Why buy a new Toyota Corolla when you can buy a used BMW? Considering you can find either one of those cars in the $20,000 range, it might make sense to get into the lap of luxury like you have always wanted. Fortunately, depreciation is on your side. But why are used BMWs so cheap anyway?

Lease returns

One of the reasons that BMWs are so cheap is that the used market for them is oversaturated. Cars are products, just like any other, and when there’s a lot of supply and not as much demand, then the prices drop. In case you have ever looked at a new BMW, you’ll notice that they have really good lease deals on almost every model. But what happens when those cars get leased and then returned at the end of the term?

BMW lease returns will typically either be sent to auction or sold on the dealer lots as certified pre-owned cars. And when dealer lots are filled with CPO cars, then it also drives down the prices of the cars, not only at the dealership level but for private party sellers as well. And when selling a car, regardless if you’re a dealer or Joe Schmo on the street, you have to price the car you’re selling according to the current market rates in order to stay competitive.

Expensive to own

Another reason that used BMWs have a low cost of entry is that they are expensive to own. More specifically, it’s fairly common knowledge that repair costs for BMWs, or any used luxury model, can cost you somewhere in the hundreds, and even thousands, of dollars every time you need some type of repair or maintenance work done. This, in turn, drives consumers away from wanting to own these cars, so selling prices have to go lower.

New car pricing incentives

And lastly, one other reason that used BMWs are affordable is that there is some stiff competition from new BMW sales. BMW dealers typically get a lot of incentives from the manufacturer — which is why BMW lease deals are so good – making it easy to get into a new car as opposed to a used one. Why pay $600 per month financing a three-year-old BMW when you can pay $399 per month for a new one on a lease? With the incentives making new-car buying more attractive, it causes the used car prices to go down in order to attract many potential buyers.

In the end, it comes down to the residual value

Ultimately, all of these factors culminate in the overall residual values of used BMWs, which as we can see, is pretty low. It’s not the best situation if you’re trying to sell a BMW as you’ll likely lose out on a lot of the money that you initially spent financing, but for those looking to buy a used BMW, then it’s a godsend. If you fall into the latter category, just make sure that you can afford the maintenance and repairs and, as always, get a pre-purchase inspection done.