Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

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ThreeScreens88
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Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by ThreeScreens88 »

Hi everyone, quick personal finance question (driven - no pun intended - specifically by the current pandemic):

Should I pay off my car loan (5 years and $34,600 remaining @ 3.99% / $636/mo) or keep the cash, given the current economic / public health uncertainty?

If I don’t pay off the car, I’ll have $55,000 in emergency funds (7 mos. total family expenses), if I do, I’ll have $20,000 (2.5 months).

I have no indication that, as at this moment, either my or my wife’s job is in jeopardy. However, I’m the primary breadwinner and my total income is highly dependent on bonuses/commissions which could well be negatively impacted (my base salary + my wife’s salary covers all our expenses then my bonuses + commissions funds savings, investments, extraordinary expenditures, etc).

My relatively high income (both base and total) is not very easily replaceable whereas my wife’s income in normal times probably is.

Prior to the pandemic, my goal was to be debt free by summer (with the exception of a low interest student loan and our mortgage). This car loan is the last hurdle before that goal (if not for the pandemic, I wouldn’t be posing this question or facing this potential dilemma). If I were a stronger man, I’d simply sell the car, buy a $5,000 used car, and be done with it (but it’s pretty much my one material indulgence).

Oh - and one additional twist - the car isn’t in my regular budget. I was funding it from a side hustle that generated net income of $1500+ per month (that I never counted as recurring income - despite having it for the past two years). Once the pandemic hit, that side business income quickly went to zero (and will perhaps never return).
Last edited by ThreeScreens88 on Sun May 17, 2020 12:00 am, edited 1 time in total.
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JDCarpenter
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by JDCarpenter »

I'd sell the car if there is any realistic concern about cash flow.

(But, I bought my first new car at age 53 for just a bit more than two weeks income, so discount my opinion accordingly.)
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strafe
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by strafe »

I would stay liquid. Keep the loan for now. Re-evaluate in January.
Olemiss540
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by Olemiss540 »

What other assets do you have? Roth IRAs? Taxable account? Given "high income", I would assume you have a decent amount that could be tapped outside of your cash fund but hard to give advice without the bigger picture?

How many cars do you have? Is the Tesla a spare vehicle and could be sold if needed?
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IcedTea
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by IcedTea »

I'd also keep the cash and the loan for now.

If times get hard you might have to sell the car but you would still have your 7 month emergency fund.
OnTrack2020
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by OnTrack2020 »

Keep the cash. Sell the car later if need to.

There's another thread on here about a family whose commissions may be cut.
buhlaxtus
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by buhlaxtus »

DKD404 wrote: Sat May 16, 2020 2:03 pm the car isn’t in my regular budget. I was funding it from a side hustle that generated net income of $1500+ per month (that I never counted as recurring income - despite having it for the past two years). Once the pandemic hit, I shut down that side business indefinitely (and doubt that I will be able to restart it any time soon).
The funding for the car is gone, so the car should go too. That's the right ideal, but reality may intrude. Is it a realistic option to sell it and be done with both car and loan?
Ferdinand2014
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by Ferdinand2014 »

I would be the stronger man. Buy a used Honda Accord for 15,000 and be done with it. Take those extra payments for the Tesla and invest it.
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avidlearner
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by avidlearner »

keep the cash and payoff car as you were doing, who knows how long this covid situation will remain, 7 months of emergency funds will give you better sleep in case of a layoff than a paid off car.
TheGreyingDuke
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by TheGreyingDuke »

You don't say what state you reside in but if you received a state subsidy on the purchase an keep it less than 3 years you may be expected to repay the rebate/credit.
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by Trader Joe »

DKD404 wrote: Sat May 16, 2020 2:03 pm Hi everyone, quick personal finance question (driven - no pun intended - specifically by the current pandemic):

Should I pay off my car loan (5 years and $34,600 remaining @ 3.99% / $636/mo) or keep the cash, given the current economic / public health uncertainty?

If I don’t pay off the car, I’ll have $55,000 in emergency funds (7 mos. total family expenses), if I do, I’ll have $20,000 (2.5 months).

