Contract or not, almost anything you to do a car dealership is moral IMHO. Just as it is the first duty of a prisoner to escape, it is a consumer's duty to rip off all businesses (as distinct from real people) that you interact with, and dealerships are among the most reprehensible.
Even if you adopt that point of view, I still argue that not buying from a dealer at all is the best way to stick it to dealers, far better than becoming their customer and attempting to win at their game.
The terms of the loan would allow you pay off at any time. That's fine. Ethically, it's exactly like paying off your credit card at the end of the month instead of making the minimum payment. Or paying off your mortgage when you have the cash.
This is a straw man. We all agree that legally, one is allowed to pay the loan off early. The question is: do you lie to the dealer and say that you're going to finance, when you're not really going to finance?
I once got a long-term mortgage and paid it off in full within two months. The contract of course allowed me to do this without penalty. But in this case I told the underwriter that I would be doing exactly this. They were still happy to underwrite my loan.
Personally, I would rather tell the lender the truth in this instance. If they don't want my business as a result, then I want to know this information, because it affects my purchasing decision.
I would say costing them money is better than not giving them money, if you goal is to rip them off. This is what happens if you get the "we'll finance you" price but pay it off on month 1 with cash.
That may be strictly speaking true, but it conflicts with another equally important priority: I want to minimize interaction with dealers as much as possible, precisely because I find them reprehensible.
