Can I Change Finance Down Payment Amount?

[robbiec]

Just received my VIN today! Woo!

Just filling out my Tesla loan application and it’s asking for down payment amount. If i put a certain amount down now on the application and decide to put a higher/lower down payment later, is that allowed? Thanks!

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[canyoncarver]

You can change it later. Just message them in the app, etc. When they approve it they will make sure you're approved for the payment amount that you apply for.

 

[jbuijk]

Yep...I was able to.

 

[REM]

How much are you considering to put down? I generally recommend against down payments.

 

[robbiec]

How much are you considering to put down? I generally recommend against down payments.

Im thinking 30-50k just to minimize monthly payments. Why are you against large down payments?

 

[REM]

Im thinking 30-50k just to minimize monthly payments. Why are you against large down payments?

Because you are giving the bank a bonus on their loan to you. Take out the loan with no down-payment, and after your first payment drop 30-50K. Your next due date will be in, what 30 months? You will be more than 2 years ahead of your payment, which is an incredible insurance policy for yourself in case anything crazy happens to your finances.

Plus, making regular monthly payments after dropping that much will allow you to absolutely crush your loan repayment term and minimize your overall interest.

 

[robbiec]

That‘s interesting! I’ve never thought of it that way. I guess I can verify with Tesla but do you have any idea if Tesla allows this practice? Meaning does paying a large sum for a Tesla loan advance the due date or simply reduce the principal?

 

[canyoncarver]

Because you are giving the bank a bonus on their loan to you. Take out the loan with no down-payment, and after your first payment drop 30-50K. Your next due date will be in, what 30 months? You will be more than 2 years ahead of your payment, which is an incredible insurance policy for yourself in case anything crazy happens to your finances.

Plus, making regular monthly payments after dropping that much will allow you to absolutely crush your loan repayment term and minimize your overall interest.

This is an unusual strategy. For starters, making pre payments doesn’t reduce the interest paid, paying down principal does that.

Rather than making a large advanced payment you would typically be better off making the payment you are comfortable with and paying off extra principal as you can so you can "fall back" on the smaller payment if there's a point where you can't make an additional payment against principal to pay the loan off faster.

Generally speaking the argument for making the minimum down payment is that you believe you can invest the money and net a higher return than the interest cost on the loan. This was for sure a no brainer when interest rates on auto loans were very low, pre-pandemic.

 

[REM]

This is an unusual strategy. For starters, making pre payments doesn’t reduce the interest paid, paying down principal does that.

Rather than making a large advanced payment you would typically be better off making the payment you are comfortable with and paying off extra principal as you can so you can "fall back" on the smaller payment if there's a point where you can't make an additional payment against principal to pay the loan off faster.

Generally speaking the argument for making the minimum down payment is that you believe you can invest the money and net a higher return than the interest cost on the loan. This was for sure a no brainer when interest rates on auto loans were very low, pre-pandemic.

It's only unusual because banks have conned so many people for decades into giving them a bonus at the start of the loan. If you have that amount of money to put towards a loan, your best best would be to slap it down when the loan is established and not before. Otherwise if you ever run into a situation where you could default, you have literally more than 30 months to get your finances together before your time runs out.

If you give them that money up front, you have no such hedge against that scenario happening. And if you default at that point, the bank gets your truck AND the bonus 50K. So, literally a no brainer there.

 

[WormtownKris]

It's only unusually because banks have conned so many people for decades into giving them a bonus at the start of the loan. If you have that amount of money to put towards a loan, your best best would be to slap it down when the loan is established and not before. Otherwise if you ever run into a situation where you could default, you have literally more than 30 months to get your finances together before your time runs out.

If you give them that money up front, you have no such hedge against that scenario happening. And if you default at that point, the bank gets your truck AND the bonus 50K. So, literally a no brainer there.

Respectfully, my middle-aged brain is having a hard time understanding this strategy. Can you ELIA5?
If I were to put $60k down vs $5k down, my payments on a 5-year loan are around $575 vs $1600/month. Total interest on the loan is ~$4k vs ~$11k.
So then on month two I make a huge pre-payment. I don't get how this benefits us. True, if I have a drastic financial hardship, I get a 3-year break on payments, but if I don't need that hedge, then in the last two years I have $1600 payments. (If I diligently put $575 aside each month, it's a wash. If I diligently put it into an interest earning investment vehicle, I *may* gain back the extra interest that is financed. But if even once or twice a year I use that $575 for minor home improvements or vacations or something, then I am in the hole). I also feel like, heaven forbid, the truck gets hit and totaled in the first month, it's better to owe 30% of book value vs owing 105%.
Where does this strategy work in our favor? TIA.

