Financing decisions

[Crispix]

Ok, need to come up with a chunk of money. I have options, just wondering what others are doing.

1. Buy the car outright. I can come up with the cash, but interest rates are so low it seems silly to not take advantage of the time-value of money and keep more of my savings invested. This isn't really an investing strategy question, but it comes into play.

2. Finance some or all through a credit union for lowest rates (1.74% at PenFed, and I'm a member already). Make payments. Drive car. Use cash saved to buy TSLA.

3. Finance about half through Tesla or whoever they partner with. Sales rep told me rate is a bit over 2% right now and has the guaranteed residual value and all that. He said I only need to make payments for 6 months to qualify for the guaranteed residual value. Then I can either pay off the car or presumably refinance to my credit union. I suspect the rates will not be as good when that time comes.

Any suggestions? Option 2 seems to make the most financial sense, but Option 3 has peace-of-mind. Is the guaranteed residual value worth the extra $ for option 3? I plan to keep the car a long time. On the other hand, this car is new technology from a new company, so it does offer quite a bit of peace-of-mind. I'm leaning towards option 3 and the higher rate could be mitigated somewhat by financing a smaller amount.

Thanks, comments appreciated.

 

[SCW-Greg]

I agree with your options 2 and 3. So you might also consider...

Alliant Credit Union is at 1.49%.

Finance a minimum of $30k with the Tesla program and get a guaranteed resale value on your car of 50%. Interest rates quoted at 2.95, but many have achieved rates much lower... around 2.29% I believe. True Cost of Ownership | Tesla Motors

 

[johnnyS]

We have had our model S since December and we have 9000 miles. This car is a keeper, plan on keeping it for 8 years and don't worry about the residual value. The longer you drive it, the more economic sense it makes.

 

[cybrown]

Don't know what's best for you, but here are a couple thoughts that I considered.

First of all, having offers in hand from Alliant, PenFed, and others will let you negotiate the Tesla rate (which is actually Wells Fargo and some other lender, if I recall correctly). I think some people on the teslamotors forums have gotten rates as low as 1.99.

Second, I heard it suggested that if enough people finance through Tesla, it will affect the secondary markets anyway, so you might still benefit from the Tesla guarantee even if you don't finance through them. Note this isn't true if for some reason the car has lots of problems in the future, AND Tesla doesn't go bankrupt from it, so there is no secondary market but Tesla can still pay the guarantee. I find this scenario unlikely.

 

[dhrivnak]

Personally I hate debt. It is an annoyance I prefer to do without. So I would pay most, if not all in cash. Yes rates are low but there is a peace that comes with owning something with no strings attached.

 

[TeslaSinHR]

In at the end of the day, you have to feel comfortable with your decision, understand the trade-offs and sleep at night.

First off, buying TSLA stock is a pretty risky thing to throw into the equation, IMHO. If you want to buy TSLA, do it as a separate independent decision - not something that depends on or influences how you finance this car. Financial and peace-of-mind consideration would be to buy some fixed income security that pays more than 1.74% (after taxes).

Also, think about option #3 this way - any additional cost you incur between Tesla financing (option #3) and either #1, or #2 should be considered the price of insurance. But the loss you are insuring against is only the difference between but what your car would sell for 36-39 months from now and 50% of it's value. So if the new car price is $90,000, Tesla says they'll buy it back for $45,000. If you think you could sell it for say $35,000 (of course we don't know for sure), you are really just insuring yourself against a $10,000 loss - only only during that 3 month window. If this gives you a warm, fuzzy then do it.

If I decided I didn't want the car 2 years in, I would try to sell it right away rather than wait another year. If I decided I didn't want it 3 and a half years later - oh - it's too late now. I think if Tesla offered a sliding scale and longer buyback window (like 12-39 months), it might be more compelling.

Good luck! FWIW - I am financing 90% of my car through Alliant Credit Union for 72-months at 1.49%. I could pay it outright but my diversified investments have been returning about 4-7%.

 

[Crispix]

First off, buying TSLA stock is a pretty risky thing to throw into the equation, IMHO.
[...]
Good luck! FWIW - I am financing 90% of my car through Alliant Credit Union for 72-months at 1.49%.