I have no indication that, as at this moment, either my or my wife’s job is in jeopardy. However, I’m the primary breadwinner and my total income is highly dependent on bonuses/commissions which could well be negatively impacted (my base salary + my wife’s salary covers all our expenses then my bonuses + commissions funds savings, investments, extraordinary expenditures, etc).

My relatively high income (both base and total) is not very easily replaceable whereas my wife’s income in normal times probably is.

Prior to the pandemic, my goal was to be debt free by summer (with the exception of a low interest student loan and our mortgage). This car loan is the last hurdle before that goal (if not for the pandemic, I wouldn’t be posing this question or facing this potential dilemma). If I were a stronger man, I’d simply sell the car, buy a $5,000 used car, and be done with it (but it’s pretty much my one material indulgence).

Oh - and one additional twist - the car isn’t in my regular budget. I was funding it from a side hustle that generated net income of $1500+ per month (that I never counted as recurring income - despite having it for the past two years). Once the pandemic hit, I shut down that side business indefinitely (and doubt that I will be able to restart it any time soon).
It sounds like you should sell the car now.
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Brianmcg321
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by Brianmcg321 »

I would keep cash.
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sambb
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by sambb »

i would sell the car as soon as possible.
lakja
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by lakja »

With the little information provided, I’d keep the car.

Selling the car is likely the wrong move because you’re probably significantly underwater with that long of a loan and assuming no/minimal down payment.

If you lose your job, you’ll want the extra cash reserves. Might want to consider getting a HELOC if you don’t currently have one for extra liquidity.

I also don’t understand the desire to become debt free. If you can afford your payments, keep it. Sounds like you’ve been listening to Dave Ramsay.
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2pedals
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by 2pedals »

Unless you have other equity investments and have proven to be a saver, I would sell the car and get a lightly used Camry or Corolla. I would advise you to somehow get in the habit of saving, it a very long term commitment. Also, we don't know how long this madness will last and impact your family income.
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by BeneIRA »

Sounds like you overextended on the car. Your side hustle was papering over that. If you have to get over a five year loan on a car, you probably can't afford it. The "right" move is to sell the car and get a car you can afford. If you don't want to do that, the next best move would be to hold onto the cash until you have more clarity on your job situation and the world in general. Going down to 2.5 months in this environment would scare me, but your mileage may vary...pun intended.
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ThreeScreens88
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by ThreeScreens88 »

Olemiss540 wrote: Sat May 16, 2020 4:36 pm What other assets do you have? Roth IRAs? Taxable account? Given "high income", I would assume you have a decent amount that could be tapped outside of your cash fund but hard to give advice without the bigger picture?

How many cars do you have? Is the Tesla a spare vehicle and could be sold if needed?
Good point...I tend not to count my retirement portfolio as anything but retirement $$$. So I pretty much only look at it in January and otherwise never know quite how much I have. All I know is it’s less than I’d like it to be! No other real assets except some rural/international family land.
Last edited by ThreeScreens88 on Sat May 16, 2020 10:35 pm, edited 1 time in total.
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ThreeScreens88
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by ThreeScreens88 »

buhlaxtus wrote: Sat May 16, 2020 5:12 pm
DKD404 wrote: Sat May 16, 2020 2:03 pm the car isn’t in my regular budget. I was funding it from a side hustle that generated net income of $1500+ per month (that I never counted as recurring income - despite having it for the past two years). Once the pandemic hit, I shut down that side business indefinitely (and doubt that I will be able to restart it any time soon).
The funding for the car is gone, so the car should go too. That's the right ideal, but reality may intrude. Is it a realistic option to sell it and be done with both car and loan?
That’s the prudent way of viewing it. I tend to agree. But I could just as easily make new commissions, in the coming months, sufficient to pay off the car. I wonder if that alone makes it worth taking a wait and see approach. I did a trade in quote today via Tesla and they would give me about $1000 more than I owe (I got a really good deal on the car when I bought it a year ago). So in theory I could pay the note out of what I’m currently calling my emergency fund and if I run into any difficulties down the road, sell the car at that point (the cost of that strategy would basically be the 3.9% interest). No?
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by willthrill81 »

