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Tesla Extends Loan Duration Amid Rising Interest Rates

Customers can now spread payments over longer period; but may end up paying more than car's actual value

Tesla. Inc. (NASDAQ:TSLA) CEO Elon Musk previously expressed concerns about the impact of rising interest rates on car purchases and floated the prospect of cutting vehicle prices even further.

What Happened: The company’s website shows that the duration of a loan extended by a Tesla financier or third-party lender will now be 36 to 84 months. The cap was previously at 72 months.

This suggests that cash-strapped customers can now spread their payments over a longer duration. Since March 2022, the Fed has hiked the fed funds rates aggressively in the current tightening cycle.

But there is a downside to Tesla’s updated payment plan — customers could pay more than their car’s actual value if they agree to the extended-period option.

Why It’s Important: Thanks to the Fed’s successive and aggressive hikes, interest rates are now at a 16-year high of 5%-5.25%. To assess the impact of the rate hikes, the central bank agreed to a pause during its June meeting.

The Fed’s monetary policy setting-arm, the Federal Open Market Committee, is set to meet next week to decide on its monetary policy. The futures market has priced in nearly 100% probability of a 25-basis-point increase in rates to 5.25%-5.50%.

Central bank officials, in their public appearances, have continued to signal that more rate hikes could be on the horizon.

A tesla vehicle is displayed in a Manhattan dealership on January 30, 2020 in New York City. Following a fourth-quarter earnings report, Tesla, the electric car company, saw its stock surge to another record high Thursday that blew past estimates, giving the leading maker of electric vehicles a market valuation of $115 billion. Shares of Tesla (TSLA) rose 10.3%, closing at 640.81, a new closing high. Tesla. Inc. (NASDAQ:TSLA) CEO Elon Musk previously expressed concerns about the impact of rising interest rates on car purchases and floated the prospect of cutting vehicle prices even further. PHOTO BY SPENCER PLATT/GETTY IMAGES

Musk has been a critic of the monetary policy and has, in the past, expressed worries about the Fed pushing the economy into a recession. The futures market has priced in nearly 100% probability of a 25-basis-point increase in rates to 5.25%-5.50%.

Tesla closed Friday’s session down 1.10% at $260.02, according to Zenger News Pro data.

 

Produced in association with Benzinga

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