Tesla is now providing 84-month (7-year) loans for its electric vehicles, aiming to reduce monthly payments due to the impact of high-interest rates in the current economic climate.
The surge in interest rates has affected people’s ability to borrow, particularly for large purchases like homes and cars. The Federal Reserve has increased the US federal interest rate from 0.25% to 5.25% over the last two years.
Tesla CEO Elon Musk has claimed that the rise in interest rates has been the primary reason why Tesla has been forced to cut its prices. In response, Tesla has sought to address the situation by introducing new financing options, including longer loan terms.
Tesla’s online configurator has been updated to include the option of an 84-month loan. This means that customers can now choose to finance their car purchase over a seven-year period.
For the 84-month loan option, Tesla estimates an Annual Percentage Rate (APR) of 6.39%. Considering the expected interest rate, financially, it may not be a prudent decision to finance a Tesla for such an extended period. Let’s use a $51,880 Model Y Dual Motor AWD as an example to understand how the loan calculation works.
Assuming a buyer makes the required $4,500 down payment, the financed amount would be $47,380. With an APR of 6.39%, the monthly loan payment would amount to $703 (without considering potential incentives). Over the course of 84 monthly payments, the total amount paid by the owner would be $59,052, making the overall cost of the car a staggering $63,552.
Moreover, the 6.39% rate may only be available to highly qualified buyers, as indicated by the warning on Tesla’s website. Therefore, many Tesla drivers are likely to face interest rates substantially higher than the 6.39% figure.
As a result, although Tesla’s 7-year loans will lead to lower monthly payments, Tesla will ultimately benefit from the loans far more than customers do. Previously, Tesla’s maximum loan length was 72 months.