DKD404 wrote: Sat May 16, 2020 10:02 pm
buhlaxtus wrote: Sat May 16, 2020 5:12 pm
DKD404 wrote: Sat May 16, 2020 2:03 pm the car isn’t in my regular budget. I was funding it from a side hustle that generated net income of $1500+ per month (that I never counted as recurring income - despite having it for the past two years). Once the pandemic hit, I shut down that side business indefinitely (and doubt that I will be able to restart it any time soon).
The funding for the car is gone, so the car should go too. That's the right ideal, but reality may intrude. Is it a realistic option to sell it and be done with both car and loan?
That’s the prudent way of viewing it. I tend to agree. But I could just as easily make new commissions, in the coming months, sufficient to pay off the car. I wonder if that alone makes it worth taking a wait and see approach. I did a trade in quote today via Tesla and they would give me about $1000 more than I owe (I got a really good deal on the car when I bought it a year ago). So in theory I could pay the note out of what I’m currently calling my emergency fund and if I run into any difficulties down the road, sell the car at that point (the cost of that strategy would basically be the 3.9% interest). No?
If you didn't own your car, would you buy it at the price you would get right now by selling it? I'll bet that you wouldn't.

The endowment effect can be significant, and it's pretty insidious.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
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ThreeScreens88
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by ThreeScreens88 »

Ferdinand2014 wrote: Sat May 16, 2020 5:34 pm I would be the stronger man. Buy a used Honda Accord for 15,000 and be done with it. Take those extra payments for the Tesla and invest it.
Damn it...but I really like the Tesla — even though I now drive it like twice a month. But it looks so great sitting in the garage! Sometimes I sit in it and watch Netflix.
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ThreeScreens88
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by ThreeScreens88 »

lakja wrote: Sat May 16, 2020 7:08 pm With the little information provided, I’d keep the car.

Selling the car is likely the wrong move because you’re probably significantly underwater with that long of a loan and assuming no/minimal down payment.

If you lose your job, you’ll want the extra cash reserves. Might want to consider getting a HELOC if you don’t currently have one for extra liquidity.

I also don’t understand the desire to become debt free. If you can afford your payments, keep it. Sounds like you’ve been listening to Dave Ramsay.
You’re good at this!

I have been listening to Dave Ramsey (not at all on the investing front, though)!

I’ve also been thinking about a HELOC (what if I paid off the car, got a HELOC for an equivalent amount — we have about $100k equity in our home), and kept it as a last-resort source for home-related emergency funds or as a backup emergency fund for the time it would take to sell the car, if ever I were forced to do so. I would, of course, be very careful about ever deploying the HELOC (I currently carry $0 balance on $50,000 worth of available credit and am generally very reluctant to use credit).

Also, I’m not underwater on the car. I got a trade-in quote from Tesla today for $1,000 more than I owe (got a great deal on it).
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ThreeScreens88
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by ThreeScreens88 »

2pedals wrote: Sat May 16, 2020 8:30 pm Unless you have other equity investments and have proven to be a saver, I would sell the car and get a lightly used Camry or Corolla. I would advise you to somehow get in the habit of saving, it a very long term commitment. Also, we don't know how long this madness will last and impact your family income.
Good advice. I have definitely gotten into the habit of saving (particularly over the last few years with a wife and young kids). Only bought the Tesla after figuring out a way to cover the payments through side income (despite earning 4-5 times the cost of the car at my day job). Of course, now that side income has dried up. I know the most prudent move is to sell the car and get something cheaper. Just wondering if there’s a reasonable and not terribly irresponsible alternative.
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ThreeScreens88
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by ThreeScreens88 »

