Financing Issues

[Max*]

" Additionally, the monthly payment I'm willing to go in on is easily doable for me, but it's my understanding that they're looking for 10-15% of income as monthly payment, which mine is closer to 20 or 25%. As I said, the max up-front out-of-pocket I can realistically stomach is small (10k or less), so reducing the price with a down payment is not an option."

Can he?

Everyone has priorities.

Some people want a Tesla over a big house/apartment.
Some people want a Tesla over traveling.
Some people want a Tesla over sending their kids to college.
Some people want a Tesla and are willing to sacrifice eating Ramen noodles for the next 6 years.

Some of these are tongue-in-cheek, but you get the point. Even if the OP spends 20%-25% of his income on the Tesla, he can "afford it" if he's willing to sacrifice in other areas. He just doesn't fit the banks models of what a good debt holder looks like.


I'm not saying that spending $80-100k on a depreciating asset which will eat 25% of your discretionary income is a smart decision. i'm saying he can afford it and has his own priorities, and we shouldn't judge.

 

[Brandon332]

That would also reduce his DTI.

You can claim:
-Investment returns (if you have anything significant)
-Rental income
-Spousal income, if you cosign
-etc.

@Tatsumaru these are what I would suggest and was referring to. I wouldn't suggest or ever advise to lie about income, but in many people's cases, there is additional income that is expected annually that often isn't considered at first, but can legitimately be added to their total income. It's worth closely considering whether there are things (like your annual bonus) that you can add to annual income.

 

[tsukiakari]

" Additionally, the monthly payment I'm willing to go in on is easily doable for me, but it's my understanding that they're looking for 10-15% of income as monthly payment, which mine is closer to 20 or 25%. As I said, the max up-front out-of-pocket I can realistically stomach is small (10k or less), so reducing the price with a down payment is not an option."

Can he?

Point is that I have a decent steady stream of income, but not a huge chunk of savings or other liquid assets.

 

[kort677]

I'm not saying that spending $80-100k on a depreciating asset which will eat 25% of your discretionary income is a smart decision. i'm saying he can afford it and has his own priorities, and we shouldn't judge.

what he might be leaving out is how is his credit rating? what other debt load is he carrying, his income to debt ratio may not be within their parameters.
banks are in business to loan money and they will usually only deny to loan because of those two reasons amongst others.

 

[tsukiakari]

what he might be leaving out is how is his credit rating? what other debt load is he carrying, his income to debt ratio may not be within their parameters.
banks are in business to loan money and they will usually only deny to loan because of those two reasons amongst others.

I mentioned this in a previous post: credit score is north of 800 and DTI ratio is about 25-30%, so what other are saying is accurate. I can afford it. It might not be the smartest thing in your opinion, but I desire this car more than I desire a fancy house or apartment and am willing to forego other things to have it.

* Like a few folks have said, I just don't fit the banks' traditional bill of being "safe" in terms of lending.

 

[whttiger25]

Everyone has priorities.

Some people want a Tesla over a big house/apartment.
Some people want a Tesla over traveling.
Some people want a Tesla over sending their kids to college.
Some people want a Tesla and are willing to sacrifice eating Ramen noodles for the next 6 years.

Some of these are tongue-in-cheek, but you get the point. Even if the OP spends 20%-25% of his income on the Tesla, he can "afford it" if he's willing to sacrifice in other areas. He just doesn't fit the banks models of what a good debt holder looks like.


I'm not saying that spending $80-100k on a depreciating asset which will eat 25% of your discretionary income is a smart decision. i'm saying he can afford it and has his own priorities, and we shouldn't judge.

Advice and judgement are certainly different things. I'm just offering my humble opinion.

Here's some context. When I was 16, my grandfather purchased for me a reliable honda civic. Great car. The moment I graduated college in 2005, and got a job making $60k a year (in the bay area), I felt rich, and went and bought a $27k subaru impreza wrx sti. Great, great car. However, I had NO savings. I basically had $2k to my name at the time, the $5k I got selling my civic went into the down payment on my 9.99% (!) car loan, and I had $2k cash remaining. I had my income, sure, but over the next 2 years, I barely saved anything, I had $1200 in rent, bridge tolls every day, gas on a 50 mile commute, utilities, costs of living an early 20s lifestyle in San Francisco... By 2007 I had $10k, and about 20% of my car (now worth 18K), to my name.

