Owners Choice and Residual Questions

[TJP75]

Hey all,

I am in the market to buy via owners choice and I feel that I've been getting jerked around by the two dealers I've spoken with. As far as I can tell, you negotiate the purchase price, they tell you the residual and interest rate and the rest is math. Unfortunately, I've been given two different residual rates for the same term (36 months - quoted 48% and 50%) and the stated monthly payments have been non-sensical.

If I was to buy, via OC, a car for $50k, with $10k down and a 50% residual (i.e. $25k), the way I think about it is that I need to amortize the cost between the $40k net financed amount and the residual (i.e. $15k) over the term and pay the financing for the $40k borrowed. If I do the simple math, $15k/36 months is $416 per month, plus about $100 per month in interest ($40k*2.99% divided by 12). Is that what people have experienced or am I missing something?

Also, I've seen some mentions here that there have been "7% residual rate increases." Can anyone provided any guidance for what a residual for 36 months should be assuming 10,000 miles per year? One more question: Is the % based residual from the MSRP or the final negotiated price?

Thanks everyone! I'm excited about making the purchase, but just wish it was a bit more straightforward.

 

[Zzzoom3]

Hey all,

I am in the market to buy via owners choice and I feel that I've been getting jerked around by the two dealers I've spoken with. As far as I can tell, you negotiate the purchase price, they tell you the residual and interest rate and the rest is math. Unfortunately, I've been given two different residual rates for the same term (36 months - quoted 48% and 50%) and the stated monthly payments have been non-sensical.

If I was to buy, via OC, a car for $50k, with $10k down and a 50% residual (i.e. $25k), the way I think about it is that I need to amortize the cost between the $40k net financed amount and the residual (i.e. $15k) over the term and pay the financing for the $40k borrowed. If I do the simple math, $15k/36 months is $416 per month, plus about $100 per month in interest ($40k*2.99% divided by 12). Is that what people have experienced or am I missing something?

Also, I've seen some mentions here that there have been "7% residual rate increases." Can anyone provided any guidance for what a residual for 36 months should be assuming 10,000 miles per year? One more question: Is the % based residual from the MSRP or the final negotiated price?

Thanks everyone! I'm excited about making the purchase, but just wish it was a bit more straightforward.

Head over to Bimmerfest.com. Pretty sure someone posted all the details regarding OC costs and residuals although it may be dated since BMW have apparently updated it recently.

 

[Alexander99]

Residual is always calculated from MSRP.
Yes, BMW increased the residuals 7% for both programs. 10k miles should be 3% higher than 15k miles per year.
Try to get a good discount on the car. There are over 1500 cars on dealer lots right now. I'd start at $3k off MSRP - that should cut $85 off your depreciation per month to start.

 

[Boatguy]

I think the residuals are up to 53%, at least in CA. And find an Un4gettable test drive event to attend, you'll get a $1,000 voucher applicable to an i3.

That said, the lease rates are so-so. Depends on your personal situation vis a vis cash, ability to use federal tax credit, how long you'll really keep the car, how many miles you'll drive, etc. But the 7% bump did make it much closer to a toss up on cash vs lease.

 

[i3Alan]

If I was to buy, via OC, a car for $50k, with $10k down and a 50% residual (i.e. $25k)...

Since you are putting down 20%, make sure your dealer knows that anything over 15% reduces the interest to 2.74%, down a quarter percent. Second, the residuals did recently go up 7%. My 30 month at 10K mile/year is 58% (of MSRP), and I suspect 36 month should be closer to 55% than 50%. My dealer did have to call BMW finance to verify the numbers because they did not come up on his computer automatically. They were verified, and the computer did accept the overrides. I closed on my i3 on Friday (three days ago).

This is a pretty decent residual, since the $7500 tax credit does not reduce it, and does not apply to the next owner. That is, my residual is 69.7% of the MSRP-tax credit. I would have paid cash if the residual wasn't so favorable to me.

 

[TJP75]

If I was to buy, via OC, a car for $50k, with $10k down and a 50% residual (i.e. $25k)...

Since you are putting down 20%, make sure your dealer knows that anything over 15% reduces the interest to 2.74%, down a quarter percent. Second, the residuals did recently go up 7%. My 30 month at 10K mile/year is 58% (of MSRP), and I suspect 36 month should be closer to 55% than 50%. My dealer did have to call BMW finance to verify the numbers because they did not come up on his computer automatically. They were verified, and the computer did accept the overrides. I closed on my i3 on Friday (three days ago).

This is a pretty decent residual, since the $7500 tax credit does not reduce it, and does not apply to the next owner. That is, my residual is 69.7% of the MSRP-tax credit. I would have paid cash if the residual wasn't so favorable to me.

Alan - thanks for the insight. Can you walk me through the math to get to your 69.7% residual? Also, did you do OC, as my sales guy said it really only makes sense at 36 months. I'd rather do 30.

 

[i3Alan]

Alan - thanks for the insight. Can you walk me through the math to get to your 69.7% residual? Also, did you do OC, as my sales guy said it really only makes sense at 36 months. I'd rather do 30.

What your sales guy didn't tell you was that his bonus was bigger for the 36 month! Ignore his nonsense, as he is very unlikely to have any appreciation for what would make the most sense for you. The residual adjustments for OC length seems vary fair to me, not skewed to advantage 36 month over any other term length.

Here is the math. My i3 config has an MSRP of $45,000. (Really!) The residual on my OC agreement is $26,100. 26,100/45,000 is 58% (0.58). However, the effective MSRP for me relative to the resell value to my buyer in 30 months is 45K - 7.5K because of the Federal tax credit I get that the next owner will not get. So the effective residual for me is 26.1K/(45K-7.5K) = 26.1K/37.5K = 69.6% (sorry about the earlier 0.1% typo).

If you get a state credit, you may want to subtract it out as well. The reason for this, is if we completely ignore depreciation, and I buy an i3, and immediately resell it to someone else, the new buyer would be crazy not to subtract the $7.5K because he could buy the car new from a dealer and get it 7.5K cheaper due to the tax credit he would then be eligible for, but which he is not eligible for when buying a used car. There is only one $7.5K credit per car.