The 1% rule is getting completely bashed on this site, and thus I would like to offer an argument in its defense. I agree that it should not be the deciding factor in signing a lease and should not be the whole extent of lease evaluation. One needs to consider the incentives, MF, etc., the market for the car you want, how much you like the car and a host of other factors. But is is a useful guide, just like the Leashackr score. In fact it is mathematically related to the LH score. At 1%, it requires 100 months of payment to equal MSRP. Divide 100 by 12 months in a year and you get 8.3 years to pay for the vehicle. It is recognized that a âgoodâ LH score starts at about 8 years. So both metrics are close. A good deal depending on the market could be less than a score of 8 or much greater, but that does not diminish the value of the metric as a quick to determine guideline. It is also much faster and easier to calculate 1% of MSRP in your head.
The 1% rule gets bashed because a lot of people try to apply it incorrectly, or donât understand what itâs used for.
Itâs simply a quick and easy metric to determine if a vehicle âleases wellâ, relative to itâs msrp, and thus relative to the purchase of that exact same vehicle. It needs to be used to determine whether to buy or lease a specific vehicle. The general reasoning is that if you can lease a vehicle and make payments at around 1% of its msrp, then it makes financial sense to lease it, rather than purchase.
Where the 1% rule gets misused is people targeting 1% on vehicles where the programs make that impossible (such as what OP is doing here).
Or, people settling on 1% where the car is actually leasing far better and 1% would be a bad deal (eg. some of the EV that lease at 0.5%).
Similarly, itâs why when people ask about Porsche or AMG leases on here, the typical response is that itâs better just to buy these cars, rather than lease. Why? Because their lease programs are so awful that the monthly lease payment is too high relative to msrp.
Does the Q7 fall into that trap that itâs better to buy/finance as opposed to lease? Seems like the x7 is a pricier car MSRP wise, yet the lease payments are actually quite similar to the Q7. As in, if seems the BMW lease program is better for the customer?
Full disclosure I have a 2018 Q7 Prestige that I am financing (love the car) - have been thinking about the next one and an X7 is also in consideration.
Q7, x7 and a lot of other German luxury vehicles fall into that area where the lease programs arenât good, but they arenât so awful to they drive you to a purchase. Itâs typically the Porsches, mb amg and Audi rs that are impossible to lease due to awful programs.
It just becomes about figuring out if leasing or purchasing makes the most sense based on your needs/situation, and then obtaining the best deal possible.
If youâre finding that an $85k x7 can be had for the same lease terms as a $70k Q7, than the x7 is the better lease value.
The 1% rule gets bashed because a lot of people try to apply it. Period. End of sentence.
It doesnât work for anything. Thereâs too much variation in individual situations for it to inform anything. When two people can get the exact same discount in the exact same car, and one personâs deal is 1.2% and the other personâs deal is .7%, you should know everything you need to know about the validity of using a percent of msrp as a target.
There is no recognition that 8.3 years is a good LH score. Its great on some cars and horrible on others, just as the 1% rule is. It also isnât an indicator that if you were to purchase the vehicle, itâd take 8.3 years of the same payment to break even.
The problem is people are looking for a shortcut metric to inform them of the validity of a deal and it just doesnât exist.
A better approach for looking at the validity of something like the 1% rule is to ask âfor a rule to be useful, what do we need to it to tell us?â
If thatâs the question, I would say it would need to say one (or more) of the following:
- Is this a good deal on the car? (Meaning how does the deal compare to what is possible on this vehicle currently)
- Is this lease a good value? (Meaning how does the deal compare to other competing vehicles)
- Is this better to lease than buy (Meaning over the period of the lease, it would cost less to lease than to purchase and sell)
Now, letâs caveat this with one more assertion: it would also be helpful if the rule applied to at least a good chunk of the people that want to apply it.
So letâs look at each of thoseâŚ
- Is it a good deal for the car?
It certainly doesnât tell us that. All one needs do is look at the vast change in incentives and regional pricing to determine that. Iâve seen incentive swings between two people of $10k before. Two people can get the exact same discount, but because of incentives, be hundreds apart on the monthly payment. Throw in regional taxes and you can literally have the same deal be off by .5% of msrp per month. Further, even when incentives are standardized and taxes/fees are ignored, what is a good deal for a vehicle varies wildly. On some cars, 1.25% is essentially impossible. On others, .75% is mediocre at best. There are definitely times when 1% is a good deal, but it varies by month, by person, by region, by vehicle, etc. A stopped clock is right twice a day.
- Is the car a good lease value?
Obviously as payment as a % of msrp decreases, youâre getting more for your dollar relative to msrp, but so what? Some brands have a marketing strategy where they inflate the msrp and then offer large incentives so you feel like youâre getting a deal. Others donât subvene their rates to hold value. There isnât some magic % where this suddenly becomes a good thing.
- Is it better to lease than to buy?
The argument that gets used often with the LH score is that it gives some inclination as to when it makes more sense to lease than to buy; 8.3 years in this case being an indicator, the implication being that if you purchase, in a little over 8 years worth of payments youâd own it. This, of course, assumes that you purchase at msrp with no incentives, no taxes, no fees, no interest, etc. The problem is that it doesnât actually compare the lease terms against the financing terms. When the msrp gets subvened by significant incentives, a % of msrp number is suddenly a % of a completely irrelevant number.
So hereâs where that leaves us⌠We have a rule that isnât applicable to a variety of people, doesnât tell you if something is a good deal, doesnât tell you if something is a good value, and doesnât give you any insight as to if leasing is a better financial decision.
So maybe if youâre looking for a bmw 330, in North Carolina, in January, after leasing a previous bmw, joining bmwcca, and are named jason it applies; but youâd only know that after actually calculating and researching, which is exactly what you need to do to actually answer any of the above questions.
I donât know about others but 1% rule is the first calculation I do in my mind when I see an unfamiliar deal. Then I exclude those known not to lease well, i.e. Porsche, RR and some low volume models.
Thank you for taking time out and explain
- Test drive and research what builds suit your needs
1a) Good time to also find out what incentives you qualify for directly from BMW
1b) Other programs external to BMW like cca, penfed etc that sweeten the deal by offering small rebates in exchange for membership dues - Find base mF and Residual for the set term and time period on edmunds forums
- Find the ceiling on reasonable deals from carbuying websites, search forum what folks got in the past
- Contact dealers with terms of price, mf, and incentives you qualify for.
Q7 vs X7 is an interesting combo. The X7 has much more road presence, bigger inside. The Q7 fits like a glove, if one considers a glove a mid size three row cuv. The tech inside is comparing a mac vs pC, both extremely competent but just different approaches to the same problem.
Like many have said first test drive each and decide which YOU like better as driving cars. Even if you have to spend more on one or the other you will be disappointed in the end if you choose based on $$$ IMHO.