After 2 years, I sold the car, and bought something practical - a ford escape hybrid, which was cheaper to own, got great gas mileage, had low service costs, tires lasted 60k miles instead of 20k, much cheaper maintenance costs overall, and allowed me to do my trips in the snow and mountains.

Looking back, I probably could have kept my civic another 8 years. I've done the math and I'd probably be worth about 30% more now. I would have had significantly more money to play with during the financial crisis, as an example. I remember wanting to buy SIRI at 8 cents, but not having any cash to do it. Check it out now. It was in 2012 that my income really stepped up, and that would have been a good time to think about upgrading the car as well.

I just see the OP stretching to make this car work, and that's how I felt with my Subaru. I had to stretch to make it work. After 2 years I was stressed out about paying $4.75 a gallon for premium gas on a car that got 17mpg (this was 2007). Life with a nice car is so much better when it doesn't cause stress. I wonder if this $1200 car payment, plus rent, will actually feel as stress free as the OP says it will, after 3-4 years of it?

The ironic thing for me is, I actually should have kept the '04 STi, as it's become somewhat of a collectors car and it worth about what I sold it for in 2007.

 

[kort677]

I mentioned this in a previous post: credit score is north of 800 and DTI ratio is about 25-30%, so what other are saying is accurate. I can afford it. It might not be the smartest thing in your opinion, but I desire this car more than I desire a fancy house or apartment and am willing to forego other things to have it.

I didn't offer an opinion. I just stated that there are possibly variables that have not been brought to light.
If you are interested in my opinion, it is that if you need to stretch your income like this to afford a higher end purchase maybe you need to think about what your priorities are. I know that is not what you want to hear but being fiscally responsible is something many people have issues with.

 

[Oyinko]

I mentioned this in a previous post: credit score is north of 800 and DTI ratio is about 25-30%, so what other are saying is accurate. I can afford it. It might not be the smartest thing in your opinion, but I desire this car more than I desire a fancy house or apartment and am willing to forego other things to have it.

* Like a few folks have said, I just don't fit the banks' traditional bill of being "safe" in terms of lending.

While you might swallow the monthly payment, please take into consideration your global situation. Do you have have an emergency fund that will allow you to face unexpected medical bills or even a layoff at your company? If yes, great, spend your income on a Tesla but don't put yourself at risk because you want a fancy car.

 

[whttiger25]

Point is that I have a decent steady stream of income, but not a huge chunk of savings or other liquid assets.

And my point is, in order to afford a car like this, you really need a decent chunk of savings and/or other liquid assets. At least, if you want to be smart about it and think about your very long term future. How old are you?

EDIT: Thinking about it, whether the OP is old or young doesn't matter. If older, then he needs to catch up on savings, and if younger, he's squandering massive opportunity by not saving.

 

[chris5639]

I believe you're being turned down because of debt to income ratio. When I first got out of college and tried to buy my first home, I faced the same situation. I had the 20% down payment in cash, I knew how to manage my finances, what I was willing to sacrifice to get the house I wanted. That threshold was 40%. I asked the banks, "why would I need 60% of my income to go to something other than housing!?! And yet, I was turned down. It was a black and white decision by the banks.

I don't think you mentioned whether you needed a car right away. If not, why not start saving up for the down payment? If you're good with the $1,000 - $1,200 monthly payment, you should be able to save up for a down payment in no time. It is a great test run of whether or not you can make the payment.

These cars aren't going anywhere and will only get better from here. And the inventory for nice, lightly used, Teslas will only go up over time. The only argument against this approach is the phase out of the $7.500 federal tax credit. However, I think you're safe until at least the end of Q2 of 2018. That's a year from now. By then you'll have at least $12,000 for a down payment if you start saving now.

 

[wwu123]

The OP didn't really say that he could afford the car in beginning, but rather that he could definitely afford a monthly payment of $1000-1200 a month. Which may be certainly true right now, but is that going to be true for the entire next six years of a loan? That's the difference between the two. OP sounds relatively young; has he been working long enough to go through an economic downturn, and know that his industry is one that is relatively robust during such periods? Does the OP plan to go through other life events that folks typically go through in the late 20's/early 30's, like moving into a nicer rental, getting married, or buying a house, all of which typically increase expenses or debt? Although I'd say credit history is lacking, the agencies seem to be OK to give a 800+ credit score. So more a matter of employment history and DTI.

