Tesla Financing Questions

[OldSenileGuy]

I've never financed a car (or anything other than credit cards) before, so I had a few questions about the financing structure that Tesla uses, and their website hasn't really been helpful.

Basically, in doing my research I've found that some type of car loans are calculated by tallying up all the interest you will pay over the life of the loan, and then dividing up that number plus the principle over the length of the loan. The advantage (for the bank) of this method is that it guarantees that the person paying the loan will pay the full interest amount, regardless of whether or not they make larger payments to finish up the loan earlier.

Is this the way the Tesla loan works, or is it like a more traditional loan? I was planning to occasionally make additional payments towards the principle and therefore reduce both the number of payments I'll have to make and the amount of interest I'll have to pay. I'm hoping this will be possible.

I know that the Model 3 APR and loan information isn't readily available yet, but I figured people that have financed Model S or Model X can answer these questions, as the answer is likely to be the same.

 

[untilcomplete]

I don't think that is how auto loans work. If you pay into the principal, your loan term won't decrease, you will just pay less monthly. That is of course unless you completely pay the loan off before the term ends.

 

[internalaudit]

For Honda and Toyota financing, we can prepay and that will reduce the interest paid over the term. It will shorten the term when there's no more principal or interest to pay down.

I doubt Tesla's will be different.

Just noted that on top of the $1k, we may need to put down another $2.5k and that's long before we find out from Tesla Financing if we get a loan approval or not (30 days before delivery). I'm basing this on what (little I admit) i know about the S and X ordering and deliveries.

Our credit scores are decent and we've been approved by Honda and Toyota before but we did get a loan approval before we committed to making any payment. Just one more thing to keep in mind.

 

[WileyTheMan]

For Honda and Toyota financing, we can prepay and that will reduce the interest paid over the term. It will shorten the term when there's no more principal or interest to pay down.

Almost hit Reply when this popped up. Yeah that's how our Honda financing went. We paid it off early by overpaying the monthly installments (which goes into the principle).

 

[OldSenileGuy]

Seems like I'm hearing conflicting information. If I pay higher than may scheduled monthly payment, will they:

A) Keep my same scheduled monthly payment amount, but reduce the term of payments I have to make. (Therefore if my monthly payment is $500, and one month I make a payment of $1000, that's one fewer month I have to pay.)

OR

B) Keep my same loan term, but recalculate my monthly payment to be a little bit lower based on the amount left to pay divided by the term left on the agreement? (So that If I have 10 months left to pay $5000 at a rate of $500/month, and I make one lump $4000 payment, they recalculate my payment to be $100/month.)

Obviously if it's option B, I can still finish the loan early by paying off the whole thing, but it becomes a question of whether or not paying early reduces my monthly payment or not.

 

[untilcomplete]

From my experience, it's the second choice

 

[Dr. J]

It depends on what the loan docs say. I have no firsthand information, but I found this FWIW:

@sssb2000 - no prepayment penalty (it's written in their loan docs). That was one of my first questions too

Source: Best available financing options | Tesla

Prepayments are generally handled the way @internalaudit outlined: your principal balance declines by the amount of the prepayment. Your monthly payment amount won't change, but your loan payoff date will arrive sooner. Of course, if someone with firsthand information shows otherwise, I'll be proved wrong.

 

[kengchang]

Pre-payment (Extra Principal payment) shorten your loan repay period, thus reducing the interest paid on the tail end.

 

[timk225]

I have a good score (730 FICO), so I can't imagine not getting approved for the loan, but I still don't like the idea of putting down $1000 then $2500 more. Does any other car company do that, unless it's a very fancy or expensive model?

 

[siggyfreud]

I have a good score (730 FICO), so I can't imagine not getting approved for the loan, but I still don't like the idea of putting down $1000 then $2500 more. Does any other car company do that, unless it's a very fancy or expensive model?

It's still a small company relative to other makers, and can't afford to have a bunch of unsold inventory. They only want to build a car for someone serious about the purchase. The $2500 is good faith money really.

 

[internalaudit]

I have a good score (730 FICO), so I can't imagine not getting approved for the loan, but I still don't like the idea of putting down $1000 then $2500 more. Does any other car company do that, unless it's a very fancy or expensive model?

This is actually my concern too and brought it up on TMC before, especially in Canada where bank auto loans are going to be at least 6% while Tesla's (partnership with two major banks) currently show 1.9% even over eight years. Tesla should do something like a pre-approval so that if we are still gainfully employed by the time delivery is 30 days away and our financial status hasn't really changed, there should be no reason to decline us down the road. Of course the 1.9% is made possible because Tesla wants to move S and X and perhaps for the 3, the rates may be slightly higher.

If I go with a 3, I may just prepay our Toyota RAV4 loan at 1.49% since by then, there may only be 12 payments remaining.

I sure am not paying 6% interest on any vehicle. That would be plain foolish.

 

[DR61]

I have a good score (730 FICO), so I can't imagine not getting approved for the loan, but I still don't like the idea of putting down $1000 then $2500 more. Does any other car company do that, unless it's a very fancy or expensive model?

