How I Self Financed My Audi
I recently just purchased a 2021 Audi E-Tron Sportback. However, with the way that I did it, I will make about 8–12% per year on owning this car, which is night and day different than what 99% of America experiences when they buy a vehicle.
Most people give up a percentage of their monthly income for 5–10 years to a financial institution.
They pay tens of thousands in interest.
The car is worth less than half of what they paid for it by the time they need a new one.
They get no tax benefits.
And they certainly do not earn a rate of return on any of this…but the banks do!
So what did I do differently?
I’m going to explain that here so you can understand and be able to do the same.
First, I am solvent. I earn way more than I spend.
I have no consumer debt.
I have 6 months of expenses in reserves.
I am properly protected, financially speaking.
I also am very financially literate and know the truth about how money works.
I mention all of this because if all of these boxes aren’t checked, a person should not be going out and getting new cars or attempting to do what I’m going to explain in this article.
So with that out of the way, let’s first talk about my goal with this purchase.
My first goal was actually to be able to use the car as a mode of transport to increase my income. It’s a business vehicle and so I am using it to go places that will grow my business. This is important, because this means I am buying this car as a producer and not as a consumer.
This also means I get a tax deduction on the purchase of it (which I’ll go into in a bit) because I have the intention, use, and documentation of it being a business purchase.
So what does this mean? In short, under certain circumstances, the tax code allows for vehicles that weigh over 6,000 lbs gross vehicle weight, to be written off against taxable business profits as long as that vehicle is used for business more than 50% of the time, and in ratio with the percentage of use that is actually for business. So if I use it for business half the time, I get to write off half the price. If I use it for business 90% of the time, I get to write off 90% of the price.
Basically this car is going to increase my income and reduce my taxes.
Next, I am self financing this car with my life insurance. Which means, I am going to take a loan out for the entire purchase price of the car from my life insurance cash value to buy the car. In this case, I did do a bank loan to start, because I want to have the positive impact of the loan reporting on my credit report.
But, I put 15% down, which I immediately used my life insurance for. This auto loan needs to report for at least 6 months and then after 6 months I can pay the rest of it off with my life insurance so that my credit report gets the benefit of the loan being reported.
At 6 months, I’ll borrow from my life insurance to pay the rest of the loan off and instead pay myself back with interest instead of the bank. It is important to note that I have all of the funds to buy the vehicle outright with my life insurance right now, but I am choosing to finance for the 6 months because I want to build my credit report. This is very different than not having the money to purchase it outright and hoping I can keep up with the payments and build up enough to pay it off on time. 1 of them shows financially literacy and the other demonstrates lack of financial responsibility.
Okay so at 6 months I’ve borrowed from my life insurance and paid the entire loan off. Now what? Well now, I owe the entire amount borrowed back to my life insurance. So I am going to begin paying back my life insurance with principal and interest over the next 60 months. I like to use the figure of paying 2% of the purchase price as my monthly payment for the next 60 months.
Now, while I’m doing this, the amount I initially borrowed from my life insurance is growing at 3–5% tax free, while I am borrowing it.
Lastly, this vehicle is also electric. My apartment has a free electric charging station (nice little bonus) so I don’t have to spend money on fuel or charging at all. This isn’t huge, but it is a small savings and does need to be factored in as well.
But let me show you the difference of what I did here versus what most people would have done.
Scenario #1: Finance the vehicle with the bank.
Most people would have attempted to put no money down on the car (because they don’t have any money to put down).
They’d have financed it on the longest term possible (let’s use 72 months as an example).
They’d pay probably a 5% average interest rate (some people would pay higher, some lower but 5% is a good “average”).
At the end of 72 months, if the car had been paid off, this person would have given up $81,169.20 of their income…funds they could have used to pay off debt, build reserves, or invest. They’d pay around $11,000 of that as interest.
But the worst part is the car would only be worth about 15% of what they paid for it…so they are out $81,169.20 and have $9,000 for a car they paid $65,000 for. Not good! And this scenario plays out similarly with leasing.
