Finance bros/Tesla bros - interest rate/term on new vehicle question

[Not DJSapp]

Sorry - ran into a shitstorm. Skimming over the replies, and replying generally my presumptions are:

1. I would not keep the loan for 84 months. As I said in the OP, I am presuming the rates will go down. Yes, this is a PRESUMPTION for purposes of the exercise.

2. I'd rather pay the least cash for a depreciating asset. Someone mentioned a 3-year loan. Why? Wouldn't I be net positive leaving most of the money in the market over the same period? 6% loss on a loan versus 12% gain is a net gain. But this is where I get lost in depreciation/interest. I am missing something here and this is what I am asking about. Maybe 3 years is the sweet spot. Honestly, I am not even sure what I'm trying to accomplish here.

3. I am going to get an electric vehicle. On balance, right now seems to be the best time in history to do that for this or any other EV as far as pricing goes.

4. I know it would be smarter to buy a 12 year old beater with 150k miles and drive it as long as possible. We all know cars are a waste of money, etc. No one ever needs a new car. This is not what I am asking about.

Some counterpoints:

1. The fed had interest rates at nearly 0% for 20+ years. It's time to pay the piper and I wouldn't count on a refi on a car loan at all. Maybe you could get a HELOC and pay off the car loan with that with a marginaly better rate, but you need a home to leverage. And pulling a HELOC to pay off a car is world class stupid (reference 2007 housing crisis).

2. It's a risk analysis. You're taking a loan out on an asset that could become a twisted pile of scrap tomorrow, all it takes is one dipshit running a red light and your shiny new Tesla is an insurance claim that is getting paid out at $0.60 on every dollar you owe. And you'll see that money only after a year of paperwork and BS. Meanwhile you're paying a second loan on another car which is absolutely crippling your personal finances. Further, loans that are longer than the warranty could mean lots of mechanical issues you're paying to fix on a car you don't own, or making it even harder to sell it.

3. Today is good for ev's. Tomorrow might be better. The whole market is trending toward ev's. What is your rush?

How much longer are you paying the loan on your current car? Other than the mpg, why are you so decided on buying a new one?

[climberevan]

I don't think there has ever been a thread with so much agreement in the history of TRG.

[Art Shirk]

Well I think he should bump it up to 96 months and go with a Plaid.


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[Danno]

I don't think there has ever been a thread with so much agreement in the history of TRG.

which means he will ignore all the advice and buy the car with the loan. this is the way.

[bagtagley]

which means he will ignore all the advice and buy the car with the loan. this is the way.

Can we move on to the benefits of fractional ownership?

[dunfree]

which means he will ignore all the advice and buy the car with the loan. this is the way.

Op created a thread to ignore all the advice for the question he’d already answered? That never happens

[Conundrum]

If you really want a car and know there's better financial choices for transportation, who is anyone to tell you what to do with your bank's money?

[Mustonen]

Sorry - ran into a shitstorm. Skimming over the replies, and replying generally my presumptions are:

1. I would not keep the loan for 84 months. As I said in the OP, I am presuming the rates will go down. Yes, this is a PRESUMPTION for purposes of the exercise.

2. I'd rather pay the least cash for a depreciating asset. Someone mentioned a 3-year loan. Why? Wouldn't I be net positive leaving most of the money in the market over the same period? 6% loss on a loan versus 12% gain is a net gain. But this is where I get lost in depreciation/interest. I am missing something here and this is what I am asking about. Maybe 3 years is the sweet spot. Honestly, I am not even sure what I'm trying to accomplish here.

3. I am going to get an electric vehicle. On balance, right now seems to be the best time in history to do that for this or any other EV as far as pricing goes.

4. I know it would be smarter to buy a 12 year old beater with 150k miles and drive it as long as possible. We all know cars are a waste of money, etc. No one ever needs a new car. This is not what I am asking about.

We probably won’t see zero percent fed funds targets for a while. Don’t factor that into your math.

You’re drawing some relationships between the value of the asset and the amount of your obligation that are illogical and twisting you into a pretzel.
1. You’re buying a utility + enjoyment for a period of time that is uncertain, but will probably be at least 4 years.
2. Doing so ties up your cash flow in different ways depending on how you choose to make payments and this cash flow could have been used for other things.
3. You will have a depreciating asset that you can sell at any point. Your optionality might be precluded by your cash position, though, since you’ll need to free up a sum of cash equal to your current obligation to do so.