BeneIRA wrote: Sat May 16, 2020 8:35 pm Sounds like you overextended on the car. Your side hustle was papering over that. If you have to get over a five year loan on a car, you probably can't afford it. The "right" move is to sell the car and get a car you can afford. If you don't want to do that, the next best move would be to hold onto the cash until you have more clarity on your job situation and the world in general. Going down to 2.5 months in this environment would scare me, but your mileage may vary...pun intended.
Good advice. I wouldn’t quite say overextended but I generally hate car loans and made it a priority to create new income, unrelated to my main job, largely for the purpose of justifying the nicer car.
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ThreeScreens88
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by ThreeScreens88 »

willthrill81 wrote: Sat May 16, 2020 10:08 pm
DKD404 wrote: Sat May 16, 2020 10:02 pm
buhlaxtus wrote: Sat May 16, 2020 5:12 pm
DKD404 wrote: Sat May 16, 2020 2:03 pm the car isn’t in my regular budget. I was funding it from a side hustle that generated net income of $1500+ per month (that I never counted as recurring income - despite having it for the past two years). Once the pandemic hit, I shut down that side business indefinitely (and doubt that I will be able to restart it any time soon).
The funding for the car is gone, so the car should go too. That's the right ideal, but reality may intrude. Is it a realistic option to sell it and be done with both car and loan?
That’s the prudent way of viewing it. I tend to agree. But I could just as easily make new commissions, in the coming months, sufficient to pay off the car. I wonder if that alone makes it worth taking a wait and see approach. I did a trade in quote today via Tesla and they would give me about $1000 more than I owe (I got a really good deal on the car when I bought it a year ago). So in theory I could pay the note out of what I’m currently calling my emergency fund and if I run into any difficulties down the road, sell the car at that point (the cost of that strategy would basically be the 3.9% interest). No?
If you didn't own your car, would you buy it at the price you would get right now by selling it? I'll bet that you wouldn't.

The endowment effect can be significant, and it's pretty insidious.
Thanks for this...I often find that this is a good way to evaluate these types of decisions.

Hmmmm...if I woke up this morning in the middle of a pandemic...with $55,000 cash in the bank...in the midst of tremendous economic uncertainty....would I go cut a check for $36,000 to buy a Tesla Model 3? Answer: nope! I’d go online and look at it, read about it, admire it, then I’d happily jump into my 10 year old Honda Accord or Toyota Camry Hybrid and go buy groceries for my family!
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by BeneIRA »

DKD404 wrote: Sat May 16, 2020 10:34 pm
willthrill81 wrote: Sat May 16, 2020 10:08 pm
DKD404 wrote: Sat May 16, 2020 10:02 pm
buhlaxtus wrote: Sat May 16, 2020 5:12 pm
DKD404 wrote: Sat May 16, 2020 2:03 pm the car isn’t in my regular budget. I was funding it from a side hustle that generated net income of $1500+ per month (that I never counted as recurring income - despite having it for the past two years). Once the pandemic hit, I shut down that side business indefinitely (and doubt that I will be able to restart it any time soon).
The funding for the car is gone, so the car should go too. That's the right ideal, but reality may intrude. Is it a realistic option to sell it and be done with both car and loan?
That’s the prudent way of viewing it. I tend to agree. But I could just as easily make new commissions, in the coming months, sufficient to pay off the car. I wonder if that alone makes it worth taking a wait and see approach. I did a trade in quote today via Tesla and they would give me about $1000 more than I owe (I got a really good deal on the car when I bought it a year ago). So in theory I could pay the note out of what I’m currently calling my emergency fund and if I run into any difficulties down the road, sell the car at that point (the cost of that strategy would basically be the 3.9% interest). No?
If you didn't own your car, would you buy it at the price you would get right now by selling it? I'll bet that you wouldn't.

The endowment effect can be significant, and it's pretty insidious.
Thanks for this...I often find that this is a good way to evaluate these types of decisions.

Hmmmm...if I woke up this morning in the middle of a pandemic...with $55,000 cash in the bank...in the midst of tremendous economic uncertainty....would I go cut a check for $36,000 to buy a Tesla Model 3? Answer: nope! I’d go online and look at it, read about it, admire it, then I’d happily jump into my 10 year old Honda Accord or Toyota Camry Hybrid and go buy groceries for my family!
That's where I'm at with it, too. That's why I would still argue selling the Tesla and walking away with the $1,000 is the "right" move. Even if you went out and spent $15,000 in cash on a good used car, and you can get a pretty good used car for that money, your finances look a lot better and you chop down $20,000 in debt. With gas prices so low, you probably aren't losing much there and I would expect the insurance will decrease as well. In my state there is excise tax which would also go down. I would assume you aren't driving a ton at the moment in any case, but I wouldn't blame you for keeping the loan and the car, it's just not the "best" choice from a strict financial perspective. On the other hand, buying a Tesla, on paper, is never a smart money move and making the smart move lands you in a Toyota Corolla for your entire life for better or worse. To each their own.
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by cheesepep »

