Buy cash before July 1st to get tax credit, then take out reverse auto loan

[putmeinachair]

Hey guys,

TLDR is it reasonable to pay cash for a model 3 to take advantage of the tax credit, then get a reverse auto loan once I start my job?

I'm completely new to buying cars - I lived in San Francisco before this. So sorry if this is obviously dumb.

I am starting a job soon, and my first paycheck is unfortunately on July 1st, after the Tesla EV tax credit is cut in half. This means that if I want to get a loan to buy a Model 3 prior to the tax credit decreasing, I must pay cash for the car because no bank is accepting my offer letter as proof of income in lieu of a paystub (for a technical reason, I changed my start date and my employer will not reissue a letter with the correct start date).

So I could save $1875 by paying cash. I would prefer to finance about 30-35k of the purchase price to invest.

Will the spread between getting a normal new car loan on July 1st and the reverse auto loan likely exceed $1875?

 

[RZRZ]

Depending on your credit and the bank you will most likely pay a little extra for a cash out refinance but I still think the extra $1875.00 would be worth it. They will also finance it as a used vehicle instead of new since technically it would be used when they do the loan. The main risk is not being able to get financing with a new job or pay a high interest rate.

 

[dmurphy]

I’m not sure what kind of interest rate you’d get on that ... it’d be a straight secured loan instead of an auto refi. I’d strongly, strongly suggest talking to a lender first to make sure you wouldn’t get completely hosed on the interest rate. Secured personal loans typically have much higher interest rates than auto loans.

Tread very carefully; if the only objective is the additional tax credit, I don’t think the risk is worth it.

Not to mention .... that tax credit is against your federal tax liability. Since you’re only working a half year, you may not even have enough federal tax liability to claim the entire $3750 credit.

 

[rickdogg82]

I think you are making the process too complicated. Likely you will save less than $1875 when all is said and done. Plus,Tesla might adjust prices (officially or with individual adjustments) to offset the changing credit amount and you won't need to get creative.

Depending on your credit situation and interest rates, paying cash may be your best option. Like you, many will say it is better to invest the cash for a higher return,but that only works if you do it.

 

[putmeinachair]

I'll definitely pay at least 3750 in federal taxes in 2019.
Another aspect - I have a financial advisor who I am not sure about. He wants to move 75k from low risk fixed income into stocks. In 2019. So I feel that in a way buying it in cash protects me from eating the correction against a 4-5% auto loan.

 

[vickh]

Depending on your credit and the bank you will most likely pay a little extra for a cash out refinance but I still think the extra $1875.00 would be worth it. They will also finance it as a used vehicle instead of new since technically it would be used when they do the loan. The main risk is not being able to get financing with a new job or pay a high interest rate.

Wouldn't it just a auto refi loan?

 

[mswlogo]

I’d wait until after July 1st. Prices might get adjusted again. And you’d secure a better loan.

 

[dmurphy]

Wouldn't it just a auto refi loan?

There wouldn’t be a “re” in “refi” since he’d be buying in cash up front. Just a secured collateral personal loan at that point ...

 

[RZRZ]

There wouldn’t be a “re” in “refi” since he’d be buying in cash up front. Just a secured collateral personal loan at that point ...

Secured personal loan would be a much higher rate. The best loan rate would be to do a cash out auto loan. Some banks or credit unions offer it if you have good credit and the percentage should only be slightly higher then a new car rate.

 

[vickh]

I’d wait until after July 1st. Prices might get adjusted again. And you’d secure a better loan.

I doubt the $35K SR will be adjusted, maybe the SR+. My only caveat is maybe they'll offer AP etc @ discount..

 

[putmeinachair]

So, I decided to get a used long range instead for $40,500.
Let's hope I don't get screwed by the Tesla PO system like Rich Rebuilds

 

[Adam3]

Im confident Tesla will drop the price again when the credit is cut in half

 

[vickh]

Im confident Tesla will drop the price again when the credit is cut in half

even the SR?

 

[vickh]

Im confident Tesla will drop the price again when the credit is cut in half

I wonder if it's good to take delivery on 6/30 just to protect oneself during the week return period. What did Tesla do when they dropped last time, about price drop returns ?

 

[Mr X]

I wonder if it's good to take delivery on 6/30 just to protect oneself during the week return period. What did Tesla do when they dropped last time, about price drop returns ?

Nothing. They simply lowered the cost of all models to compensate for the loss of credit to others. Anyone that got the car before the credit drop should have qualified for the full $7,500

 

[jjrandorin]

I wonder if it's good to take delivery on 6/30 just to protect oneself during the week return period. What did Tesla do when they dropped last time, about price drop returns ?

Going strictly from memory, wasnt the price drop more than 7 days past the end of the quarter? That would be an easy way for tesla to get around that (and its what I would do if I were them... wait on any price drops in the US for a couple of weeks past the end of the quarter, and ship all cars internationally during that time).

I would not "plan" on taking advantage of returns that way either, with the few people posting about them saying it takes a couple of months to actually get your money back. That doesnt even cover the fact that if you are financing, you will be paying interest on that financing until tesla gives the money back (couple of months), and if the plan was to purchase again, unless one can afford to have 2 new cars on their credit, one might HAVE to wait until tesla gave the money back.

The return policy thing sounds great on paper, but actually executing on it is not like taking a shirt back to nordstrom or anything....

 

[dmurphy]

The return policy thing sounds great on paper, but actually executing on it is not like taking a shirt back to nordstrom or anything....

You’re absolutely right - it’s not easy ....

... nor should it be. I really think the return thing should be a last resort if something’s wrong with the car or you just absolutely can’t live with it.

Using it as a pricing lever is a jerk move, in my book. The amount of time and money you force Tesla to waste processing a vehicle return is extraordinary. DMV work, title work, etc - all have to get unwound. Return the car to stock, etc.

You signed the paper, you pay the bill. Pretty simple. It’s great that Tesla offers a pressure valve if there’s a problem, but it’s meant to assure quality and satisfaction, not a pricing game.

 

[dsvick]

I wonder if it's good to take delivery on 6/30 just to protect oneself during the week return period. What did Tesla do when they dropped last time, about price drop returns ?

The amount of the price drop was not the full $3,750 difference in the tax credit, so people were still better off having taken delivery prior to the decrease.

 

[jjrandorin]

The amount of the price drop was not the full $3,750 difference in the tax credit, so people were still better off having taken delivery prior to the decrease.

Thats if someone has enough tax liability to take the full tax credit. If not, money off the top is better. As the tax credit decreases, its more likely that a person has that amount of tax liability, but its not a given.

 

[dsvick]

Thats if someone has enough tax liability to take the full tax credit. If not, money off the top is better. As the tax credit decreases, its more likely that a person has that amount of tax liability, but its not a given.

True, but I was only commenting on the Tesla's previous action, I assume the poster is able to figure out if they qualify for the credit or not ...