Cash vs Financing

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.

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.

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.

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.

bryenz said:

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.

Click to expand...

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

- - - Updated - - -

ghost640 said:

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!

Click to expand...

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.

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

silentlibrarian said:

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

Click to expand...

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.

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.

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.

JohnQ said:

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.

Click to expand...

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:

GoBlue88 said:

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:

Click to expand...

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!

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.

astrotoy said:

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.

Click to expand...

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

tiblot said:

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

Click to expand...

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.

bryenz said:

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.

Click to expand...

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

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.

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.

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.