If you have to worry about such a situation, then you shouldn't have not bought the car in the first place. Think about it. Financial security before splurging.
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by BeneIRA »

cheesepep wrote: Sat May 16, 2020 10:51 pm If you have to worry about such a situation, then you shouldn't have not bought the car in the first place. Think about it. Financial security before splurging.
The calculus is much different with the $1,500 a month second job the OP had. Essentially, they were working for the most part to afford this car. That job is gone now, though, which changes things. They were leasing the car for as long as they had the second job.
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ThreeScreens88
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by ThreeScreens88 »

BeneIRA wrote: Sat May 16, 2020 10:57 pm
cheesepep wrote: Sat May 16, 2020 10:51 pm If you have to worry about such a situation, then you shouldn't have not bought the car in the first place. Think about it. Financial security before splurging.
The calculus is much different with the $1,500 a month second job the OP had. Essentially, they were working for the most part to afford this car. That job is gone now, though, which changes things. They were leasing the car for as long as they had the second job.
Exactly. And to be clear, it wasn’t a job — it was a little business I started that took up maybe 5 hours of my time each week. I doubt I would have bought the car - at least not using financing - if not for that.
SEAworld9
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by SEAworld9 »

Since you like the car, a couple other options:

- refinance the loan. many places are around 2-2.3% right now which would cut the interest down significantly.

- rent it out on turo or another platform. obv at the moment health and safety issues come into play (as well as demand) here, but a few days a month can knock a chunk off the payment.

I’m with the others and would say keep the car but refinance the loan. You make on the low end 160-200k and on the high end 232-290k. You can enjoy it.
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by Monsterflockster »

DKD404 wrote: Sat May 16, 2020 10:16 pm
Ferdinand2014 wrote: Sat May 16, 2020 5:34 pm I would be the stronger man. Buy a used Honda Accord for 15,000 and be done with it. Take those extra payments for the Tesla and invest it.
Damn it...but I really like the Tesla — even though I now drive it like twice a month. But it looks so great sitting in the garage! Sometimes I sit in it and watch Netflix.
Don’t listen to these guys telling you to sell the car, they obviously do not own a Tesla and probably never driven in one. The tech is amazing and a fun car to drive.

Check out credit unions, You might be able to refinance to 3%. But I like the advice of keep the cash and reassess in January.

I hope it was getting driven more when we weren’t sheltering in place. Cars like that are meant to be driven.
Goal33
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by Goal33 »

Similar situation myself. I am holding onto the cash. In a more normal time I would also have just paid off.
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by sfnerd »

I would just hold on to the cash, and if something bad happens like a job loss, then you can always sell it. It's a luxury, but you can afford it, and there is always a bit of overhead with buying and selling cars. Sure, you can always buy a used Camry, but what if it has problems? What is all the time buying and selling worth? If the economy comes roaring back, you will be upset that you're not driving a fun car as well.
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by Valuethinker »

avidlearner wrote: Sat May 16, 2020 5:39 pm keep the cash and payoff car as you were doing, who knows how long this covid situation will remain, 7 months of emergency funds will give you better sleep in case of a layoff than a paid off car.
+1

You see companies drawing down their Lines Of Credit with banks to the maximum.

This is expensive money but given the uncertainties around cash flow it is the right thing for CFOs and corporate treasuries to do.

We should take note.
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by Valuethinker »

sfnerd wrote: Sun May 17, 2020 1:53 am I would just hold on to the cash, and if something bad happens like a job loss, then you can always sell it. It's a luxury, but you can afford it, and there is always a bit of overhead with buying and selling cars. Sure, you can always buy a used Camry, but what if it has problems? What is all the time buying and selling worth? If the economy comes roaring back, you will be upset that you're not driving a fun car as well.
I agree don't sell the car. OP has taken the depreciation hit and particularly in a place like California Tesla likely to hold its value.