I was sort of joking about the TSLA. I agree completely.

I didn't realize the guaranteed buyback window was so narrow. Alliant's rates look super attractive: 1.5% seems like a no-brainer, thanks! At what point did you apply for the loan? Once the car was in production, or only when you were in the delivery window?

- - - Updated - - -

At what point did you apply for the loan? Once the car was in production, or only when you were in the delivery window?

Um, nevermind, I found your earlier post with the gritty details. Thanks!

 

[Vicelike]

Value of a " Put "

The buy back is a guarantee that you can put the car back to Tesla for no more than what you have invested.... down payment plus 36 monthly payments. This makes the purchase an effective 36 month lease of the car. At the end of the period either walk away or sell it at a better price if you can or.... what I plan to do.... Lease at 2016 top of the line for the next three years.

This hedges your position against poor resale value due to poor reputation of old car or great reputation/price structure of new 2016 car.

What is it worth? I would say about $5,000.

 

[Colasec]

The buy back is a guarantee that you can put the car back to Tesla for no more than what you have invested.... down payment plus 36 monthly payments.

That's true only if the loan term is for 36 months, right? The guarantee contract says that the car needs to have a clear title - doesn't that mean that the loan needs to be paid off before Tesla can buy it back?

My understanding is that if I buy an MS for $100K with $10K down and a 2% 72-month loan and sell it back at 36 months, I still have to pay off the full amount of the loan before selling it back. So it costs me more than just $10K + those 36 payments - I have to cover the full cost of the car before selling it.

 

[AlMc]

Crispix.....As many have noted, it is a personal decision about whether you want the buy back guarantee or not. It is a form of insurance. I did go for it because while I love this car and believe in this company...you never know. But, again, that is a personal decision.

What I can tell you as a fact: If you are willing to put down 40-50% you can get 1.99% financing through the TM program banks. I did.

Good luck with your financing decision.

Another fact: Regardless of what you choose...you will love the car.

 

[Vicelike]

That is a good question. First I don't think you can get a 72 month loan with 10% down.... needs to be 15%. I do think, they are promising to buy the car back for down payment plus 36 months of regular payments. I will double check to see if I got that right.

Not a lawyer but if above is true, would you not have clear title if you assigned your Tesla payment to the bank to fulfill the remainder of your loan?

- - - Updated - - -

That's true only if the loan term is for 36 months, right? The guarantee contract says that the car needs to have a clear title - doesn't that mean that the loan needs to be paid off before Tesla can buy it back?

My understanding is that if I buy an MS for $100K with $10K down and a 2% 72-month loan and sell it back at 36 months, I still have to pay off the full amount of the loan before selling it back. So it costs me more than just $10K + those 36 payments - I have to cover the full cost of the car before selling it.

That is a good question. First I don't think you can get a 72 month loan with 10% down.... needs to be 15%. I do think, they are promising to buy the car back for down payment plus 36 months of regular payments. I will double check to see if I got that right.

Not a lawyer but if above is true, would you not have clear title if you assigned your Tesla payment to the bank to fulfill the remainder of your loan?

 

[Vicelike]

That's true only if the loan term is for 36 months, right? The guarantee contract says that the car needs to have a clear title - doesn't that mean that the loan needs to be paid off before Tesla can buy it back?

My understanding is that if I buy an MS for $100K with $10K down and a 2% 72-month loan and sell it back at 36 months, I still have to pay off the full amount of the loan before selling it back. So it costs me more than just $10K + those 36 payments - I have to cover the full cost of the car before selling it.

Here is what the web site says about Tesla financing.....

Working with some of the largest and most respected banks in the country, Tesla has been able to create a financing product that combines the surety and comfort of ownership with all the advantages of a traditional lease.
U.S. Bank and Wells Fargo will finance the majority of Model S. In most cases, federal and state tax credits ranging from $7,500 to $15,000 effectively reimburse your down payment. These incentives are not available with leasing. New Jersey, Washington and DC also exempt sales taxes for electric vehicles.
If you do your financing with Tesla, we guarantee that the Model S will have the top residual value of any high volume premium sedan brand (Audi, BMW, Mercedes or Lexus) after three years of ownership. This means you will receive cash back in three years that exceeds the principal remaining on your loan.

