Buying a new car is one of the biggest purchases you’ll make in your life, often second only to the cost of your home. While these techniques will likely apply to any vehicle purchase, I’m specifically focusing on the Model 3 because it’s one of the most hotly anticipated and desirable vehicles coming to Australia.
In 2019, the reality is that electric vehicles are still more expensive than most of their combustion-powered rivals. It is expected that by 2025 that we may find price parity, as the cost of batteries continues to reduce, also accelerated by increased competition.
Today if you want to buy a Model 3, you’re looking at a price tag of A$66,000 for the Standard Range Plus, A$85,000 for the Long Range and A$91,200 for the Performance. Once you add on-road costs, those numbers (in VIC) become $70,634 for SR+, $93,662 for the Long Range and $102,067 for the Performance model.
If you select all the options, you can pay as much as A$119,266 for the Performance with Red Multi-coat paint, White Interior and Full Self Driving.
Now you know the final price tag, the next question is how you’re going to pay for it.
A quick disclaimer, everyone is in a different financial position and have a different risk appetite, so get your own financial advice before buying, but here’s my run-down of the options you have available to you.
1. Buy outright with cash
If you have a nice job, work hard, save even harder, then maybe you’re in a position where you have the funds to buy the car outright with cash.
If that’s you, congratulations, life’s going pretty well for you, go to the website now and enjoy your new Tesla.
2. Get a Loan through Tesla
Tesla offers their own finance and judging from the conversation in Tesla Forums, a number of people are taking this route. The obvious advantage is that you have less chance of delays in the ordering process.
As we go through these figures, I’ll give you the extremes, both the cheapest Model 3 and the fully loaded, most expensive edition (VIC prices). To get into any of these, you still need the $3,000 deposit to get started.
With a purchase price of $70,634, the estimated monthly loan payment would be $962. This is based on a comparison rate of 3.89%.
Tesla also provides the potential petrol savings of driving an EV, which they calculate at $67 per month.
After the deposit ($3K), the loan itself requires $0 down, runs for 84 months (7 years), with a $0 balloon payment. The total amount paid would be $80,808, around $10,174 more than the purchase price.
With red paint, white interior and autopilot selected, the car’s $119,266 cost in loan terms is as follows.
The same 84 month (7 years) loan period as before, now attracts monthly repayments of A$1,624 per month at the same 3.89% comparison rate. Tesla estimates a petrol saving of $67/mo.
Again with $0 down and $0 balloon payment, the actual car cost would be A$136,416.
The choice of which model you end up with really depends both on your personal preference, but mostly what you can afford. On finance, you’re talking about repayments on a car that approach many people’s home loan repayments, so it’s a very serious commitment to take on.
3. Get a Loan through a 3rd party provider
While Tesla’s finance uses Pepper Asset Finance and Macquarie, you get to choose. Chances are, if you look around, you may be able to find finance from another provider at cheaper rate than what Tesla offers. It’s a lot more leg work for you to do, but it could save you hundreds to thousands of dollars.
With Tesla finance partners, you could add a cash deposit (if you have it) where your credit rating doesn’t allow you to borrow the full amount.
Thanks to some feedback on the Tesla Model 3 Australia Facebook Group, we also know that CBA have a very nice (close to home loan rates) of 3.5% for Teslas.
The downside is that by introducing an additional 3rd party company in your vehicle purchase, there is a chance delays could occur. When you apply for a car loan, Tesla needs to be provided with the approval that you have the funds.
4. Borrow money from your family
Some people have access to funds from a source you may not have considered. Depending on how well your family has done financially, you may have an opportunity to borrow some money. This finance option may come at the best interest rate available (zero) depending on how good your last Christmas present was.
If you get a lump sum and deposit it to your bank account, your bank and the ATO may ask some questions about where you got it from. There are limits on the amount you can gift someone (or be gifted) each year. Make sure you check the details for your state.
Don’t be surprised if you have to get a statutory declaration completed to confirm the money was a gift. This is pretty straight forward, just needs to be a letter signed by a Justice of the Peace.
5. Extend your home loan
The Reserve Bank has recently lowered the cash rate (the rate at which banks borrow money at) to record lows. This means most banks have passed on savings to consumers.
Home loan rates are at record lows right now in Australia which means extending your home loan and refinancing your mortgage can leave you on a lower interest rate, lower minimum monthly repayments even after growing the balance.
Depending on where you are in your home loan, you may have enough equity in your home to borrow the full amount for the car. If you’re not that far into your mortgage, you will have to get a little bit more creative.
The first thing to do is to save as much as you can. If you’ve decided your buying the car, then cut back on all non-essential expenses, take any additional shifts or over time you can and look to sell any unwanted or unused items around the home to increase income.
As you pour that extra money into the loan, you’re increasing the available balance to put towards the car.
When you refinance a home to withdraw cash, you have to tell the bank what you’re doing with it, in this instance pay for a car. To release the money from your home loan, they want to be sure you’re not off to Vegas.
Another step in the process is to get a valuation of your property, so yes, time to give the house a Spring clean. The valuation will adjust, hopefully in a positive way, your equity in the home. The amount of equity you have in the home dramatically affects the amount of Lender’s Mortgage Insurance you’ll end up paying. This fee protects the bank should you default on it.
While borrowing against the home loan provides the cheapest rate of finance (my bank offers a low 2.98% intro rate to new customers or 3.24% for existing customers who lock in for 2 years.
Now here are the downsides of this method. A car may last you 15 years, while the home loan runs for 30, this means if you’re not disciplined, you could pay for this car, after your on to your next one. If you are aggressive about paying back the car, you’ll have paid back the car when you return the mortgage back to the value it was before you refinanced. This doesn’t account for the extra duration of the loan.
Home loans are the long game and if you do well career-wise, your wage should go up over time. This means being able to fund the repayments and your living expenses at the start of the loan, should be the hardest time financially. That is of course unless you continue to take on extra expenses are your wages increase over the years, that’s the trap for young players.
I can’t tell you which option is best for you, other than to say, the less you have to borrow and pay interest on, the better. That means if you want a Tesla Model 3, you need to work hard for it and sell anything that’s not bolted down on Facebay or Gumtree.
In terms of what you can afford, many people think that’s a measure of what you have in the bank, but the reality affordability is based on the finance options you have available to you. Just remember you can combine as many as 3 of the options above.
I hope you find your way financially to the vehicle, but for some, you will have to come to the realisation this dream isn’t available right now. If that’s you, stay hungry, save your dollars and you too may be able to overcome the Tesla stretch and work out how to finance the car of your dreams.