Used car might need expensive repairs. Used Hondas or Toyotas are not cheap.
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by Valuethinker »

Goal33 wrote: Sun May 17, 2020 1:14 am Similar situation myself. I am holding onto the cash. In a more normal time I would also have just paid off.
+1
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by Valuethinker »

DKD404 wrote: Sat May 16, 2020 10:34 pm
willthrill81 wrote: Sat May 16, 2020 10:08 pm
DKD404 wrote: Sat May 16, 2020 10:02 pm
buhlaxtus wrote: Sat May 16, 2020 5:12 pm
DKD404 wrote: Sat May 16, 2020 2:03 pm the car isn’t in my regular budget. I was funding it from a side hustle that generated net income of $1500+ per month (that I never counted as recurring income - despite having it for the past two years). Once the pandemic hit, I shut down that side business indefinitely (and doubt that I will be able to restart it any time soon).
The funding for the car is gone, so the car should go too. That's the right ideal, but reality may intrude. Is it a realistic option to sell it and be done with both car and loan?
That’s the prudent way of viewing it. I tend to agree. But I could just as easily make new commissions, in the coming months, sufficient to pay off the car. I wonder if that alone makes it worth taking a wait and see approach. I did a trade in quote today via Tesla and they would give me about $1000 more than I owe (I got a really good deal on the car when I bought it a year ago). So in theory I could pay the note out of what I’m currently calling my emergency fund and if I run into any difficulties down the road, sell the car at that point (the cost of that strategy would basically be the 3.9% interest). No?
If you didn't own your car, would you buy it at the price you would get right now by selling it? I'll bet that you wouldn't.

The endowment effect can be significant, and it's pretty insidious.
Thanks for this...I often find that this is a good way to evaluate these types of decisions.

Hmmmm...if I woke up this morning in the middle of a pandemic...with $55,000 cash in the bank...in the midst of tremendous economic uncertainty....would I go cut a check for $36,000 to buy a Tesla Model 3? Answer: nope! I’d go online and look at it, read about it, admire it, then I’d happily jump into my 10 year old Honda Accord or Toyota Camry Hybrid and go buy groceries for my family!
A used car is also an unknown quantity.

The US is headed for the mother of all recessions ie is in it now and does not know the speed of recovery.

For the moment hoard cash. In January think again.
Carguy85
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by Carguy85 »

Just curious how long you’ve been listening to Dave Ramsey?
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anon_investor
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by anon_investor »

avidlearner wrote: Sat May 16, 2020 5:39 pm keep the cash and payoff car as you were doing, who knows how long this covid situation will remain, 7 months of emergency funds will give you better sleep in case of a layoff than a paid off car.
+1
System1
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by System1 »

You mention the cost of the 3.99% interest, and yes over time that adds up, but choosing to keep the loan for 6 more months will cost you $680. Is that a lot for your household? Only you can answer that. Calculating the cost in real dollars is better than comparing interest rates. I do this often to decide how much it matters to chase interest rates, whether that be for savings or loans.
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ThreeScreens88
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by ThreeScreens88 »

Carguy85 wrote: Sun May 17, 2020 6:18 am Just curious how long you’ve been listening to Dave Ramsey?
Since September, maybe.
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ThreeScreens88
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by ThreeScreens88 »

SEAworld9 wrote: Sun May 17, 2020 12:12 am Since you like the car, a couple other options:

- refinance the loan. many places are around 2-2.3% right now which would cut the interest down significantly.

- rent it out on turo or another platform. obv at the moment health and safety issues come into play (as well as demand) here, but a few days a month can knock a chunk off the payment.