 

[Colasec]

I do think, they are promising to buy the car back for down payment plus 36 months of regular payments. I will double check to see if I got that right.

Not a lawyer but if above is true, would you not have clear title if you assigned your Tesla payment to the bank to fulfill the remainder of your loan?

No, unfortunately I don't think that's right. The resale document is pretty clear about both points:

- They promise to buy the car back for 50% of the base 60 price, plus 43% of options (including the upgrade to the 85 kWh pack).

- "Prior to or in conjunction with our purchase of the Vehicle, you will need to provide proof of ownership and clear title for the Vehicle. To obtain clear title on the Vehicle, it is your responsibility to clear all outstanding obligations with the lender, including any principal amount, late payments, penalties, and other fees that may be due to the lender."

See http://www.teslamotors.com/sites/default/files/pdfs/tesla-resale-value-guarantee.pdf.

Does anyone know more?

 

[gmtom1]

All the press and media interviews that Elon gave when they announced the guarantee definitely make it sound like it's akin to a lease at the end of three years - you go back to TM, they do an inspection, if it's all up to spec, you give them the keys and walk away. Although I agree that reading the guarantee makes it sound like you need to payoff the loan first, I'm pretty sure it's worked out that TM will take care of settling the loan balance with Wells Fargo or USBank. Otherwise, it wouldn't make sense why you're restricted to using those specific lenders. The language about clear title is probably just to protect TM in case for some reason you gave a security interest in the car to another party during the 3-year period or you have other past due balances from late payments, etc.

 

[Cattledog]

Crispix - FWIW as a data point, we bought our S85 outright and refinanced $60K of it through PenFed at 1.49% several months later (I think they are now at 1.79%). The 1.49% terms were too good to pass up, even though we are not debt lovers. Though we haven't done it this way, you could find many, essentially 'safe' investments that yield 1.49% and thus cover the loan interest while protecting the principal. 1.49% is a relatively rare and unprecedented financing opportunity - up to you if it's worth accepting it.

 

[Colasec]

Got some clarity from the Finance team:

Hello Financing Team,

I'm a little confused about the clear title provision in the resale guarantee:


"Prior to or in conjunction with our purchase of the Vehicle, you will need to provide proof of ownership and clear title for the Vehicle. To obtain clear title on the Vehicle, it is your responsibility to clear all outstanding obligations with the lender, including any principal amount, late payments, penalties, and other fees that may be due to the lender."


1. Does that mean that I as the owner need to have paid off my loan before I can sell the car back to Tesla?


2. My Product Specialist said that if I arrange for Tesla financing and sold the car back upon its three-year anniversary, my cost of ownership would be my down payment plus the 36 (35?) monthly payments I'd have made. That statement doesn't really make sense to me since the size of the monthly payments depends on the interest rate and term of my loan - I'd pay a lot less in those 36 months if I had a 72-month term versus a 36-month term. Can you please explain?

Thank you for emailing your question to Tesla Motors. The wording is a bit confusing and I hope I can clarify the situation. If you choose to turn in your Model S from months 36-39 of ownership it will be handled exactly like a trade-in at a regular dealer. We will inspect the car and write a check for the Resale Value Guarantee. In most cases we will be sending a check to the bank to pay off the remainder of the balance on your car which will clear the title.

The Resale Value Guarantee is set up where you should not owe more money on the car than what the Resale Value will give you. The clause is protecting is from the outlier cases where for some reason a customer might owe money on the car (late payments, etc.) and in these cases the customer will have to pay off any remaining balance in order to turn the car in to Tesla Motors.

When it comes to finance terms, we offer a max term of 72 months and if you are approved for it we recommend that you take it because you will have a lower monthly payment and there is no prepayment penalty or penalty for making a higher payment than what is owed monthly. US Bank and Wells Fargo are our partners and US Bank will offer a max term of 72 month and Wells Fargo will offer 60 months both companies offer rates that average around 2.95%.

I hope I have cleared up some of your questions. Please let me know if you have any follow up questions.

Regards,

Sean LaFond

Tesla Auto Finance Team
3500 Deer Creek Road | Palo Alto, CA 94304 p 650.681.6078 | e [email protected]
e [email protected]