The new finance rate is %1.49 at 6 years or lower.
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Are you going to lease or finance your Model 3?
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voip-ninja
Give me some sugar baby
I think chances it will be there when I take delivery next spring are quite low. However if it is under 2.5 I will do a loan.
The lease rate by contrast is 6%. Tesla clearly wants people to buy their cars.
voip-ninja
Give me some sugar baby
I only lease when it is financially advantageous to do so, such as BMW who pad the hell out of their leases in the way of highly inflated lease residuals.
At a low enough interest rate it is more advantageous to do my own lease.... as in, buy the car, take the tax incentives, enjoy a super low interest rate while my money remains invested.
If it makes sense later than just sell or trade the car and that's the "lease of my own making" option.
I plan on taking a 7 year loan if I can finance below 3% interest rate. I could just as easily pay cash for the entire purchase price but I'm confident I can achieve a return of greater than 5% on my investment portfolio. The way I look at it paying cash is leaving money on the table since loans are so cheap. A $50,000 7 year loan at 3 percent only costs $5,496 in intrest while investment income on $50,000 returning 5%, reinvested semiannually you will have north of $70,500 less taxes of course. My average return over the past 7 years is 10% so I believe worst case for me is %7 or worst case $81,500 or best case $100,000. now people who live pay check to pay check and get an extra long 7-8 year loan so they can just barely afford the payments, now that is just asking for trouble. But if done correctly a long loan term with low rates can literally be free or nearly free money. In my opinion.
heysteveh
Member
You would be very close if you were taking delivery today. Nationwide is offering 2.99% for 78 months and 3.15% for 84 months.
New Car Loan Interest Rates from Nationwide
That is around the best rate I found in my initial search.
Candleflame
Active Member
thats pretty much my thoughts. Even the oldschool dividend behemoths get 3-4% a year with 0 effort.
Your overall logic isn't bad, but I do need to point out a math error for others thinking about this because it isn't nearly as great as how you state it.
A 7 year loan of $50k @ 3% will be $661 a year and $5,496 in interest. For your investment, you can put in the $50k at the start, but you have to withdraw the $661 a month to pay the loan to do a true cost benefit since you won't have investment gain on the money you withdraw. You are completely ignoring that you have to make actual loan payments.
In a fairly optimistic situation of earning 7% a year every year like clockwork, you would earn $15,050 in investment gain and pay $5,496 in loan interest. That is a little over $1k a year. Still a definite net win and the strategy has value. As the original poster mentioned, you also have to pay tax on those gains. Just don't think you are making $80k by doing this. It isn't even close to true.
Obviously any market gain >3% has you making money which is super reasonable to assume happens, but this also assumes a flat market. If the market tanks in the beginning of loan and raises in the end when you have less money left invested, even if you average over 3%, you might still end up with less money using this strategy.
TL;DR - It is a solid and valid strategy if you have the cash on hand and I actually would recommend it. I could also see why many people wouldn't worry about the hassle. However, expect $1k a year (minus tax) and not $10k a year in gains.
Snow Drift
[Off-Road Assist] Activated
I will lease. Hopefully the $7,500 credit is still around in some form for the finance company to use to reduce the lease calculation.
I was wondering if anyone would notice that, I look at it as forced saving. If you put that money in the investment acount and not touch it and force yourself to "save"$661 per month by way of paying the car loan my math holds true on what your investment acount would equal, less taxes. Most people I know , meet and talk to are unable to save money on a constant monthly basis as they feel %100 of their income is disposable. ) : I blame our public school system at least when I went through personal finance class was a joke. (Balance checkbook was about it) But I digress my logic was simply if you can afford the payment in your current monthly budget vs have savings to buy the car with cash. But yes your post is As for market losses yes investments carry risk and these risks may not be suitable for all people however if you leave ok at the long term chart of the s&p 500 it's up. Not investment advice just my personal thoughts on the subject. Cheers-Nick
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Anything that gets people to save and invest money is a good thing. I do analytics for a financial services company, so the urge to clarify your comment for public consumption was too strong for me to pass up
lirandy
Member
I am on the same boat. Plus I want to take adv on the Fed tax credit by buying it instead of leasing
We've been saving for this purchase. I hate car payments. Less paperwork. The stock market feels very 'frothy' and I'm not sure we're going to be able to arbitrage a loan into better returns. So put us down for cash purchase.
david_42
Member
Probably cash, unless my wife (who will be signed off as a CPA on 3 Oct) decides otherwise. We have looked at getting home loan or line of credit, but the rates are 2-3 times what the car loan rates are.
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