Your M3 price vs. your disposable income

[JeffK]

While a car is a depreciating asset, it's sometimes important to get the right car even if that means financing.

Many times you need something reliable if you wish to keep your job, so not just ay car will do.
You need something safe otherwise you could end up with medical bills exceeding what typical insurance pays... or worse, the death of a loved one, in an accident.

It's easy to say, just save up for that particular car that fills your needs, but during this time you still need a job and you still want yourself and your family to be as safe as possible. Getting an auto loan and paying a small penalty in the form of interest is a small price to pay for reliability and safety in the immediate future instead of the distant future, which might be too late.

Sure, there are other cars which might be considered "safe" but as safe as a Tesla?

 

[zenmaster]

For my last car I got a loan with 0.9% APR.

I could've paid cash, but at such a low rate it would've been foolish since I could invest that money in the meantime instead.

That's a good rate. From where, and how many months?

Also, at what interest rate would you consider it better to pay cash rather than invest?

Looking at the market for the past 5 years (e.g. qqq stock - Google Search), you could actually have doubled your money and be driving a free car. So paying cash would have indeed been stupid in retrospect.

 

[insaneoctane]

... So paying cash would have indeed been stupid in retrospect.

Unless of course you invested in any of the MANY stocks that went down.

 

[zenmaster]

Unless of course you invested in any of the MANY stocks that went down.

Generally outliers, just like the stocks that quadrupled or more in value. Speaking of outliers, my favorite investment was the return on the $10,000 invested in Mobileye as a startup. If it was only that easy.

 

[SageBrush]

for the sake of argument, let's assume it has to be the same house and car no matter my financing scenario.

Now you have migrated from a straw man to a false choice fallacy.

 

[SageBrush]

Typically the best negotiating tactic in a dealership is to allow the F&I process to go as it does, contracting on the best stated sales price and ignoring loan quotes. With all that in hand then say you've decided to pay cash. If they will easily accept that offer then you can usually think you got a good finance deal. If not, force the point because you probably got a good sales price.

I've thought about a variation on this tactic:

When the salesperson asks early on, I say loan so that the eventual negotiation is based on a presumption of financing profit even though I know that I will pay the loan off after a few weeks with cash.

I like your tactic better.

 

[jbcarioca]

I've thought about a variation on this tactic:

When the salesperson asks early on, I say loan so that the eventual negotiation is based on a presumption of financing profit even though I know that I will pay the loan off after a few weeks with cash.

I like your tactic better.

Yours works better if they refuse to do the deal with cash.
Some years ago we gamed these options with a group of F&I people and a captive finance company. Given the group, the obvious intent was to maximize the profit. Ever since I have advised my friends about how to reverse the tactics. It's useful to note that Tesla does a a group of preferred banks and they also employ former F&I people in their own operation. Thus the Tesla arrangements often may not be optimal despite their efforts to minimize the issues. If I absolutely had to take a car loan for a Tesla I would get quotes for 1) the Tesla people, 2) a credit union (nearly always the cheapest not-subvened deal), 3) your own bank, maybe.

Generally speaking roughly 3% is among the best prevailing US rates for 60 month new car loans. Very much below that normally will have some strings somewhere.anything below 2% is either subvened or has extra padding somewhere in the purchase price/tradein valuation.

 

[SageBrush]

Sure, there are other cars which might be considered "safe" but as safe as a Tesla?

The extra marginal safety of a Tesla will never come close to any of the following:

1. Do not drive aggressively
2. Do not speed
3. Do not text
4. Do not drive intoxicated

So while I don't mean this a personal attack (knowing your predilection to speed,) the safety justification can easily turn into a rationalization. In anticipation of you saying "I'm going to speed no matter the car, so I should make it a safe one!", the Tesla's increased performance just adds to your risk.

 

[JeffK]

The extra marginal safety of a Tesla will never come close to any of the following:

1. Do not drive aggressively
2. Do not speed
3. Do not text
4. Do not drive intoxicated

So while I don't mean this a personal attack (knowing your predilection to speed,) the safety justification can easily turn into a rationalization.

More worried about the wife driving and people hitting me.

I've had a car totalled before due to someone hitting me.

 

[zenmaster]

Generally speaking roughly 3% is among the best prevailing US rates for 60 month new car loans. Very much below that normally will have some strings somewhere.anything below 2% is either subvened or has extra padding somewhere in the purchase price/tradein valuation.

