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I am strongly against financing for vehicles, boats, toys, hobbies, house upgrades, etc. so I will save until I can pay in full. Lets say you finance a 30K chunk of your 45k Tesla at the lowest possible rate of 2.00%. At the end of a 6 year term you'll have paid $1,861 to the bank. That's a lot of money and only goes up from there for people without stellar credit or access to a credit union, or those who finance a larger amount. Make a habit of this with your other big expenses (second car, home upgrades, etc) and it really adds up.
Another way to think about the cost of financing in this example is that it equates to about 56,000 miles at $0.10/kWh (assuming 3kWh/mile). So, save up for your Model 3 and get the first 56,000 miles of electricity charging from your garage for free. Throw in supercharger stops and you may come out ahead for the average length of car ownership (6 years).
Of course if you can't save up because it just isn't in the cards, no need to despair, the cost of financing may be positively offset by savings in fuel and maintenance. Case in point: I just took my 2014 Jeep with 20k on the odometer in for a service and there was an oil leak, a coolant leak, and an engine switch that went out. Luckily everything was covered under warranty. If not my bill would have been at least $2,000-$3,000. Needless to say I hope my Model 3 is available before I'm out of warranty!
Another way to think about the cost of financing in this example is that it equates to about 56,000 miles at $0.10/kWh (assuming 3kWh/mile). So, save up for your Model 3 and get the first 56,000 miles of electricity charging from your garage for free. Throw in supercharger stops and you may come out ahead for the average length of car ownership (6 years).
Of course if you can't save up because it just isn't in the cards, no need to despair, the cost of financing may be positively offset by savings in fuel and maintenance. Case in point: I just took my 2014 Jeep with 20k on the odometer in for a service and there was an oil leak, a coolant leak, and an engine switch that went out. Luckily everything was covered under warranty. If not my bill would have been at least $2,000-$3,000. Needless to say I hope my Model 3 is available before I'm out of warranty!
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JeffK
Well-Known Member
Let me play devil's advocate...
Unless there are massive delays there isn't much time to save. I feel that if I'm going to get a car that's going to last for several years, I'm not going to skimp on a feature that I'd want in the long run just because I can't afford it right this second. An argument might be to wait another year until I can afford exactly what I want. See, the problem with waiting though is the chance I might get into an accident in that time and sustain a serious or deadly injury. Would I have been safer in a Tesla? How much is your life and the safety of your family worth? If you don't have 100% of the cash can you really afford not to finance a Tesla?
Additionally, for those that reserved early enough a $7,500 tax credit more than offsets the cost of financing.
The phrasing of this intrigues me. If I read correctly, If people had the foresight to register for the federal tax credit in advance for the inevitable M3, even before it was named/announced, that would have saved us some heartache? Or am I reading too much into this?
JeffK
Well-Known Member
The credit is based on delivery ... you can't take the credit unless you've purchased an EV within that tax year and the EV is either one of the first 200,000 EVs delivered in the US for that manufacturer or are in the year long phase out period.
I've booked a Model 3 from New Zealand. Hoping that by the time our car arrives all the kinks would be ironed out, because its a long way to send it back if it breaks!
Due to the exchange rate USD/NZD taking a dive last year, I'm expecting to pay a bit more for our car so budgeted about $ 70,000 NZD ($42,000 USD). I'm going to pick my options based on reliability, the less moving parts the better, so no air suspension, biggest battery and definately all wheel drive (please make it affordable Elon!).
I've saved about 17k so far, all the savings I put into my revolving credit mortgage so that I don't pay any interest on it, after tax it ends up saving(earing) me about 9% on my Model 3 war chest! Also, if the currency moves in my favor between now purchase day, I stand ready to move some of the money into USD. I'm trying to save about $3000/m ($2000 USD) to hopefully pay for it fully rather than finance.
Due to the exchange rate USD/NZD taking a dive last year, I'm expecting to pay a bit more for our car so budgeted about $ 70,000 NZD ($42,000 USD). I'm going to pick my options based on reliability, the less moving parts the better, so no air suspension, biggest battery and definately all wheel drive (please make it affordable Elon!).
