This is an interest expense question, not a GAP question.
If you do a BMW one pay lease and decide to sell the car to a dealer prior to the end of the lease, does BMWFS refund the unused interest portion of the one pay? For example (fake numbers):
36 month lease
$72k cap cost
$36k residual
$1k/month depreciation
$200/month interest
$1200 x 36 = $43200 one pay
If you exit in month 12, the prepaid depreciation should reflected in the residual. Since you’ve prepaid $7200 in interest expense but have only used $2400 in interest, will BMWFS refund the $4800 in unused prepaid interest? Or do they apply the $4800 towards the payoff (reducing payoff from $36000 to $31200)? I would think they would be legally required to do so but I don’t want to assume anything. Does anyone know the answer, with high certainty?
I have never seen a lease that keeps unearned rent charge. The adjusted lease balance that establishes your buyout amount would reflect the payment you had made.
Essentially, your buyout value would be lower than the residual value and increase each month until the buyout equaled the residual value at lease end.
The same reason why your payoff is higher earlier in the lease and lower at the end of the lease. You only pay for the depreciation and interest expense that you actually use.
That’s the logic. I’m just trying to figure out if that’s how they actually do it. If not, the only early exit option is a one time payment lease assumption.
I can tell you how the calculations SHOULD be done. Unfortunately, the FRBB’s Regulation M- Consumer Retail Leasing Act, doesn’t provide much guidance perhaps for political reasons and so, fund providers are free to compute lease balances, single pay credits, etc. in just about any manner they choose. The final authority is your BMW lease contract. Look for the early termination paragraph(s) to see how it’s done… Or you can post it or pm me with a copy of your contract and I’ll be glad to do all the calculations for you with all the details.
Actuarily, the way your one pay credit should be determined is by computing the present value of the remaining discounted payments at the interest rate (sometimes called the actuarial rate or constant yield rate) implicit in the lease at the time of termination. As you know that credit consists of two components: (1) an interest credit and (2) a depreciation credit. The interest credit is actually the residual value minus the present value of the residual computed at the point of termination. The depreciation credit is your single payment amount minus the interest credit.
Again, I don’t know how BMW does these calculations. There are probably as many different ways to do these calculations as there are fund providers (lol). Bottom line is that you should be entitled to a credit.
I doubt if they refund anything.
Check the payoff amount at your account and compare to the residual value.
The interest charge count as sales and charge sales tax in California…
Update. My assumption was wrong. When I told the BMW dealer that I wanted to do one pay, he advised against it because I would lose money if existing the lease early. (I never asked him about the interest expense question…he brought this up on his own) He said a customer recently traded out of a one pay and BMW charged the full residual as the payoff. When the customer questioned BMW about the payoff being reduced due to terminating early, BMW said he paid for a full lease term and is opting to terminate.
Maybe the distinction is “one pay” vs “pre pay”?
Sucks because I didn’t want to have any payments on my credit report.
On a related note, the dealer said that BMW sent out a bulleting a few months ago that if the insurance payout for a totaled car exceeded the payoff on a leased vehicle, BMW would split the overage with the customer. Just something that might be good to know.
