Cash or Loan

[pellep]

I'm at the point in life (41) where I'd like to avoid additional debt. More of a philosophical approach rather than a practical one since Tesla loan payments could be made with relative comfort.

I'm about 1-2 years away from finishing the mortgage, and accumulating enough cash for a Tesla S (60 or 75D).

I'm curious as to the breakdown of the forum as far as payment - Cash or loan? With a cars at this cost level being an obvious luxury, are there some who are happy getting the car sooner with a loan? Are there some who are happier with delayed gratification and paying cash?

For the purposes of the poll, I'd consider a "strategic loan" (ie could have paid cash, but didn't want to cash out an investment vehicle for whatever reason), a cash payment.

 

[Adrien]

Loans are so cheap these days that if you pay it off extremely quickly you really won't lose much in interest. I will be paying for my loaded Model 3 in cash, but if not, I would go the same route as I mentioned. It would be a different story if loans were at the rates they were 25 years ago.

 

[liuping]

At 1.49% a car loan make a lot of sense. Most investments will do better than that over the 5 year period.

 

[icdevin]

Most investments will perform better than that within months, let alone over a proper longer term. I would suggest investing the cash and taking the loan if your rate is < 5% or so, which most are. You don't even need to be super strategic with it.

 

[xav-]

Dang.. Mortgage free at 42.. I'm 36 renting

 

[Max*]

I don't have that kind of cash laying around, so I took out a loan.

Haven't decided which route I'm taking with the Model 3. If APR is where it is now, I'd much rather finance the whole thing and pay down my mortgage instead.

 

[jaguar36]

For the purposes of the poll, I'd consider a "strategic loan" (ie could have paid cash, but didn't want to cash out an investment vehicle for whatever reason), a cash payment.

What you're calling a "Strategic loan" is the way to go. As others have mentioned the interest rate on a auto loan is crazy low, and you should easily be able to get more from a safe investment. I wouldn't take a loan out for something I don't need just to be able to get it sooner though.

 

[STbreaker]

Mortgage has a higher interest rate (and a way higher principal of course) so I'm only paying down aggressively to narrow the gap of worth vs owed. After that, any extra money will go towards the mortgage. Even if I financed the whole car, I would only be paying like 5K in interest.

 

[chillaban]

What everyone else said….. I think auto loans these days (at 2.5% or lower interest) are almost no-brainers for loaning. The overall interest payments are quite low even if you carry the loan to term, and are even lower if you pay off at some later time.

Plus, $80k-150k of cash is a lot of cash to have lying around. I presume most people must move money around (whether it's interest savings or investments) in order to cough up that amount of money up front… If not, there's probably a lot of missed investment opportunity in those cash reserves.


I generally lease or loan. I find that my general rule of thumb is that even for cars I can easily afford, it's a lot more difficult/risky/troublesome to come up with 100% of the price as a lump sum but a lot easier to come up with 50% of it down the road.

 

[liuping]

Mortgage has a higher interest rate (and a way higher principal of course) so I'm only paying down aggressively to narrow the gap of worth vs owed. After that, any extra money will go towards the mortgage. Even if I financed the whole car, I would only be paying like 5K in interest.

With interest rates as low as they are (less than 3.5% for 30 year fixed, or almost 2% after tax deductions are factored in), I would not rush to pay off your mortgage either.

Reducing you asset to debt ratio is the right idea, but I recommend doing it by increasing assets vs reducing debt in this market. I would put the extra payments you are planning to put towards your mortgage into an investment account.

 

[pellep]

With interest rates as low as they are (less than 3.5% for 30 year fixed, or almost 2% after tax deductions are factored in), I would not rush to pay off your mortgage either.

Reducing you asset to debt ratio is the right idea, but I recommend doing it by increasing assets vs reducing debt in this market. I would put the extra payments you are planning to put towards your mortgage into an investment account.

I would agree. My wife is more financially conservative and since she financially contributes 50%, we've made some compromises. Plus we in a 1.99% HELOC for the remaining mortgage balance - so the payment schedule is pretty much locked in for the next 7 months until paid off (remaining balance is only 3% of home value)

I know this isn't a financial forum, but I appreciate the input of the group. Many in the personal finance/investment forums I frequent would consider an $85k car irresponsible at any income level. They just don't get "us". (I guess I'm not really "us" yet , though )

 

[McHoffa]

If I had $100k lying around, I would have made $10k just in the past week on TSLA by investing when it tanked. Twice as much return than the cash saved over 5 years on a loan.

 

[JPUConn]

Had the cash but financed 60% and have been investing the rest.

Cheap $ @ 2.24 for 72 months
Overpaying by $200/month but have flexibility to drop to 72 month term payment if things ever get tight.

Loan to value ratio so I don't need or feel the need to purchase gap coverage on the loan.

up so far over 5% on cash invested since 3 weeks ago when I took delivery (thanks to well times trades and orders around Brexit news). At a point where I will play with the 'house $' on risky bets and keep the base investments spread over some etfs

 

[No2DinosaurFuel]

Take the loan and like other said invest and make a better return than the interest on the loan. This is what I plan to do when I am ready to purchase one.

 

[Daeke]

Agreed with what others have said; loan rates are so low that investing the cash instead will be better in the long-term. I had the cash on-hand to buy my Model S outright, but decided to take out a partial loan instead and invest the rest. So far it's paying off wonderfully.

 

[RogerHScott]

Many in the personal finance/investment forums I frequent would consider an $85k car irresponsible at any income level. They just don't get "us".

They haven't driven a Tesla, plain and simple.

 

[Stan Moraski]

I had the cash but decided to finance 50% of my CPO with Alliant at 2.24%. Seemed like a no-brainer as I am otherwise debt free. Fifty six years old, two houses, five other cars, and two kids through college. I figured it would be easy to prepay $1,000 per month and finish it off in 30 vs. 36 months.

 

[RogerHScott]

Loan to value ratio so I don't need or feel the need to purchase gap coverage on the loan.

Can you elaborate? I was going to point out that one of the reasons I got a loan (beyond the big one of better return on investments
than the paltry 1.99% the loan costs) was that I wanted to get GAP insurance and there appeared to be no other way. I financed nearly
100% (all but the down payment [to the dealer] and tax) so I could get the GAP to cover as much as possible. The idea of some idiot
hitting me two days after my car is delivered and instantly converting my $100k car to an $80k car was enough to seriously tarnish the
ownership experience. Now I don't worry about that at all.

OP, just do the math. Unless you were planning to put the $85k in a mattress you really can't help but make better than 1.49% (or
whatever) on it. Just get a loan with no prepayment penalties and you can always change your mind later if you get "nervous" and just
pay it off with the money you did something else with other than buy the car.