These three things are not the same things, and any one of them can function independently of the other two without the constraint of liquidity. You also have the same three things with your current vehicle. Also independent of the above three things and each other in the same way.

It all comes down to cash flow over time. You could wait 4-5 years and put those payments into an interest bearing account that earns over 5% and buy the current model of that car with cash, assuming prices don’t go up. You’d save yourself a couple years of payments.

The four years you go without utility+enjoyment are worth something, though. Figure that out and you’ll figure out whether you should do it or not. That’s the only rationalization that actually makes sense.

I honestly don't understand how the maths work out so hopefully some dentists here who moonlight as accountants can explain the nuts and bolts, BUT it has always been my elementary understanding that paying interest on loans isn't near as fruitful as just shoving those same payments into investments, particularly at the higher interest rates you're speaking of for investing. I found this calculator to be interesting and I played with it some, so check it out here:
https://www.huntington.com/Personal/...debt-or-invest
Basically, I ran a 40K at 72 months at 6% w/ zero down vs making the equivalent of that car payment (~$663/month if that's right) right into investments at 12%. Long and the short of it is that during that same span, you can either SPEND over $17K in freaking interest alone (is that right, guys?) over that term, versus making ~$13K in interest at 12%. So even with your scenario of a 6% loss versus a 12% gain, you still end up with a 4K deficit.

Correct me if I'm wrong folks since I'm a total finance jong, and like I said, really don't understand this stuff fully. I just know I like to make interest instead of paying interest if I can help it.

Yeah, that math isn’t working. You’d be net positive over $20k in that scenario, mostly because all payments to investment are 100% principal and your payments to a lender are inclusive of principal and interest.

Not a lot of easy, risk free, 12% investments laying around though.

[MontuckyFried]

I don't think there has ever been a thread with so much agreement in the history of TRG.

Hahaha. Yup! I'm honestly a bit surprised. I think most Americans finance their cars these days. I always figured we were the odd ones but this confirms it. And it has nothing to do with having dentist $$$ either. Just look at me! Few other broke dirtbags here too, so I'm glad I'm in good company.

[Harvey44]

I'll up the ante even further then Nick. Buy an old Prius for $10k. Get 50mpg until the battery dies, then replace it yourself for $2000.

This is our plan except we already own the 2012 Prius. 140,000 miles on it and never had a repair that wasn't caused by driver error. (Lots of dents never a breakdown.)

[exsparky]

I don't think there has ever been a thread with so much agreement in the history of TRG.

Let me add 2 counterpoints then.

I disagree at least in Denver on the peanut gallery's electric cars are great. Denver just banned natural gas HVAC which will cause a massive increase on the electric grid that they can't support. Electric costs will go up massively when added demand hits with all these electric cars. Battery disposal costs are going to skyrocket soon too.

But I did buy an FJ before covid that I'm up about $3k on it still. So I'm yes on buying and but no to always losing money on a car. Therefore I'm only agreeing on 1 of 3.

[big kook]

I think you answered most of your own questions. You want a Tesla so you are talking yourself into it with questionable logic.

No, you ain't arbing you car loan against the market because you don't get cash from the loan, you get a fucking Tesla!

The tooth fairy ain't coming. The world in which you'll refi you loan and "the market" returns 12% appear pretty unlikely according to my magic 8 ball.

So the life advice of living within your means, investing in your self to ensure you have in demand skills, don't put your dick in crazy, understand the value and your mental and physical health, consider buying real-estate probably trumps all that.

If you are generally kicking ass, buy the Tesla (that's what a Tesla signals anyway). Buy own the fact that it isn't a smart financial decision. But that's OK, neither are snowmobiles or vacations or expensive dinners.

But be honest and quit the justification gymnastics.

Sent from my Turbo 850 Flatbrimed Highhorse

No. An electric car. Name an electric car that is a better value. As for the rest of your life advice - I own my home, my retirement is secure, my kid's college is secure, my job is as secure as any job possibly can be.

But you're right. It is not a smart financial decision. I will get a Honda Accord instead. Oh wait. That would actually be more expensive than the Tesla. Ok, never mind that, all of this is a waste of money and I am just going to take the bus.

[big kook]

Some counterpoints:

1. The fed had interest rates at nearly 0% for 20+ years. It's time to pay the piper and I wouldn't count on a refi on a car loan at all. Maybe you could get a HELOC and pay off the car loan with that with a marginaly better rate, but you need a home to leverage. And pulling a HELOC to pay off a car is world class stupid (reference 2007 housing crisis).

