I have used them in the past to good effect but given where we are now, putting say 10 MSDs on a 600 monthly payment is 6000 dollars or roughly 300-325 dollars a year in lost interest income - shouldn’t that factor into the decision too or the MF buy down is usually meaningful enough to overwhelm this?
I haven’t used MSDs in last 3 years so again I may be out of touch as to how steep the rate discounts are
Only way to know is do the math. How much saved vs opportunity cost. In the past, the savings have been well over 5% ROI
This is LH…people don’t do the math…they want you to do the math for them! 
BMW MSD’s are worth it, they’re 8-10% annualized return, usually around 25-30% on your money over 3 years. Every once in a while someone will try to tell me they have an equally low risk investment they can do better on, but when I ask them to put money in suddenly this amazing opportunity doesn’t exist.
As stated below, it’s kind of up to you to do the math on this one and determine the appropriate cutoff point for you.
Keep in mind that on the $300-$325 annual interest income, make sure to calculate the state / federal tax on that so you’re comparing apples to apples.
ok, thanks - this actually answers my question and is based on a concrete example
if it is indeed 8-10% IRR annualized, then way better than everything else out there atm in terms of safe investments – atleast for BMWs
Are you saying there is a person on this planet who has reported their MSD savings as interest income and paid taxes on them?
yeah true. And ppl who don’t have anything real to contribute love snarky comments to show how “funny” they are - after all it is LH, innit
I think he means the money earned on the bank account (taxed at income rate) vs no taxible income in a MSD.
No, I’m not. What I try to convey with that statement is that many people will make a comparison using apples & oranges.
If you can make $300 on a 5% CD or Savings account that’s great. If you could do MSD’s and lower your cost basis by $285, then some people will automatically jump to thinking that a 5% CD is better. However if your effective tax rate is 25% then your $300 becomes $225. Meaning you would be better off financially speaking to do the MSD’s.
Perhaps I can improve my sentence structure however I was literally saying the opposite of what you interpreted from that. As obv there is no tax due when all you did was lower the interest charged (mf) in exchange for a deposit.
Haha yes, funny you intended the opposite, that makes a LOT more sense.
this is a great point - the tax shield offered by MSD - especially relevant on higher tax brackets (and higher payment type vehicles)
You have to do the math. Not all MSD are equal. When each SD is worth a .00007 vs .00005 vs .00010 reduction, the return is going to be different
Do I have to do the math?
The best programs for msds with Toyota have around a 3 year return of 55%. The worst I’ve seen are low 40% return. This is guaranteed unless Toyota goes out of business and untaxed, unlike regular interest with a bank or dividends etc.
Agreed with the points above.
I’ve found MSDs have a greater ROI when monthly payments are lower to begin with. Also it’s sometimes worthwhile to add a small down payment to get the monthly just below where they’d round up the monthly to calculate the MSD (e.g., going from $602 monthly to $599 monthly). It’s easier to do so on a shorter 24 month lease where a down payment has a greater effect on each payment. I was playing around with the calculator and with Audi’s MSD program, for example, saw anywhere from 4% annualized return to 12%.
The math says reduction of APR is worth more. In my case, it was worth a LOT LOT and then a little LOT more.
I paid 5000 MSD for my car. Brought my MF to half of its value from from 0.00143 to 0.00073.
My actual car price was $58000. Selling price was $47900 and residual value after 3 years was $28148. Calculating interest without MSD gives us (47900+ 28148)*0.00143 = $108.74 every month. With MSD’s the interest rate is halved, consequently saving you half at $54.37 every month. If lease is over 36 months you are saving $54.37 * 36 = $1957.32.
On the other hand, if you invest $5000 CD over 3 years at 5% compounding daily you get back $5809.11 i.e. a measly $809.11 in interest.
The longer the lease the more you save from reduction of APR.
I wrote it in a way that you can modify those numbers for your case and get the exact amount. Hope this helps. Cheerios.
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