Lightstream was offering 1.74% for 5yr new car loan only a few months ago. The only string was an automatic withdrawal. However, it still would have been under 2% without the automatic withdrawal. Penfed seems to have one of the best currently at 1.9%.

 

[SageBrush]

Penfed seems to have one of the best currently at 1.9%.

Penfed is simply outstanding. They somehow mix top rates with superb customer service. It is a credit union with restricted membership but a trivial loophole is available to everybody to gain membership.

 

[jbcarioca]

Lightstream was offering 1.74% for 5yr new car loan only a few months ago. The only string was an automatic withdrawal. However, it still would have been under 2% without the automatic withdrawal. Penfed seems to have one of the best currently at 1.9%.

Credit Unions do have the best. Customers with auto debit and/or other business do have better terms. No argument. Even with credit unions it's always wise to check on whether they are indirect or direct. Indirect allows additional dealer profit on financing and/or addition vehicle markups directly. I'm not suggesting these two deals are among those, but to look very, very carefully at the fine print.

Among the best credit unions are the largest. Penfed, I agree with @SageBrush. They also have one of the few really professional Credit Union management teams in the US.

 

[SageBrush]

Even with credit unions it's always wise to check on whether they are indirect or direct. Indirect allows additional dealer profit on financing and/or addition vehicle markups directly. I'm not suggesting these two deals are among those, but to look very, very carefully at the fine print.

I know that Penfed is happy to take over a new car loan started elsewhere at the same great rates so an easy tactic is to let the dealer (not Tesla) win on financing in return for a better car price and then transfer the loan to Penfed.

One does have to be careful that the original loan does not have early pay-off penalties although that type of loan seems to have gone out of fashion from my casual reading on the matter.

 

[Garlan Garner]

I´d never ever loan/finance/lease something. I always buy cash.
And what I can`t afford to buy cash is something I consider not affordable in general for me.

I wonder how much houses cost in Germany.

 

[zenmaster]

Penfed is simply outstanding. They somehow mix top rates with superb customer service. It is a credit union with restricted membership but a trivial loophole is available to everybody to gain membership.

I hear that a lot about Penfed customer service. However, I'm glad I didn't use them for my last loan as I would have wasted (to me) over $200. Apparently, some people would want to "reward" such good customer service by giving them that extra $200, but I don't really understand why.

 

[omgwtfbyobbq]

Now you have migrated from a straw man to a false choice fallacy.

To be fair, I think everyone's playing fast and loose here.

 

[kbM3]

I´d never ever loan/finance/lease something. I always buy cash.
And what I can`t afford to buy cash is something I consider not affordable in general for me.

This is a wise perspective psychologically. However, with interest rates as low as they currently are, you will probably lose out financially vs. investing. Esp. If you invest in Tesla-

 

[zenmaster]

This is a wise perspective psychologically. However, with interest rates as low as they currently are, you will probably lose out financially vs. investing. Esp. If you invest in Tesla-

The people I have asked why they paid cash instead of investing the money typically do not want to risk losing on the investment.

 

[Foxhound199]

Now you have migrated from a straw man to a false choice fallacy.

Not at all. That's because I am defending a much easier position here. You guys are essentially saying that it never makes sense to finance a depreciating asset when you could be financing an appreciating one instead. My claim is not that it always makes more sense to finance, but that in some situations it clearly does. So the burden of my argument isn't to force you into a scenario where my conclusion is always right, I just need to show a realistic scenario where financing a car is advantageous.

 

[jsmay311]

For my last car I got a loan with 0.9% APR.

I could've paid cash, but at such a low rate it would've been foolish since I could invest that money in the meantime instead.

That's a good rate. From where, and how many months?

Also, at what interest rate would you consider it better to pay cash rather than invest?

It was through Ally for buying a Volt in 2012. 60 months. (The final payment is next week! )
I would guess GM was partially subsidizing the rate.

Idk what a smart rate cutoff would be for loan vs cash. That's a personal call. And no one can predict the stock market's performance over the next 5-6 years.

Plus, to pay 100% in cash I'd have to sell some mutual funds, and then I'd have to pay taxes on my gains, which would be kind of annoying (even though I'll have to pay them eventually no matter what).

So I suppose I'd easily accept a 3% rate. Maybe higher.

Unless of course you invested in any of the MANY stocks that went down.

If you like to gamble or like high risk, high reward, short-term opportunities, buy stocks. If you prefer low risk while still getting good returns over the long run, buy low-cost index funds.