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Cash vs Financing

Discussion in 'Model S: Ordering, Production, Delivery' started by ghost640, May 16, 2014.

  1. ghost640

    ghost640 Member

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    Hi all,

    I'm wondering about the groups opinions - I can pay cash or I can finance the car. I've never financed a car, I've always managed to save foward, and thanks to a decent stock market (thank you TSLA), I could pay it off up front. (woot!).

    But what are people's thoughts - there's an opportunity cost, and those funds could conceivably be invested to beat the interest rate (unknown at this point, I've just started shopping around). What's the way to go? (looked for a recent thread on this, didn't see one)

    Thanks!
     
  2. Tacket

    Tacket Member

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    I paid half up front just to keep my monthly payment minus gas savings pretty low (currently around $250/month). While I could have swung the full monthly payment, I too have never had a car payment so shelling out that much cash every month for a car didn't feel right. To each their own of course. In hind sight I likely could have invested that cash for a larger return, but peace of mind should be worth something.
     
  3. bryenz

    bryenz Member

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    It depends on the rate on offer. I am working with DCU on mine and the rate after discounts can be as low as 0.99%. With a rate that low, the opportunity cost of paying a lot up front can be significant. Especially if you have other debt, it is better to use free cash to pay other stuff at a higher rate...

    Of course this is a strictly economic argument, there is an emotional component to this as well (see Tacket's comment) that may be more meaningful to you.

    Me - at 0.99% I'm leveraging. Other people's (insanely) cheap money is better than mine.
     
  4. GoBlue88

    GoBlue88 Member

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    I'll probably put at least 50% down and finance the rest with my HELOC. A HELOC feels like cash, the rate is insanely low, and the interest is tax deductible, making the effective rate even lower.
     
  5. JohnQ

    JohnQ Active Member

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    Hard to tell without doing all the calculations but it may still be cheaper to go with traditional financing. Auto loans are out there for under 2% and HELOCs are still around 3.5% I believe. In addition, if you're subject to AMT the deduction isn't going to help much.
     
  6. tiblot

    tiblot Member

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    I did DCU as well. Just finished. I didn't want to Direct Deposit so I went with 1.49%

    - - - Updated - - -

    If you can score a rate in the 1% range. Its almost always worth it to finance. You'd have to be really really bad at investing to fail to achieve >1.XX% returns ... Even factoring taxes in you should still get more out of your $$ than the loan costs.

    However, if cash flow is an issue thats another discussion.
     
  7. silentlibrarian

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    Newbie here... what is DCU? Credit Union loan?
     
  8. tiblot

    tiblot Member

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    Yep, DCU.org. Currently offering the best rates available - as far as I know.

    down to .99% if you Direct Deposit with them. If not, then 1.49% (65 MO loans), not 72.
     
  9. ghost640

    ghost640 Member

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    Thanks for the tip on DCU, that's a great rate, I'd finance half for that, will check it out. Wonder how they make $$ with those rates?
     
  10. Pilot_51

    Pilot_51 Member

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    If I were you and I had the cash on hand, I'd pay cash. I'm very determined about staying out of debt, though as I found out about 6 weeks ago, not quite as determined as I thought. I originally wanted to save up for 2-3 years and pay with cash, but the inflexibility and long hours caused by carpooling was taking its toll, so I decided to finance for the last year. For my future cars, since I would have a car to hold me over, I have every intention to pay with cash. As I'm finding out now, there are some hoops to jump through with financing that make the buying process at least twice as complicated and time-consuming, but I think that has a lot to do with the fact my credit union has never financed for a Tesla before.

    If debt isn't a concern and you're more interested in value, well, I probably wouldn't be much help beyond saying do the research (as you're already doing). I haven't decided if I want to keep my TSLA shares or use it to pay off my loan earlier.
     
  11. nakedsushi

    nakedsushi Member

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    I was on the same boat as you and the Tesla was the first car I had ever financed. I really don't like being in debt and was considering just buying the car outright, but rates are so low now that it really does make financial sense for me to get a loan. I ended up doing 20% down, investing the rest of the money, and just doing a 5 year loan. In total, I think I'm only paying 8k more than if I had paid full, which seems plausible to make back or at least break even with just investing the money for 5 years.
     
  12. GoBlue88

    GoBlue88 Member

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    My current HELOC which has a $0 balance is sitting at 2.99%. AMT is friggin' unpredictable as I seem to hit it randomly.

    Since I'll probably pay it off in under a year anyway because I hate having active loans, I'll still use the HELOC if for no other reason than to avoid a bunch of paperwork. :biggrin:
     
  13. JohnQ

    JohnQ Active Member

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    I agree, 1% isn't really going to make any difference over 12 months. Six or seven hundred bucks depending on your down payment. Delivery is around the corner, enjoy!
     
  14. astrotoy

    astrotoy Member

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    I think if I were still working my only concern is if I were laid off. It would be great not to have the burden of a car payment in addition to rent or a mortgage.
     
  15. tiblot

    tiblot Member

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    Whats the difference? If you had a for example 40k in loans vs 40k in semi-liquid investments?
     
  16. bryenz

    bryenz Member

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    Maybe a bit off topic, but did they tell you that you had to direct deposit all of your paycheck, or just "any" direct deposit? I've heard both things. I'm not against direct deposit (I automate: what's the payment? ok, I'll direct deposit half of it every 2 weeks, you auto-pull the payment, we're all happy) but I am not in a position to move all my banking to DCU, given the closest branch is 2500 miles away.
     
  17. tiblot

    tiblot Member

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    THey require 100% direct deposit - thats why I didn't do it. Wasn't going to use them for my primary bank either.
     
  18. thgchris

    thgchris Member

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    I'm a fan of the no debt approach. Sure you can potentially get better return in the market but having no house payment, car payments etc from my experience makes things less stressful. I just finished paying off my wife's $90k in student loans in 2 years instead of 10 years (we didn't want to do the 30 year option) and that knocked out a roughly $1k per month payment. Next I am shooting to pay off house this year as well (I intentionally bought a cheap house to save faster and pay off all debts) which will leave my free of any debt.

    May seem silly if I end up buying a new Tesla that costs ~half of what I paid to park it in the garage of my house though lol. So perhaps I'll hold off on buying the Tesla until we buy our next house.

    I'm still trying to decide if I should just buy a used S or model X a few years from now even if later I can afford to buy new. Waiting to see what final Model X prices are though.
     
  19. N4HHE

    N4HHE Member

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    I haven't had a car/vehicle payment since 1996, and house payment for nearly as long. But in December I financed most of my Model S through Alliant for 1.49% 72 months in no small part because shortly I will be paying that loan with money worth less than what I borrowed.
     
  20. Robert.Boston

    Robert.Boston Model S VIN P01536

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    I know many people dislike debt viscerally, but if you have financial assets greater than your financial debt, you can always choose to pay your debts with your assets. I would argue that the most dangerous financial situation is running your liquid assets down too far, so it's better to have some debt and keep your liquidity solid.

    As others note, it really depends on what rate you can get a loan and your tax situation.
     

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