chase may have a better residual and a little bit better money factor,it definitley doesn't mean they're the way to go.I like to give my customer the choice.
Go with BMW and dop the securities(wich you get back anyway) or run the risk of wanting to get out of youre lease early and not be able to.Plus think about this,Three years down the road,what happens if the buy-out price is higher than market value?Will chase be the first to drop that residual?(Not in my experience)
Decisions make this country great! BMW makes life better

njw · 23rd May 2002, 17:40

Can someone explain the math of how multiple security deposits reduce your payment. Does the deposit increase the residual or lower the capitialized cost? I am having a hard time understanding how it lowers the payment if it is fully refunded at the end of the lease. thx.

M5manny · 23rd May 2002, 17:46

It reduces the money factor,therefore it reduces the amount of interest paid.Kind of like points on a mortgage only you get your points back!

njw · 23rd May 2002, 18:19

So your saying that the leasing company has a schedule that equates higher security deposits w/ lower money factors? I guess I was hoping there was a mathematical formula for it so you could calc it yourself.

thx for the help.

M5manny · 23rd May 2002, 19:31

A money factor can be translated using the following formula:
.0030x2400=7.2%apr
for each additional security you give us the money factor is dropped by.0001
so this being said if you do the maximum securities wich is 9 additional you would drop the money factor to .0021
.0021x2400=5.04%apr
The savings in the interest is how you save on the payment
If you do a $75000 loan at 7.2% vs.5.04% it adds up to a nice return

Bukes · 23rd May 2002, 22:15

Quote:

Originally posted by m5manny
A money factor can be translated using the following formula:
.0030x2400=7.2%apr
for each additional security you give us the money factor is dropped by.0001
return

This is a very interesting thread. I do however, have a question about the above formula. Where does the second term (2400) come from? Also, do the multiple security deposits accumulate interest durring the term of the lease?

My beast will be arriving in 2 weeks, and I am still deciding how I want to pay for it. I'm leaning towards paying cash, but leasing may be an option. I have yet to figure out the pros/cons. Any advice?