I rarely do loans of any sort, but I can't imagine NOT putting down at least 10% or more cash on the purchase of anything.

 

[internalaudit]

^ I would actually not mind paying some down payment, even 10-15% if I can get that 1.9% interest over eight years.

 

[Runt8]

Every car loan I’ve ever seen works similar to a mortgage loan. The interest in amortized so that you pay more interest up front, but each month as you pay off principal the amount that goes to interest is less. Your monthly payment stays the same but the amount going to interest vs principal changes.

Assuming there’s no terms preventing prepayment, any extra you pay goes directly to principal so the next month the interest is calculated on a smaller principal amount. This will shorten the length of the loan and cost you less in interest over the life of the loan but the monthly payments stay the same.

In most cases the only way to change the monthly payment is to refinance.

 

[yodrak]

I've never heard of a loan - car or otherwise - where pre-payments decrease the subsequent monthly payment amounts rather than decreasing the number of payments remaining. If some people have had such loans then I accept that they exist, so check in advance how pre-payment will work with the lender that you are considering.

 

[Keith909man]

I just financed a model S today so I can give a little insight. Tesla doesn't have their own bank like Toyota any other does. When ever you apply through their website, they shoot your app to their partner banks they are working with to get the best bid. Alliant Credit, US bank and I can't remember what the other two were. So there's nothing special or different tesla does far as Financing because they use a regular credit union. Then you wait till the tesla rep calls you to to tell you what you got approved for based on only those few banks.

If you don't get approved through any of them. No worries. Just like any other car, you can use what ever bank you want of your choice and try your luck there. You don't even have to apply at all using Tesla's site. You can go straight to one of their partner banks and apply exclusively with them.

Now, this is how I did it.
I applied to PenFed credit union because 1. We used them in the past and got a great rate 2. They use Equifax Fico 9 scoring which was our highest scoring (810) got approved for up to 60k with 110% LTV. But we needed more since our model S came to 90k. So we applied directly to one of Tesla's partner banks Alliant credit union. They used Transuion (not sure what scoring model) and they rated our credit at 730. But approved us for up to 85k with 90% LTV.... lower score but more money then PenFed? I don't get it either lol
So we went with them. We only used 80k of their loan and paid the rest from our account. Side note: they don't accept credit card payments, only check or bank transfer for the remaining.

Again, you can use any bank or credit union you wise. I do believe there are a few banks that do Tesla loans for some reason so make sure you call the bank and ask before applying. The more cash down, there better because some banks don't like to finance 100% of it.

Also, PenFed approvals are good for 90 days! Alliant is good for 45 days before you have to reapply. Hope this helps!

 

[Keith909man]

^ I would actually not mind paying some down payment, even 10-15% if I can get that 1.9% interest over eight years.

Incorrect. Right now their lowest rate is .99% with Alliant credit union for well qualified buyers... but that expires this month. It's .99% for 72 months and if you go any longer, the rate goes up

 

[gambit48]

your principal balance declines by the amount of the prepayment. Your monthly payment amount won't change, but your loan payoff date will arrive sooner.

Pre-payment (Extra Principal payment) shorten your loan repay period, thus reducing the interest paid on the tail end.

Yeah, that's how it was with our Honda and Lexus/Toyota payments (the most recent ones, and we happened to prepay a bunch at the end). It just reduced the time period, but not the monthly amount.

I haven't heard of OP's option 1 with a loan from a major car manufacturer's finance arm. That's more of a sketchy loan terms from a home mortgage or student loan.

It's still a small company relative to other makers, and can't afford to have a bunch of unsold inventory. They only want to build a car for someone serious about the purchase. The $2500 is good faith money really.

Yeah, I view it as good faith money. You're ordering a custom car. Typically, if you do that at a dealership with another car manufacturer, the dealer will ask for a nonrefundable deposit as well. I have heard of the occasional dealer who doesn't ask for a nonrefundable deposit, but that's really rare it seems. They don't want to be stuck with a car in a combo that no one will buy for a while. Tesla, not having dealerships, is sort of in the same situation. The cars are hot enough and the M3 is limited in options enough that this wouldn't be a problem, but that won't always be the case. Policy makes sense for them.

 

[tpatana]

Some loans actually have that crazy rule about paying early. So basically if you pay faster than initially intended, you have to pay "early payoff fee" which is basically the interest you would have paid if you went by the plan. The bank gets the intended profit, regardless of how fast you pay.

I think at least WA state prohibits that, if you pay early it'll decrease the total amount you pay over the loan as the interest goes down.

 

[internalaudit]

Incorrect. Right now their lowest rate is .99% with Alliant credit union for well qualified buyers... but that expires this month. It's .99% for 72 months and if you go any longer, the rate goes up

Is that Allian CU rate through Tesla financing?

I live in Canada and Telsa only partnered with two major banks and from the MyTesla portal it is showing as 1.9% for eight years and maybe a little lower for four and below.