I’m with the others and would say keep the car but refinance the loan. You make on the low end 160-200k and on the high end 232-290k. You can enjoy it.
Great thoughts! Turo would be a no-go, though. I’m very familiar with Turo. Pro tip: don’t ever put a car on Turo that you’re even remotely attached to, personally. There’s at least a 50-50 chance it won’t end well. It’s best to buy cars you don’t care about for Turo and use the proceeds to pay for a car you do!
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ThreeScreens88
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by ThreeScreens88 »

System1 wrote: Sun May 17, 2020 8:38 am You mention the cost of the 3.99% interest, and yes over time that adds up, but choosing to keep the loan for 6 more months will cost you $680. Is that a lot for your household? Only you can answer that. Calculating the cost in real dollars is better than comparing interest rates. I do this often to decide how much it matters to chase interest rates, whether that be for savings or loans.
Thank you! I’ll run the numbers and act accordingly.
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ThreeScreens88
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by ThreeScreens88 »

anon_investor wrote: Sun May 17, 2020 7:52 am
avidlearner wrote: Sat May 16, 2020 5:39 pm keep the cash and payoff car as you were doing, who knows how long this covid situation will remain, 7 months of emergency funds will give you better sleep in case of a layoff than a paid off car.
+1
More than a few suggestions to keep cash, keep car (perhaps refinance), then reassess in January or so. I think I’ll go this route. I’ll pay the interest out of my regular budget and pay the principal out of the money set aside to pay off the car. God willing, all will work out well.

Thanks everyone! I love this forum and the core philosophy behind it. Been following for a few years; this is my first post.
Carguy85
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by Carguy85 »

Ok well sounds like ur better off than most listening to Dave Ramsey but also know who Jack Bogle was. Listen to Dave long enough and I suppose there would be no question about getting rid of the car...Im a car guy as the screen name implies. I’ve squandered away more than I care to ever estimate in car loan interest and depreciation on dozens of vehicles. What I finally learned after years and years of financial silliness with cars is that first and foremost if you can’t pay cash you can’t afford it. If you can pay cash but don’t want to then you shouldn’t buy it. Financing has a way of making it all to easy to rationalize the irrational. I still joke with my wife about the “good ole days” when we bought her Harley on a credit card and buying her a new Jeep right out of school before I even started my job...in 2011 the monthly payment was $667!! Ha!!
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ThreeScreens88
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by ThreeScreens88 »

Carguy85 wrote: Sun May 17, 2020 9:35 am Ok well sounds like ur better off than most listening to Dave Ramsey but also know who Jack Bogle was. Listen to Dave long enough and I suppose there would be no question about getting rid of the car...Im a car guy as the screen name implies. I’ve squandered away more than I care to ever estimate in car loan interest and depreciation on dozens of vehicles. What I finally learned after years and years of financial silliness with cars is that first and foremost if you can’t pay cash you can’t afford it. If you can pay cash but don’t want to then you shouldn’t buy it. Financing has a way of making it all to easy to rationalize the irrational. I still joke with my wife about the “good ole days” when we bought her Harley on a credit card and buying her a new Jeep right out of school before I even started my job...in 2011 the monthly payment was $667!! Ha!!
Yeah, had I started listening to Dave before buying the car I likely wouldn’t have bought it. But, of course, I was poised to pay it off soon (per the baby steps), alas the pandemic (temporarily) changed my thinking re emergency funds. In any event, I didn’t buy new (I bought it 8 months old for $16,000 less than the original owner because he was in a bit of a bind and I got to him before the market did). And for me the car (payments notwithstanding) met the Dave best practices of no more than 1/2 income on a car and no new car (unless your net worth is above a million dollars)!

Ahhh, the good ole days of poor financial decisions without hesitation. I owned some really cool (and unreasonably expensive) cars in my 20s. Wised up at 30 - basically driving used (free and clear) Hondas and Toyotas the entire decade until buying the Tesla last year at the end of my 30s (hmmm....some form of mid-life crisis maybe??).
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by TomatoTomahto »

DKD404 wrote: Sun May 17, 2020 9:24 am
SEAworld9 wrote: Sun May 17, 2020 12:12 am Since you like the car, a couple other options:

- refinance the loan. many places are around 2-2.3% right now which would cut the interest down significantly.

- rent it out on turo or another platform. obv at the moment health and safety issues come into play (as well as demand) here, but a few days a month can knock a chunk off the payment.

