Financing Issues

[Knightowl]

I'm a Model 3 reservation holder (stood in line at the local gallery on reveal day morning, in central time zone) and while browsing some inventory on Tesla.com, I found one that struck my fancy and decided I'd really rather go in for an S.

My minimum requirements for purchase are AP2, Premium Upgrades, glass roof or sunroof, and any battery and drive.
My minimum requirements for leasing are AP1 and a low price. I can be happy with any Tesla with Autopilot if I'm just leasing and not fully committed.

So, the inventory car I was eyeing was approximately a new S75 (not D), glass roof, Enhanced Autopilot, and Premium Upgrades, plus paint and carbon fiber interior. After much anxiety I decided that I was ready to do it and started the work of weighing leases vs. loans. Ultimately, I decided that I wanted to buy, so I started applying for financing. I've applied at most of the banks/credit unions people suggest here as well as a few others, but I've not had any luck. The most I've been offered is $50,000 and several of them have just turned me down outright. I've applied for Tesla Leasing also, but they've told me that it'll be several days to get an answer on that and if the loan denials are any indication, it's not looking good. (Tesla Lending isn't available in my state.)

The situation is like this: I don't have a huge amount of savings to put toward a down payment, but I'm absolutely good on a monthly payment of $1,000-1,200. The problem is--according to some who have denied me--that my credit "experience" is too low, i.e., I've never taken out a loan this large before and the loans I have taken were too small and short. 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.

As an aside, I also looked into taking over a lease via some of those lease swapping sites, but I'm afraid I'd run into the same situation where I'd spend the cash to get all the credit check and stuff done then end up being denied anyway.

So I know there's plenty of advice like "just save up more" or "just wait until later/wait for the 3/whatever" or "be less picky and get CPO". I don't want to compromise if I'm going to spend this much cash to begin with. In this case, I feel like I really can afford this and it's not an unreasonable risk--do I really not have any options?

I had similar issues a year ago when I bought my model s, turned down twice for no better reason given than that I was too young, hogwash. The 3rd creditor I tried had no issue financing the loan for me though, so at least somone was feeling like making money off a loan to me.

 

[Zaphod]

Keep in mind, if you go with lease, you will be responsible for taxes on 100% purchase price due to our lovely state of TX. Most states only tax the portion of the value for the lease term for the 3 years (or whatever lease term) which could amount to few thousand dollars, maybe $2000. In TX, you could be looking at $6000 plus depending on how much the car costs.

Other manufacturers subsidize or offer tax "credits" in TX to go past this otherwise no one would lease in TX. Tesla definitely does not do this, so you are stuck bearing 100% of the tax. And keep in mind this is due right as signing. And you will not get the $7500 tax credit either as Tesla and its lending partners do not pass that through to the leasee.

All things to consider. Good luck.

 

[whttiger25]

Keep in mind, if you go with lease, you will be responsible for taxes on 100% purchase price due to our lovely state of TX. Most states only tax the portion of the value for the lease term for the 3 years (or whatever lease term) which could amount to few thousand dollars, maybe $2000. In TX, you could be looking at $6000 plus depending on how much the car costs.

Other manufacturers subsidize or offer tax "credits" in TX to go past this otherwise no one would lease in TX. Tesla definitely does not do this, so you are stuck bearing 100% of the tax. And keep in mind this is due right as signing. And you will not get the $7500 tax credit either as Tesla and its lending partners do not pass that through to the leasee.

All things to consider. Good luck.

Wow didn't realize that... I wa speaking from California experience. And tesla not passing the 7500 rebate on...that sucks. Good for tesla I guess...

 

[sdorn]

Wow didn't realize that... I wa speaking from California experience. And tesla not passing the 7500 rebate on...that sucks. Good for tesla I guess...

On Tesla leases the $7500 tax credit is added to the residual value, so it does reduce the lease payments but you lose the benefit if you decide to buy the car at the end of the lease.

 

[hitparader]

Do you have any retirement bonds/ira that you could pull a down payment from and use the tax credit to help cover the penalty? Or even better get a line of credit against and own the title the day you take it home?

 

[kort677]

Do you have any retirement bonds/ira that you could pull a down payment from and use the tax credit to help cover the penalty? Or even better get a line of credit against and own the title the day you take it home?

this is terrible advice! do you realize that there are severe tax consequences for pulling money from ira or retirement accounts?

 

[whttiger25]

this is terrible advice! do you realize that there are severe tax consequences for pulling money from ira or retirement accounts?

You could take a loan from a 401k account penalty free but it is just a horrible thing to do to buy a tesla....

 

[ChrgdTeCHick]

I would call around to CU's before pulling anymore credit and see their requirements. You are hurting your score every time you do, not just your score, but inquiries. Banks are strange with credit. I'll give you my journey with Tesla loan if it helps.

