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September 6, 2022

A Lesson in Tesla Leases

Why A Tesla Lease May Not Be the Right Option

These days it would take real work to not know what Tesla is. One of the largest vehicle manufacturers by market value, the Elon Musk-headed vehicle company is gaining significant demand as more people become ecologically conscious. People are catching on to Tesla vehicles’ benefits, including instant acceleration, one-pedal driving, and the convenience of charging at home or on the go.

Tesla’s popularity has been partly fueled by their leasing model. The Tesla leasing model allows people to get behind the wheel of a Tesla and drive it for three years before returning it to the dealership. The flexibility of getting into a Tesla and driving it off the lot quickly at a lower cost is what consumers seek. Offering improved flexibility and lower costs than if you were to purchase the Tesla outright is an important option when selecting an electric vehicle. 

Technology is ever-evolving in the EV industry, with new software developments and improvements included with each new model. An EV driver may choose the flexibility of the lease since newer models can offer better AI and Autopilot software, improved performance, and the inclusion of new features, such as the pedestrian warning system and Tesla vision.

Although leasing a Tesla does offer flexibility, it doesn’t offer the freedom some people are seeking. Lifestyle changes and affordability can play a big factor in a user’s leasing or purchasing decision. We took an in-depth look at the options available for driving a Tesla (because we have ironing we need to do and would rather not) and were pleased to discover that there is now a new, appealing way for these folks to drive a Model 3 without getting into a lease.

Buying vs. Leasing a Tesla

For most people, the decision whether to buy or lease is a huge financial contemplation. According to Tesla, the total cost of buying a new Tesla Model 3 RWD is $48,490, plus $1,200 in delivery fees, for a total of $49,690 — all due at the time of signing. For those who do not have $49,690 saved up in their piggy banks, the next best option is to take out a loan to pay for the car. While lower APRs exist for those with exemplary credit records, Tesla estimates that a 72-month loan term with a down payment of $4,500 would cost $718 per month with a 4.49% APR.

Far cheaper than buying a Tesla Model 3 is the option to lease. Anyone hoping to take on a lease must qualify for a loan from Tesla. There is currently no stated minimum-required credit score to apply for a Tesla auto loan, but borrowers with the best credit scores (720+) generally qualify for lower-APR financing. According to Tesla, a 36-month lease term with $4,500 due at signing and a minimum 5.37% APR, will cost,  on average, an estimated monthly amount of $519. After 36 payments, the owner will drop off the car and walk away with no more cares in the world other than the fact that he or she is apparently now walking home from a car dealership.

It is easy to see how the lease option could be attractive to those who want to upgrade their vehicles regularly, to keep up with the latest technology, or those who are without the necessary savings to own a Tesla outright. For leasing veterans who often look to buy their vehicle at the end of their term, it should be pointed out that there is currently no option for new lessees in the U.S. to buy the Model 3 or Model Y at the end of their lease term. And this is just the first of a few challenges and hidden costs that come with leasing these cars.

The first of the challenges is that the option to lease a Tesla is not available in all 50 states. At the time of this blog post’s publication, Tesla was offering leasing in the following states: AL, AK, AR, AZ, CA, CO, CT, DC, FL, GA, HI, IA, ID, IL, IN, KS, LA, MA, MD, ME, MN, MO, MT, NC, ND, NJ, NM, NV, NY, OH, OR, PA, RI, SC, SD, TN, TX, UT, VA, VT, WA, WV, and WY.

The second challenge is that, whether one is buying or leasing a Tesla, he or she is required to undergo rigorous financial checks that will barely stop short of asking how much the tooth fairy used to bring them for losing teeth as a child. At the time of application, potential lessees will need to go through the same testing as buyers and are required to submit a credit application along with their date of birth, registration address, social security number, and employment and income information. All of this is then analyzed by either Tesla or the loan company — possibly while snickering. Part of the process is the requirement for one “hard pull” of the applicant’s credit report, and while there are no charges for this application, owners will need to ensure they lift all credit freezes they currently have in place with all credit bureaus. Eventually, should all of this be approved, delivery dates will then be arranged, which can be months later due to the popularity of the brand.

Is Leasing a Tesla Like Being on a Leash?

The next challenge with the leasing system is that lessees are now locked in for a period of time regardless of their life situation or whether the car actually ends up meeting their needs. Many likely don’t know this, but terminating the lease at any time will still require payment of either the remaining balance of the lease, or the difference between the adjusted lease balance and the current market value of the car. Unlike with ownership, it is not possible for the lessee to simply sell the car, pay off the remainder of the contract, and move on.