2. It's a risk analysis. You're taking a loan out on an asset that could become a twisted pile of scrap tomorrow, all it takes is one dipshit running a red light and your shiny new Tesla is an insurance claim that is getting paid out at $0.60 on every dollar you owe. And you'll see that money only after a year of paperwork and BS. Meanwhile you're paying a second loan on another car which is absolutely crippling your personal finances. Further, loans that are longer than the warranty could mean lots of mechanical issues you're paying to fix on a car you don't own, or making it even harder to sell it.

3. Today is good for ev's. Tomorrow might be better. The whole market is trending toward ev's. What is your rush?

How much longer are you paying the loan on your current car? Other than the mpg, why are you so decided on buying a new one?

1. Nah. HELOC rates are higher right now, at least mine is, and even if they weren't that is generally bad advice.

2. This is not even close to true. What insurance company did this to you? I've dealt plenty with auto insurance companies, even on complete losses, and never had anything near this experience.

3. There is no rush, per se. EV pricing is an unknown right now though. The thinking is that because the $7,500 credit will become creditable at the point of sale in 2024, that EV sellers will simply raise prices. They can't do that right now because the current version of the credit can only be claimed on your return. Additionally, there is a Model 3 refresh expected soon and I would imagine that could cause the current version to go down in price, but probably not in excess of the credit amount as Tesla has already been severely cutting prices because of the credit.

I am going through the numbers to figure out how and where they don't work. Saving over 3k/year on gas alone sounds good to me. No oil, transmission, differential, etc. Never go to the gas station.

[Foggy_Goggles]

So buy the Telsa. I still think your financing math is a bit goofy. I'll see if I can figure it out later.

[Core Shot]

Can we move on to the benefits of fractional ownership?

This is the way. You don’t own the whole car. Or the house. Or your life

PS. Charlton Heston is awesome

[muted reborn]

Let me add 2 counterpoints then.

I disagree at least in Denver on the peanut gallery's electric cars are great. Denver just banned natural gas HVAC which will cause a massive increase on the electric grid that they can't support. Electric costs will go up massively when added demand hits with all these electric cars. Battery disposal costs are going to skyrocket soon too.

Where did you read it's going to be a massive increase and how soon will this happen, and where did it say Denvers grid can't support this, and where disposal costs are going up? I keep hearing all this but it seems like rumors. Is Denver blocking all new major businesses because of this overloaded grid concern?

You could be right, I just don't know. I'm no expert

https://denvergazette.com/news/busin...ce1d66159.html

So buy the Telsa. I still think your financing math is a bit goofy. I'll see if I can figure it out later.

Great. If you do, do you have to be a presumptuous condescending asshole about it? With your cosplay-redneck wisdom?

Not taking sides on if he should buy a car, but good lord lets reel it back a bit.

[El Chupacabra]

I am 100% in support of OP buying the Tesla and financing it.

Someone has to juice the consumer driven American economy, might as well be him.

[byates1]

What about a jacked up f350 dually w 8 different light bars, some tactical come take it stickers, put the down payment on a credit card and make minimum payments..

Would be fkin sweet bro..

[Not DJSapp]

1. Nah. HELOC rates are higher right now, at least mine is, and even if they weren't that is generally bad advice.

2. This is not even close to true. What insurance company did this to you? I've dealt plenty with auto insurance companies, even on complete losses, and never had anything near this experience.

3. There is no rush, per se. EV pricing is an unknown right now though. The thinking is that because the $7,500 credit will become creditable at the point of sale in 2024, that EV sellers will simply raise prices. They can't do that right now because the current version of the credit can only be claimed on your return. Additionally, there is a Model 3 refresh expected soon and I would imagine that could cause the current version to go down in price, but probably not in excess of the credit amount as Tesla has already been severely cutting prices because of the credit.

I am going through the numbers to figure out how and where they don't work. Saving over 3k/year on gas alone sounds good to me. No oil, transmission, differential, etc. Never go to the gas station.

Obviously you're an insurance virgin, never been fucked by them. Just wait until you're in an accident with multiple parties at fault all with different carriers and they all start squabbling over who should pay and how much. I talked my neighbor through small claims court on that one, and yes, they were major carriers. State Farm and Allstate iirc. Even after the Judge ordered the insurers to pay out, they still fucked around for a few months after that before they cut a check. My boss got screwed over to the tune of $10k on a new rig when a homeless dude broke into it and turned it into that toilet from Trainspotting. Totaled out a new Expedition with under 10k miles.