You mentioned 800sh credit and DTI of 20-30%. Is the DTI your current or what it would be with the Tesla loan? If not, then that's very, very likely why combined with little history. Although even 35% DTI can get approval (my story)

When I called around looking for the best rate hypothetically having perfect credit, one CU said as long as the credit score was above a certain level (700sh) proof of income isn't needed (although you likely still have to give them income info, but maybe not). The one Tesla uses also doesn't ask for proof of income in either all or most cases. They told me I wouldn't need to if my score was over 720. Those may be more lenient on your credit history as long as the income (and likely DTI too) is what they want to see.

My CU was tough even though I refinanced my mortgage with them to reduce my rate (got their lowers available at the time of 2.5%) and my loan to 15 years and they have 10+ years of biweekly deposits of my paychecks from the same company. Before the application even made it to a loan officer I was getting doubtful comments (assumptions I'm assuming). For starters I'm in my late 20's and I'm certainly not wealthy. They first said it's the highest car loan I've asked for. I also asked for a higher loan amount to find out their max they would give me with a sole signer just in case I end up higher than planned. This actually put my DTI at 35% (using one source of income on the application), second red flag for them. They pushed it through to the loan officer, pulled my credit, came back at 846, and when I submitted proof of income (after they told me they already reviewed all my payroll deposits ) I was approved same day no down payment required.

Credit history: Zero missed payments, with 3-4 car loans in the past that are paid off, no other debt but mortgage, a ton of credit cards with $0 balance and a very high credit limit total.

All in all, if you have a bank with a long standing history, request a manual review and what they would like to see for approval. Same with those you have already applied with. You may be dealing with those automatic assumptions like I did. For those you haven't ran credit with, call them and explain before you hurt your credit to run, you want to talk hypothetically. The smaller/less known the bank, the better (small CU's are even better)

Best of luck!

 

[Zaphod]

You could take a loan from a 401k account penalty free but it is just a horrible thing to do to buy a tesla....

Horrible in my opinion would be an understatement in this case

 

[Max*]

Do you have any retirement bonds/ira that you could pull a down payment from and use the tax credit to help cover the penalty? Or even better get a line of credit against and own the title the day you take it home?

Sorry, but this is the worst advice of the thread. Do not use retirement funds to buy a depreciating asset.

 

[Max*]

You could take a loan from a 401k account penalty free but it is just a horrible thing to do to buy a tesla....

Even though it's penalty free, you'd be losing out on a lot of money.

You'd be losing out on the interest the money would accumulate over the next 5 years. The market goes up an average of what, 8%/year historically, whereas the APR on your loan is what 4% (that you pay yourself back with).

So you'd lose 4% on 100k over 5 years. So in 5 years you lose the potential for $25k. Add to the cumulative interest, and in 25 more years, you're looking at a potential loss of ~$173k due to taking a "loan" which you will pay back.

 

[whttiger25]

Even though it's penalty free, you'd be losing out on a lot of money.

You'd be losing out on the interest the money would accumulate over the next 5 years. The market goes up an average of what, 8%/year historically, whereas the APR on your loan is what 4% (that you pay yourself back with).

So you'd lose 4% on 100k over 5 years. So in 5 years you lose the potential for $25k. Add to the cumulative interest, and in 25 more years, you're looking at a potential loss of ~$173k due to taking a "loan" which you will pay back.

Totally agree with your analysis Max. Just to add, anytime you choose to buy something depreciating instead of investing the cash, you suffer the same drawbacks of compounded growth losses, whether from a retirement account or not. The reason it's ESPECIALLY bad to take out of a retirement account is multifold. First, it is a tax-deferred account, yet you pay yourself interest with post tax money, reducing the effective rate of your loan appreciation in the account to more like 2-3% when you factor in the taxes you had to pay on that interest (which you will pay again when you eventually withdraw). Second, you are losing out on compounded growth in a tax deferred account...that's bad and eliminates the benefit of having the money in that type of account in the first place. Lastly, it's your retirement! If you aren't saving there, you aren't saving anywhere. Don't think driving a Tesla now should be worht working an extra 5-10 years. If you need to take money out of a 401k to buy a car, that means you certainly aren't on track to retire early (if you were making a ton of money such that you could retire early, then you wouldn't need to touch a retirement account in the first place), you aren't good with managing your money, and if you keep it up, you'll be working at McDonalds when you are 70.

The ONLY time it makes sense to take a loan out from your 401k is to help with a down payment on a house which you can certainly afford long term. This is because the home should appreciate in the long term, and you can multiply your leverage on top of that expected appreciation to make the loan cost well worth it.