I know that New Years is around the corner when car dealerships quadruple their advertising efforts.
I’m bombarded with TV advertisements from our local car dealerships and I’ve lost count to how many times I’ve heard the name Braman and EdMorse. But I can’t help to get so damn excited about the 2018 deals. The cars are looking amazing and one of my favorite cars, Cadillac ATS, is being advertised for only $350/month!
OK, they’ve caught my attention, but let me do some research. I check out the dealerships’ website to find the same specials they are promoting on TV, but I catch myself staring at this:
Now I’m disappointed…First of all, it’s tiny for a freakin reason because they don’t want you to catch it AND if you actually get a chance to read it, the terms are quite TERRIBLE! An ATS for a 2 year lease and only 10K annual miles with $999 down, plus additional fees and first months payment? Common, you’ve got to be kidding me.
My personal rule of thumb is I put NO MONEY down on a car.
It’s a depreciating asset and I’ve got strong feelings about this position. I classify cars to be one of the WORST investment you can make. Don’t bank on a car increasing your net worth because the moment you drive it off the lot the value has dropped. As a matter of fact, your car depreciates by an average of 20% every year. So what do you think is happening to that down payment you’ve made on the car?
As I always tell my family and colleagues, lets get down to the numbers…I’m going to pick on the 2018 Cadillac ATS as an example for my post. You love this car and you know this is the ride of your dreams. Before you commit, you should ALWAYS consider this question, “Should I Lease or Buy the Car?”
Below is a screen shot from one of my local dealer’s sites and the terms offered for the 2018 ATS:
Remember, I preach no money down deals, but lets just assume you end up putting down about $3,000. The most popular financing terms are 60 months and assuming you have excellent credit, lets say your APR is 3%. As for the lease, lets say you consider 36 months with 15,000 annual miles and $3,441 down. Now what?
This is where I introduce to you my lease versus buy spreadsheet, which you can download for free: LeaseVSbuying
With this Excel spreadsheet, the formulas are already in place and it’s simple to use. The fields highlighted in blue are the numbers you need to plug in so the formula can provide you whether or not the total cost to lease is higher or lower than to buy the car.
Using the terms and the numbers provided by this dealer’s site for the 2018 ATS, this is my financial analysis…
The total cost of leasing the 2018 ATS would be $19,317 at the end of 36 months compared to financing the car and selling it at the end of 6 years for a total cost of $30,424.85! Now, this has several assumptions, like the car does not depreciate more than 20% year over year and that you were able to sell the car for $9,565.63 at year 6. The assumption on the lease is that you do not have additional costs such as driving past the 15k annual miles by the end of the contract.
In the case of this 2018 ATS, the answer is to lease the car! Now, if you’re one of those people that say you’ll have the car for 10 years, then you may have an argument to purchase the car. Considering that you’ll have no monthly payments after 6 years that’s a plus, but don’t forget about the expired warranty and the additional maintenance costs. I haven’t done the analysis yet, but this may be a future post, hmmm.