Tesla Model Y crossover - how much are monthly car payments?

The Tesla Model Y was the best-selling car in 2021 according to Car and Driver moving nearly 173,000 units last year. Acquiring a new Model Y though has been getting dearer with time.

Not only are interest rates on the climb, the Fed just upped its rate again, but Tesla has been jacking the price of their sought-after electric vehicles. Electrek, which tracks Tesla’s price increases, saw the most recent jump of nearly five percent appear on the company’s online configurator this spring setting the base cost at $69,990 before potential incentives or gas savings.

If you bring home roughly $13,000 each month and you follow the “20/4/10 rule”, you’d be looking at $1,254 per month with financing through Tesla. However, that may not be the case if you want to get you hands on one of the most popular electric cars.

The amount of your monthly payments

Any car purchase that requires a loan, also necessitates thinking about how long you want to be paying for the car and how much you can dedicate toward the down payment. There is no set rule on how much you need to pay upfront but the amount has been coming down in recent years and you can generally expect at a minimum roughly a twelve-percent down payment for a new car. Tesla set the starting rate at around 6.4 percent on its loan calculator, but your payments jump to $1,470 per month over four years.

Likewise, the length of time for car loans has been getting longer and longer. The old “20/4/10 rule” of car buying is no longer valid with the price of cars increasing, especially since the pandemic-induced shortages of the past couple years along with dramatic rise of materials needed for the lithium-ion batteries. The average electric car price hit $66,000 in June 2022 according to Electrek.

The old “20/4/10 rule” of car buying is outdated. The rule “states that you should make a 20% down payment, have a loan no longer than four years, and have a total monthly car budget that does not exceed 10% of your take-home pay.” In the first quarter of 2022, over 73 percent of new car loans were longer than 60 months according to Edmunds.

The most common is currently 72 months and getting longer. If you were to make the minimum down payment and take out the longest loan from Tesla, 72 months, you’d drop your monthly payments to $1,021 per month, but that will come at a price. In the last example, you’d pay $73,512 for your Tesla Model Y over the life of the loan versus $70,560 over four years, a difference of $2,952, not a small amount of pocket change. Were you to follow the “20/4/10 rule” you’d pay a total of just $60,192, but would saving ten grand stretch you personal finances to the point of breaking where you couldn’t handle an emergency expense is the question you need to ask yourself.

What the experts say about taking out a car loan

When it comes to the down payment on a car, the best rule of thumb is to put down “as much as you can afford without depleting your emergency savings or putting your finances in jeopardy.” A typical new car depreciates by around 25 percent in the first year, meaning that you could find yourself in a situation where you have “negative equity” in the vehicle. This will limit your options if your finances hit a rough patch and you need to sell the car to pay off debts, owing more on the car than it is worth.

You will want to take into consideration the amount of time you plan to own the car as well. The shorter the length of the loan means that monthly payments will be higher but the amount of interest that you pay will be less. As interest rates increase, so too does the difference in the extra amount you’re paying on the loan’s principle and that can add up fast.