I’m with the others and would say keep the car but refinance the loan. You make on the low end 160-200k and on the high end 232-290k. You can enjoy it.
Great thoughts! Turo would be a no-go, though. I’m very familiar with Turo. Pro tip: don’t ever put a car on Turo that you’re even remotely attached to, personally. There’s at least a 50-50 chance it won’t end well. It’s best to buy cars you don’t care about for Turo and use the proceeds to pay for a car you do!
I’m a big fan of Tesla (own 1), having no debt, and having a sufficient emergency fund. As so often happens in life, you get to pick 2 out of 3. I’d be nervous with only 2.5 months of EF. Keep the (refinanced) debt and enjoy one of the best cars in the world.

ETA: my BIL rented a Turo Model 3 for a long weekend to see if he liked it (already had a Model S and had driven my Model X). He didn’t abuse it, but he drove it hard). I wouldn’t rent out my car.
Last edited by TomatoTomahto on Sun May 17, 2020 10:02 am, edited 2 times in total.
I get the FI part but not the RE part of FIRE.
deltaneutral83
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by deltaneutral83 »

System1 wrote: Sun May 17, 2020 8:38 am You mention the cost of the 3.99% interest, and yes over time that adds up, but choosing to keep the loan for 6 more months will cost you $680. Is that a lot for your household? Only you can answer that. Calculating the cost in real dollars is better than comparing interest rates. I do this often to decide how much it matters to chase interest rates, whether that be for savings or loans.
$680 is financing costs. The car is depreciating sitting in the garage, not as much as if it were in regular use, but still depreciating. I don't think there are many people % wise who build wealth with 4% interest on toys.
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ThreeScreens88
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by ThreeScreens88 »

deltaneutral83 wrote: Sun May 17, 2020 10:01 am
System1 wrote: Sun May 17, 2020 8:38 am You mention the cost of the 3.99% interest, and yes over time that adds up, but choosing to keep the loan for 6 more months will cost you $680. Is that a lot for your household? Only you can answer that. Calculating the cost in real dollars is better than comparing interest rates. I do this often to decide how much it matters to chase interest rates, whether that be for savings or loans.
$680 is financing costs. The car is depreciating sitting in the garage, not as much as if it were in regular use, but still depreciating. I don't think there are many people % wise who build wealth with 4% interest on toys.
You’re absolutely right. I may very well sell it...but for the moment, I think I’ll waste a few hundred bucks on interest expense while observing the playing field. I’ll also refinance my mortgage (something I’ve been considering doing) which should in theory save me about half of the car payment (though I plan to keep making the same monthly mortgage payment).
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whodidntante
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by whodidntante »

The problem with cars is not the car loan but the fact that they depreciate rapidly and have high maintenance costs. If you keep them long enough, cars also have high repair costs, and a Tesla cannot be serviced anywhere except for those places on a blessed list by Tesla. You can't even work on them at home because they won't sell you parts. It's pretty easy to see how lighting many thousands or tens of thousands of dollars a year on fire can impede your wealth building.

So the "mistake" was sinking a lot of money into a luxury/status car, not in taking a reasonably low cost car loan. However, it may be a luxury that you can afford. That's for you to decide, especially since you didn't give us enough information to help you decide. If you have too much car, today would be the best day to list it for sale.

If you decide to keep the car and the loan, I would look at refinancing. Better rates are available.
Dandy
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Re: Pay off Tesla as Planned or Keep Cash for Covid Uncertainty?

Post by Dandy »

right now I think cash is king. We don't know where this pandemic is going to lead us as far as health, employment, taxes, investments, medical coverage, etc. One of my relatives was on disability and returned to work last Monday and was greeted with a pay cut. Another works at a state University -- will the school open? If so, will there be students? Will there still be state aid? If it opens, with fewer students and less aid -- will she have a job? Another relative is a soccer coach for a non government organization. No job now, probably no summer camp, = no income now and for how long??

Many jobs people think are secure and not. I used to work for a mutual fund company in 2008 - how could a mortgage problem affect me? I even had my boss tell me my job was secure based on a discussion with his boss. Two weeks later I was forced to retire.

So sell the car and buy a used one or keep paying the loan -- but keep your cash. When you get a better read on things in 6 months or a year then maybe pay it off -- if you still own it and still have a secure job.
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