Tesla Introduces Longer Financing Options Amid Increasing Interest Rates
In response to increasing interest rates, Tesla Inc. has introduced 84-month auto loans for customers, following Elon Musk’s statement that the company needed to take action.
The company is now including seven-year loans as options on its US order pages, after previously offering loans for up to 72 months. Extending loan terms can lower monthly payments for car buyers, but consumers tend to pay more in interest and run a greater risk of owing more than their vehicle is worth.
Tesla’s CEO has often criticized the Federal Reserve. Musk tweeted in November that the Fed’s rate hikes “massively reinforce the likelihood of a severe recession.” His predictions of impending deflation have not yet come true.
“When interest rates go up dramatically, we actually have to lower the price of the car because interest payments increase the price of the car,” Musk said on Tesla’s July 19 earnings call. “So we have to do something about it.”
While 84-month auto loans have grown in popularity, the trend slowed earlier this year, according to credit reporting company Experian. About 34 percent of loans for new vehicles in the first quarter were longer than six years, compared to about 38 percent a year earlier.
Tesla delivered a record 466,140 vehicles in the three months ending in June, but has sold fewer cars than it has produced in each of the past five quarters. Shares fell after Musk said on a call this week that the company must continue to cut prices if interest rates continue to rise.