It is technically possible to wriggle free of a lease, but only if you are able to convince someone else that what they really want is the remainder of your lease, and they agree to take it over. Even this comes with additional catches though, such as the fact that there has to be more than 13 months left on the lease contract, the new lessee must also be credit approved, and the current lessee pays a credit application fee of $150 plus applicable taxes, as well as a lease transfer fee of $500 plus applicable taxes. A copy of your kindergarten report card is entirely optional.

There are rather strict requirements and expectations about how far the car will be driven and just what condition it will be in when it is returned. This means that, in addition to knowing that the car will be exactly what they will want to be driving three years from now, hopeful applicants must also know how many miles they want to drive each year. 

Leased vehicles have an annual mileage limit, and there are per-mile fees for those who exceed it, as well as excess charges for too much wear and tear on the vehicle. Tesla’s lowest-mileage lease package includes up to 10,000 miles per year, but options do exist to increase that amount to 12,000 or 15,000 for a higher monthly payment.

It goes without saying that lessees will also be required to take out insurance on their leased Tesla that lists Tesla Lease Trust as the lienholder and an additional insured party on the policy. Unless state-specific terms exist, Tesla owners must have a policy that offers at least $50,000 of coverage for property damage, $100,000 for bodily injuries to any one person, $300,000 for any one accident, physical damage insurance for the full value of the vehicle, and a maximum deductible charge of $2,500. With our ironing still undone, we phoned major insurers and discovered that lessees can expect Tesla Model 3 insurance to cost an average of $2,215 per year, or about $185 a month. 

There is one final additional cost and it’s actually quite a sneaky one: tires. Teslas can be heavy on tire use, but lessees are expected to make sure they have ones that meet minimum requirements. Tesla Model 3s are equipped with Michelin Primacy MXM4 tires that cost around $275 each. It is recommended that these tires be rotated once every 6,250 miles or at least twice a year.

After the $5,714 due at signing and a $250 order payment, including the cost of insurance, the average monthly cost of leasing a Tesla Model 3 stands at around $704 a month. This does not include any fines levied for going over the distance and wear-and-tear limits or the tire replacement,  rotation, and recommended maintenance costs, along with the entirely optional payments you can make into my PayPal account.

But I Just Want to Drive a Tesla!

Naturally, most people are now asking themselves if there are any alternatives to leasing that deliver the kind of short-term, hassle-free driving experience they are looking for, and thankfully, there are. Subscription services such as Autonomy, give potential drivers the option to take up what effectively amounts to extremely flexible, short-term leases that eliminate many of the financial and emotional drawbacks of other options.

On the Autonomy website, a dial allows customers to tailor the cost of a Model 3 or Model Y subscription to suit their budget. For the Model 3 RWD, an upfront payment of $5,900, for instance, unlocks a monthly charge of $490.* This means both the upfront payment and the monthly charge are cheaper than leasing and, unlike with leasing, will not go up regardless of your credit score. While you will still need to pay for insurance, this monthly charge covers all routine maintenance as well as replacing those pricey tires for normal wear and tear.

And the price isn’t the only benefit of subscribing to a Tesla instead of leasing one. The real reward is flexibility. Drivers will no longer be locked in for a period of three years. Instead, they can sign up for a minimum period of three months, and thereafter use the car on a month-to-month basis. If at any time they find the car is no longer suitable for them, they can simply drop it off after giving 28 days’ notice, and they’ll have no additional obligations. 

While leasing has the same financial requirements as buying a car, signing up for a subscription is a quick process with no need for a hard credit inquiry, loan, or background check. Provided you have a driver’s license, a smartphone, and a form of digital payment (which can include a credit card), you can complete the entire process from your phone, with no paperwork required.

At the end of the day, if you are looking for affordability and flexibility, you really should be looking into subscribing to a Tesla instead of leasing one. And if you're seeking a sharp, well-pressed appearance in your new Tesla, you should learn from my mistake, and iron your clothes fresh from the dryer. 

*Pricing for the Model 3 RWD in white without additional upgrades. Excludes $500 security deposit, taxes, and additional fees.

Picture of Warren Robertson

Warren Robertson

Warren Robertson qualified with a master's in journalism in 2004 and has spent 20 years writing technical articles and copy for a variety of publications, agencies, and corporates, mainly in the medical and financial fields. He is currently based in Cape Town, South Africa where, despite the surroundings, he still spends most of his time indoors

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