In response to the impact of rising interest rates on car buyers, Tesla Inc. has introduced 84-month auto loans as an option for its US customers. Elon Musk, the CEO, stated that it was necessary to address the problem that rising interest rates were posing.
While the extension of loan terms to seven years can lead to reduced monthly payments for consumers, it also comes with potential drawbacks. Borrowers may end up paying more in interest over the long term and face a higher risk of finding themselves owing more on the car than its actual value.
Musk has been vocal about his criticisms of the Federal Reserve, particularly regarding its decisions on interest rates. He had warned about the potential for severe economic repercussions due to rate increases, though his predictions of deflation have not yet materialized.
During Tesla’s recent earnings call on July 19, Musk highlighted the necessity of adjusting car prices in response to significant interest rate hikes. The CEO expressed concerns that interest payments could inflate the overall cost of the vehicle, prompting the company to take action.
Despite the introduction of 84-month auto loans, the trend toward longer loan terms has slowed this year, as reported by Experian, a credit-reporting company. Approximately 34% of new vehicle loans in the first quarter extended beyond six years, down from about 38% in the previous year.
Tesla continues to experience impressive delivery numbers, setting a record of 466,140 vehicles in the second quarter. However, the company has faced challenges in translating production figures to sales, with the shares experiencing a decline after Musk’s recent warning that the company may have to further reduce prices if interest rates continue to rise.
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