Photo: Tesla
Tesla is offering consumers up to 84-month loans on new vehicles. The move will allow more people to finance a Tesla vehicle, although making such a long-term commitment for a car might not be the wisest thing to do. Depending on how much you drive, the Tesla's battery could be out of warranty before the loan is paid off.
Tesla pioneered the direct-sale system in the auto industry, avoiding sharing revenue with the dealers. The move proved a winner, allowing Tesla to sell more, better, and with more control over prices and the whole process. As traditional carmakers are sabotaged by their dealers with insane markups and other questionable practices, the Tesla model has been a hit with consumers. Still, Tesla started to learn new tricks from dealers, ultimately turning the EV maker into a giant dealership of sorts.
One of these tricks is offering long-term financing to people who would not afford a car otherwise. Tesla just introduced an 84-month loan on its website to allow more people to finance the purchase. This is no gift because the APR on this financing is 6.39% in the most favorable case, which means it can be higher than that. If you buy the hugely popular Tesla Model Y LR AWD using an 84-month loan, you will pay $59,052 plus the $4,500 downpayment. That's $63,552 instead of the $50,490, which is the current price of that car.
While car dealerships have been offering 84-month financing for years, Tesla limited its offer to 72 months until now. Almost one-third of the car and truck loans in the US are signed for six or seven years, compared to only 1% in 2004, an Edmunds study shows. Although Tesla offers the possibility to finance your car for 84 months, it doesn't mean you should. There are some cases when it could be good, and others when you should stay away.
Long-term financing could bring benefits if the interest rates are low and you have money to spare. That's because you can invest your money for a higher return than you pay as interest on your loan. This is not the case here, as Tesla introduced the 84-month loans to mitigate the high interest rates. In this case, a long-term loan indicates that you can't afford that car model. You should choose a more affordable model or wait for the interest rates to drop until you pull the trigger on a loan.
There are unwanted implications of a long-term loan for a car. Especially given the high interest rates, you would find yourself in a situation where your vehicle is worth less than what you owe the bank (or Tesla, in this case). Also, although the battery warranty covers 8 years of usage, it is mileage-limited. The Model S and Model X are limited to 150,000 miles, whereas the Model 3 and Model Y are limited to 120,000 miles. The Model 3 RWD is an exception, as its LFP battery is covered for only 100,000 miles.
If you drive 20,000 miles or more, you'll be out of warranty before you pay off your loan. That means a battery defect would put you in a very delicate position. Unless you can afford to pay $20,000 for a battery replacement, you'll have no car and still owe money, making you less likely to qualify for a new loan to buy another vehicle.
One of these tricks is offering long-term financing to people who would not afford a car otherwise. Tesla just introduced an 84-month loan on its website to allow more people to finance the purchase. This is no gift because the APR on this financing is 6.39% in the most favorable case, which means it can be higher than that. If you buy the hugely popular Tesla Model Y LR AWD using an 84-month loan, you will pay $59,052 plus the $4,500 downpayment. That's $63,552 instead of the $50,490, which is the current price of that car.
While car dealerships have been offering 84-month financing for years, Tesla limited its offer to 72 months until now. Almost one-third of the car and truck loans in the US are signed for six or seven years, compared to only 1% in 2004, an Edmunds study shows. Although Tesla offers the possibility to finance your car for 84 months, it doesn't mean you should. There are some cases when it could be good, and others when you should stay away.
Long-term financing could bring benefits if the interest rates are low and you have money to spare. That's because you can invest your money for a higher return than you pay as interest on your loan. This is not the case here, as Tesla introduced the 84-month loans to mitigate the high interest rates. In this case, a long-term loan indicates that you can't afford that car model. You should choose a more affordable model or wait for the interest rates to drop until you pull the trigger on a loan.
There are unwanted implications of a long-term loan for a car. Especially given the high interest rates, you would find yourself in a situation where your vehicle is worth less than what you owe the bank (or Tesla, in this case). Also, although the battery warranty covers 8 years of usage, it is mileage-limited. The Model S and Model X are limited to 150,000 miles, whereas the Model 3 and Model Y are limited to 120,000 miles. The Model 3 RWD is an exception, as its LFP battery is covered for only 100,000 miles.
If you drive 20,000 miles or more, you'll be out of warranty before you pay off your loan. That means a battery defect would put you in a very delicate position. Unless you can afford to pay $20,000 for a battery replacement, you'll have no car and still owe money, making you less likely to qualify for a new loan to buy another vehicle.
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