This is a -30.68% annual return.
Scenario #2: Pay cash.
In this case, the person would walk into the dealership with $65,000 and buy the vehicle outright. They’d have no payments and no interest.
But, at 72 months, the car would still be only worth about 15% of what they bought it for. In this case, $9,000.
So just on that, they turned $65,000 into $9,000 in 72 months.
This is still a -28.07% annual return on investment.
Not to mention the opportunity cost of the $65,000. They’ll never see the future value of those funds ever again. Imagine if they’d been able to invest that $65,000 long term into something that made 12% per year! They’d have $133,061.46 instead of $9,000.
Scenario 3: What I did.
So first, I borrowed the $65,000 from my life insurance, which will continue to earn 3–5% over the period of time I own this car. Let’s keep 72 months as the example timeline. Which means at 72 months, my $65,000 would be worth $82,598.22.
I also am going to make “car payments” to myself every month to pay back my life insurance, and those payments will be 2% of the purchase price, which comes out to $1300/mo. $1300/mo x 72 months = $93,600 that I’ve repaid.
Not only that, but I wrote off the purchase price on my taxes. Let’s say my effective tax rate is 25%. This means I saved $16,250 in taxes I would have paid had I not bought this vehicle.
All in all, not including my fuel savings, I will made 10.29% per year, over the next 72 months by doing it this way.
Let me repeat that. I will MAKE a positive rate of return on owning a car and to the tune of 10.29% per year!
Nobody makes money on buying a car as so plainly demonstrated in the first 2 scenarios. But I will!
Why? Because I decided to be the bank in the transaction.
To add the little cherry on top, had I opted for a 2022 E-Tron, I would have also gotten a $7500 tax credit, which would have increased my annual return to 11.44%. I opted for the 2021 because I needed to do this purchase now and the 2022 models were on backorder until early 2022.
Let’s take a look at my benefits here.
- I will earn more income with this business vehicle
- My credit report will be even stronger because I am reporting the bank loan for the first 6 months
- I get a tax deduction
- My savings rate goes up by $1300/mo (paying myself back = saving money because it ultimately increases my cash value)
- I hedge myself against gas price increases (I want to own electric to hedge against price increases, but invest in oil & gas fields so that I profit from them as an investor)
- I earn more than 10% per year on owning this car.
Versus, losing 25–30% on financing it with the bank or paying cash.
Now, why wouldn’t someone do this?
Well there are only 3 reasons:
- They don’t know about it. Aka, they lack the financial literacy to know they can.
- They don’t know how to execute it. Again, lack of financial literacy because it isn’t hard.
- They know about it and know how to, but are afraid to because it’s “different”. This ultimately comes down to financial irresponsibility. This person knows but doesn’t do because they aren’t responsible enough to take action.
If you read this, you now know it’s an option.
You roughly know how to based on my breakdown here and you could get more help from us as a client.
So the question becomes, are you willing and able to take responsibility for your finances and do something like this?
If you are, I want to offer you a copy of my book Blueprint To Financial Freedom where you will be able to learn all of my strategies to achieve greater financial freedom in life!
Click here to order!
To Purpose, Wealth, and Freedom.
Jerry Fetta is the CEO and Founder of Wealth DynamX. He is a nationally recognized financial expert featured in Forbes, Yahoo Finance, Fox, Chicago Weekly News, New York Finance, interviewed on over 45 podcasts with world renowned experts, earning endorsements and affiliations throughout his career with names like Grant Cardone, Dave Ramsey, and Pamela Yellen.
Jerry’s mission in life is to help create millions of financially educated and solvent families achieving greater financial freedom and sharing the truth about money with those around them.
Learn more at www.WealthDynamX.com
(DISCLAIMER: The information in this content should not be considered tax, financial, investment, or any kind of professional advice. Only a professional diagnosis of your specific situation can determine which strategies are appropriate for your needs. Wealth DynamX can and does not provide advice unless/until engaged by you.)