But here's one suggestion I haven't seen. Why not forgo EAP in the beginning, that'll cut $5000 off the amount to be financed. You can always add that later when you've built up extra savings and know you won't need it for emergencies, and it'll only cost an extra $1K for the flexibility. If it's between not getting the car at all, vs getting the same car with EAP gratification delayed a few years, I'd go for the latter. Heck, you can use the $7500 federal tax credit refund check, when you file your returns next year, to pay for the EAP within six months, without saving up anything at all.

 

[xyeahtony]

If your annual salary is the price of the car, its going to be tough unless you have no debt. You want your income/debt ratio to be less than 40%.

I make 180% the cost of my car in annual salary and have a 765 FICO and still had a hard time getting approved. PenFed ultimately gave me a shot.

 

[dgpcolorado]

I believe you're being turned down because of debt to income ratio. When I first got out of college and tried to buy my first home, I faced the same situation. I had the 20% down payment in cash, I knew how to manage my finances, what I was willing to sacrifice to get the house I wanted. That threshold was 40%. I asked the banks, "why would I need 60% of my income to go to something other than housing!?! And yet, I was turned down. It was a black and white decision by the banks...

I think it might be age and a short credit history. My income is microscopic, less than half of the size of my car loan, but a long credit history, including a previous car loan with the same bank, and an 800 credit score, made qualifying for a big car loan at a decent interest rate quite easy, although I was limited to five years. In my case I'm paying for the car out of savings, so income and DTI are irrelevant. For the OP, with a young age and a short credit history, it likely matters a lot. It depends.

 

[tsukiakari]

Thanks for the advice and sharing in my agony with me. I was approved for Tesla Leasing so I'll have my Model S in a couple weeks!

 

[whttiger25]

Thanks for the advice and sharing in my agony with me. I was approved for Tesla Leasing so I'll have my Model S in a couple weeks!

Probably the best outcome. You're limited to 3 years of payments instead of 6, and you can always buy the car at the end of the lease if the residual is attractive.

 

[whttiger25]

Thanks for the advice and sharing in my agony with me. I was approved for Tesla Leasing so I'll have my Model S in a couple weeks!

My advice on leasing - put the absolute minimum down - never pay down capital value to reduce your payment. If you need to get out of the lease, it's likely to be a loss, and if you are in a total loss accident, also likely to be a loss. With a lease you want the lowest initial down payment possible.

 

[bonaire]

How about Used or CPO? Leasing means you give the car back in maybe 3 years. Then what? Buy another one? With the income situation of the OP, a mid-miles used 75 saves a ton off brand new and he can drive it for years and own it. Loan officers from your bank usually "will work with you" and offer the right loan APR for the credit situation. The danger of a brand new car for the OP is what happens if totaled when in the first year or two without gap insurance...

 

[Err0r]

Did you try Alliant? My credit union that I have been with for over a year with my current BMW loan denied me because I have never had history with an automotive vehicle with that price tag basically.

I applied with Alliant and they approved me for 105% of purchase easily.

I would recommend putting at least the $7500 down as your getting that back at the end of the year anyways.

Good luck from Austin, TX

 

[whttiger25]

Did you try Alliant? My credit union that I have been with for over a year with my current BMW loan denied me because I have never had history with an automotive vehicle with that price tag basically.

I applied with Alliant and they approved me for 105% of purchase easily.

I would recommend putting at least the $7500 down as your getting that back at the end of the year anyways.

Good luck from Austin, TX

You can actually get that back as fast as you pay federal taxes, bump up your allowances to pay $0 federal from your paychecks until you save $7500. Then when you do your taxes next year, you owe $0.

As always, consult your own tax planning professional as your situation may be different.

Also, just to be clear, when leasing the tax credit goes to Tesla (who uses it to reduce capital cost and thus your monthly payment), so if you are leasing DON'T do this.

 

[Err0r]

You can actually get that back as fast as you pay federal taxes, bump up your allowances to pay $0 federal from your paychecks until you save $7500. Then when you do your taxes next year, you owe $0.

As always, consult your own tax planning professional as your situation may be different.

Had no idea. Good info, thanks!