If you get the gap insurance, you'll hopefully be ok, but that's going to run more than $200 a month with full collision and liability. You do know what gap insurance is, right? When your tesla is 3 years old and has 45k miles on it, insurance will pay kbb value due to use and depreciation with will be 50-60% of new, but you're still going to owe 80-90% on your seven year loan. Gap insurance helps to cover that. Talk with your broker and make sure you're getting quoted the right policy. This is the risk analysis I was getting at. If you skip gap coverage, you could be left holding the bag on a loan for a pile of scrap while you're scrambling to buy a replacement, but it's up to you how much risk is acceptable.

I'm also assuming you've scoped out the local charging situation and you're covered there? What about home? You might need to pay an electrician $2k to upgrade your panel and put in a 220v 50 amp circut in so you can charge overnight. A standard household 110v 15 amp plug only delivers 1650 watts/hour. The standard range Tesla model 3 is a 54 kWh battery. That's 32 hours to charge on a household plug. Longer for the bigger batteries.

You still haven't answered the most important question to solving your financial question: How many payments left on the current gas guzzler? Saving $7k/year by not having a car payment and having cheaper insurance because you're not paying off a loan that requires a full collision policy (if you choose) is INCREDIBLY RELEVANT to a financial discussion.

Or are you just looking for someone to agree with you and tell you to do it?

[Conundrum]

I think he should do it. Tesla...so hot right now.

[californiagrown]

Where did you read it's going to be a massive increase and how soon will this happen, and where did it say Denvers grid can't support this, and where disposal costs are going up? I keep hearing all this but it seems like rumors. Is Denver blocking all new major businesses because of this overloaded grid concern?
.

Its hyperbolic hype. It will be a long process of phasing out natural gas use in commercial settings which will occur over much more than a decade. FFS new builds can continue installing NG systems all the way through 2027 The utilities knew this was coming and have modernizing their infrastructure for years prior knowing that solar/wind energy and EVs would be coming online as major demand changes to the grid. This regulation is happening all accross the west and the market is adapting quickly.

Battery disposal costs would go up significantly if there were no advancements in the recycling tech. But this is the problem, the scare mongering folks just whine about worst case scenarios involving future demand based on last years tech. They never take into account the current cutting edge tech, and what the tech will be 10 years from now when the doomsday demand actually starts taking place.


To the OP... it sounds like you just want a nice new car. Stop framing the question as one of "is this a good financial decision" and start framing it as a "how can i make my unavoidable purchase of a shiny new Tesla as financially responsible as possible?".

[El Chupacabra]

What about a jacked up f350 dually w 8 different light bars, some tactical come take it stickers, put the down payment on a credit card and make minimum payments..

Would be fkin sweet bro..

That, and the Tesla. YOLO!

[big kook]

Its hyperbolic hype.

To the OP... it sounds like you just want a nice new car. Stop framing the question as one of "is this a good financial decision" and start framing it as a "how can i make my unavoidable purchase of a shiny new Tesla as financially responsible as possible?".

No dude, Denver's whole grid is about to collapse because homie plugged in his lawnmower.

I'm just looking at some numbers. Like I said the best financial decision is to take the bus. But even then people will be like, but but but you could trip on the steps getting in...you should walk.

[Foggy_Goggles]

Did you buy it yet? No. Good. Take the 47large outta savings. Every month pay yourself back. Don't be save to payments. Having the portfolio you do, just try and run away from paying interest. Don't have 47k liquid, maybe look at that first.

It's my opinion but it's not unique. Some families have two car payment indefinitely. That's insane. If you want to take the loan, to get into the Tesla, OK. But consider making the sacrifices to pay it off ASAP.



Sent from my Turbo 850 Flatbrimed Highhorse

[californiagrown]

No dude, Denver's whole grid is about to collapse because homie plugged in his lawnmower.

I'm just looking at some numbers. Like I said the best financial decision is to take the bus. But even then people will be like, but but but you could trip on the steps getting in...you should walk.

You want a shiny new tesla and are looking for financial justification for buying one. You will not find that justification here, it is a poor financial decision.

But life would suck if we did EVERYTHING based purely on the best financial decision. So just go ahead and say "I am buying a tesla, how can i make it hurt my pocketbook the least?".