Tesla starts offering 84-month loans as interest rates rise

(Bloomberg) — Tesla Inc. has started offering consumers 84-month auto loans after Elon Musk said the carmaker would “have to do something” about rising interest rates.

The company now includes seven-year loans as an option on its US order pages, after previously offering loans as long as 72 months. While extending loan terms can lower car buyers’ monthly payments, consumers tend to pay more in interest and face greater risk of owing more than their vehicle is worth.

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Tesla’s chief executive officer has been a frequent critic of the Federal Reserve. Musk tweeted in November that the central bank’s rate increases were “massively amplifying the probability of a severe recession.” His predictions of impending deflation haven’t yet panned out.

“When interest rates rise dramatically, we actually have to reduce the price of the car, because the interest payments increase the price of the car,” Musk said during Tesla’s July 19 earnings call. “So we have to do something about that.”

While 84-month auto loans have been gaining in popularity, the trend slowed early this year, according to credit-reporting company Experian. Roughly 34% of new vehicles loans in the first quarter were longer than six years, down from about 38% a year ago.

Tesla delivered a record 466,140 vehicles during the three months that ended in June but has sold fewer cars than it’s produced each of the last five quarters. The shares plunged after Musk said on this week’s call that the company will have to keep lowering prices if interest rates continue to rise.

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