I've saved about 17k so far, all the savings I put into my revolving credit mortgage so that I don't pay any interest on it, after tax it ends up saving(earing) me about 9% on my Model 3 war chest! Also, if the currency moves in my favor between now purchase day, I stand ready to move some of the money into USD. I'm trying to save about $3000/m ($2000 USD) to hopefully pay for it fully rather than finance.
Yes, as others have mentioned, I was referring to reserving the car early enough to hopefully get it in time to qualify for the full tax credit. I think I missed a comma which would have made it more clear
DrivingTheFuture
Member
Lets see, I'm budgeting roughly 44,600 OTD for this car, assuming costs on a few of the options I'm planning on getting.
I currently have about 8,700 saved up in different forms, including my 5,000 Colorado credit, my 1,000 reservation, and savings.
I can put down about 500 a month to add to the total down, and will likely put my bonus towards it as well. Plus, I'll likely be able to pull some profits out of my stock trading (maybe). If all goes well, I hope to have 20K saved up by the time I get the car, likely early 2018. With a 1.49% loan, that puts me at 350 or so on car payments.
And yes, I have a spreadsheet with all of this.
I currently have about 8,700 saved up in different forms, including my 5,000 Colorado credit, my 1,000 reservation, and savings.
I can put down about 500 a month to add to the total down, and will likely put my bonus towards it as well. Plus, I'll likely be able to pull some profits out of my stock trading (maybe). If all goes well, I hope to have 20K saved up by the time I get the car, likely early 2018. With a 1.49% loan, that puts me at 350 or so on car payments.
And yes, I have a spreadsheet with all of this.
I know that this method of thinking has hit a lot of traction lately, especially with the Dave Ramsey followers. I just want to say - one bucket does not fit all [I'm not talking about people who can't afford the car payments and are stretching to make ends meet, those fall into the - don't finance bucket]
From your example above, you're paying $25/month in interest (give or take) for the life of the loan to have the car. You need to think of it this way - would you be happier to have the car now, and pay the $25/month for the life of the loan or would you be happier to not have a loan? Same would apply for a house upgrade, a boat, a new toy, etc. I'm not suggesting putting it on a 20% APR credit card, but having a loan @ 2-3% and paying the $25/month in interest to have something now vs. later sometimes isn't the worst decision in the world.
The other thing is you have to look at the demographic of the Model 3 buyers. The Model 3 buyers will be a lot younger than the Model S buyers, and most younger people don't usually have a boat load of cash sitting around to buy a car, so they are more likely to finance it. Younger people are saving for retirement, still have student loans, still have a mortgage, are paying for childrens daycare/college/activities, etc. etc.
And finally, some people want to save every penny now, pay as little interest as possible, retire early and live the life when they retire. That's one way of doing it.
Other people want to live the life now, retire a little later, and continue living the life then. That's another way of doing it.
No one method is correct.
/soapbox
It bothers me each time I read someone tell someone else to not finance the car, and only pay cash for it. Sorry for the side rant.
^^^^^
I agreed completely. If you are any normal person that do some due diligence on investment, you have to be really stupid and bad to only get 2-3% return. Even if you throw a dart at some random companies in SP500, you would get an average of 5-6% in 10 years.
That is not even counting compound benefits in investment. All of my net worth is mostly in IRA account where I have several accounts to hold long term (mutual funds) and short term (swing trade).
I made $6k net (excluding $3.5K loss on a stupid stock in the beginning) on my IRA account from swing trade since end of March of this year until now. Do you think leaving money in a saving account or money market will give me $6k return in 4-5 months?
I agreed completely. If you are any normal person that do some due diligence on investment, you have to be really stupid and bad to only get 2-3% return. Even if you throw a dart at some random companies in SP500, you would get an average of 5-6% in 10 years.
That is not even counting compound benefits in investment. All of my net worth is mostly in IRA account where I have several accounts to hold long term (mutual funds) and short term (swing trade).
I made $6k net (excluding $3.5K loss on a stupid stock in the beginning) on my IRA account from swing trade since end of March of this year until now. Do you think leaving money in a saving account or money market will give me $6k return in 4-5 months?
But it also doesn't carry the same risk profile, so it's not a comparable investment.
Scared money don't make money.
For those with less risk adverse, Put in ETF or majority of vanguard mutual funds will return more on your investment than saving or CD.
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