 

[canyoncarver]

Respectfully, my middle-aged brain is having a hard time understanding this strategy. Can you ELIA5?
If I were to put $60k down vs $5k down, my payments on a 5-year loan are around $575 vs $1600/month. Total interest on the loan is ~$4k vs ~$11k.
So then on month two I make a huge pre-payment. I don't get how this benefits us. True, if I have a drastic financial hardship, I get a 3-year break on payments, but if I don't need that hedge, then in the last two years I have $1600 payments. (If I diligently put $575 aside each month, it's a wash. If I diligently put it into an interest earning investment vehicle, I *may* gain back the extra interest that is financed. But if even once or twice a year I use that $575 for minor home improvements or vacations or something, then I am in the hole). I also feel like, heaven forbid, the truck gets hit and totaled in the first month, it's better to owe 30% of book value vs owing 105%.
Where does this strategy work in our favor? TIA.

Absolutely correct, if you must finance (as most people do) this is the better approach.

Have a payment that you can comfortably afford and then if you have the opportunity make larger principal payments along the way. If things get a bit tight you can always drop back to the standard payment amount.

As you mentioned you are better off investing the money... it's not terribly hard to beat the 5.5% interest rate with investments that in a typical year earn 6-8% and in a good year can earn 12% or more.

As to the idea of making a massive up front series of payments so you have the option of not making any payments later, you'd be far better off just keeping that money in a high interest earning money market account... everyone should have an absolute minimum of 6-12 months of expenses in an emergency fund that can be easily accessed in the event someone loses a job, has a health issue, etc.

 

[REM]

Absolutely correct, if you must finance (as most people do) this is the better approach.

Have a payment that you can comfortably afford and then if you have the opportunity make larger principal payments along the way. If things get a bit tight you can always drop back to the standard payment amount.

As you mentioned you are better off investing the money... it's not terribly hard to beat the 5.5% interest rate with investments that in a typical year earn 6-8% and in a good year can earn 12% or more.

As to the idea of making a massive up front series of payments so you have the option of not making any payments later, you'd be far better off just keeping that money in a high interest earning money market account... everyone should have an absolute minimum of 6-12 months of expenses in an emergency fund that can be easily accessed in the event someone loses a job, has a health issue, etc.

You have enough money to gamble in the stock market, but you take out a loan for a vehicle? To each his own.

If you don't have the cash to pay for this truck outright, but you have quite a bit saved up, then heed my advice above and hedge your bet towards your own assurance against loan default. Rather than gambling it.

 

[REM]

Respectfully, my middle-aged brain is having a hard time understanding this strategy. Can you ELIA5?
If I were to put $60k down vs $5k down, my payments on a 5-year loan are around $575 vs $1600/month. Total interest on the loan is ~$4k vs ~$11k.
So then on month two I make a huge pre-payment. I don't get how this benefits us. True, if I have a drastic financial hardship, I get a 3-year break on payments, but if I don't need that hedge, then in the last two years I have $1600 payments. (If I diligently put $575 aside each month, it's a wash. If I diligently put it into an interest earning investment vehicle, I *may* gain back the extra interest that is financed. But if even once or twice a year I use that $575 for minor home improvements or vacations or something, then I am in the hole). I also feel like, heaven forbid, the truck gets hit and totaled in the first month, it's better to owe 30% of book value vs owing 105%.
Where does this strategy work in our favor? TIA.

I'm making these statements from the stance that any and all debt makes you a slave to the lender, (which I detest, completely).

Taking out a loan for a luxury item like this truck is usually a clear sign of financial unwellness. Granted, people are willing to take some risk for the joy it brings. I understand that. But you are only trying to rationalize the financial absurdity of taking out a loan for a luxury item.

Don't give banks a free bonus at the start of your indebtedness lol. Use that money to get yourself out of debt quicker.

 

[OriginalWheelCoverFan]

Don't give banks a free bonus

What bank has agreed to allow you to make 3 years of future amortized payments?

And how does borrowing less from the bank to buy the vehicle from Tesla give the bank a bonus?

And what is this “bonus”?

 

[scottf200]

What bank has agreed to allow you to make 3 years of future amortized payments?

And how does borrowing less from the bank to buy the vehicle from Tesla give the bank a bonus?

And what is this “bonus”?

The bonus makes no sense to me because you either have large down payment or make the same extra payment (principal in theory) in the next month or two.

I think the 3 yrs just means any extra you pay on your monthly payment goes toward principal and then the next months interest calculation is on less outstanding loan amount (orange box). Depending on your bank/credit-union, you'd have to find out if they allow skipping future payments (payment holiday) and you'd have to be explicit the extra payment go toward principal as that doesn't appear to automatically be done and they can play some games. Example:

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