Tesla has changed the automotive industry with its innovative electric vehicles. As these sought-after cars become more common, we help you understand the finance options available. Whether you're eyeing a standard or long-range Model 3 saloon, or a versatile Model Y SUV, financing a used Tesla involves exploring options like Personal Contract Purchase (PCP), Hire Purchase (HP) and maybe a personal loan. This guide from Prefinance will walk you through how these finance products work, helping you make an informed decision.
Tesla Finance Options
When it comes to financing a used Tesla, you'll typically encounter two main types of agreements in the UK: Personal Contract Purchase (PCP) and Hire Purchase (HP).
Personal Contract Purchase (PCP) for Teslas
PCP finance is a popular choice for many drivers, particularly those who like to regularly update their car. With PCP, you pay monthly instalments over an agreed term, but these payments don't cover the full value of the car. Instead, they cover the depreciation of the vehicle during your contract.
At the end of the term, you have three choices:
Return the car: Hand the Tesla back to the finance provider without further obligation (provided you've stayed within the mileage limits and the car is in good condition).
Buy the car: Pay a pre-agreed lump sum, known as the Guaranteed Minimum Future Value (GMFV) or balloon payment, to take full ownership.
Part-exchange: Use any equity in the car (if its market value is higher than the GMFV) towards a deposit on a new Tesla or another vehicle.
PCP often results in lower monthly payments compared to HP, making a Tesla more accessible on a month-to-month basis. However, it's important to consider the mileage limits and the potential balloon payment if you intend to own the car.
Used Tesla values are now lower than they used to be, with 2023/72 plate models starting from around £17,000. On a car like this with a £3,000 deposit, a PCP comes out at under £250 a month with a balloon of £6480, based on £10,000 miles per annum. Facelift models start on a 24 plate for around £26k, with PCP payments under £400 with a 20% deposit and a balloon/GFV of just under £9,000, all based on a representative APR of 8.9%.
Rates will vary by lenders, so it's important to first compare the deal from the dealer using our calculator to see if they are overcharging your for the finance. If so, you can then apply via our brokers and get the best rate for your credit profile.
Hire Purchase (HP) for Tesla Model 3 or Y
Hire Purchase is a more straightforward finance agreement if you want to own your Tesla. With HP, your monthly payments cover the entire cost of the car, plus interest, spread over the finance term. Once you've made all the scheduled payments, and usually a small 'option to purchase' fee, the car is legally yours.
Key aspects of HP:
Ownership: You become the legal owner at the end of the agreement.
No mileage limits: Unlike PCP, there are no restrictions on how many miles you can drive.
Higher monthly payments: Generally, HP monthly payments are higher than PCP because you're paying off the full value of the car.
HP is ideal for those who plan to keep their Tesla for the long term and prefer the certainty of eventual ownership.
On both PCP and HP, you get extra protection compared to a personal loan. HP and PCP are both tripartite agreements. Essentially, the dealer sells the car to the lender who then 'hires' it back to you until you make the final payment. You're the third party in this.
Where the benefit lies is that if the dealer sells you a poor quality car, the finance company is the buyer, so they will support you to get it rectified. Realistically, this means unwinding the deal if the dealer is uncooperative or putting pressure on them to fix faults with the threat of a cancellation. Lenders will often refuse to fund dealers who don't follow good customer service practices.
You also get the benefit of the 'halves' and 'thirds' rules. What this means is that once you have paid half of the total amount payable under the agreement, you can hand it back to the finance company with nothing further to pay. Once you have paid a third, the finance company cannot take the car back from you without taking you to court. The halves rule is designed to protect you from being overcharged for the car and the finance, giving you an option to end the agreement early.
These benefits only apply to regulated agreements. (Consumer deals under £60,260 borrowing)
Comparing Tesla Finance Deals
Finding the right finance deal for your Tesla involves comparing the Annual Percentage Rate (APR), the total amount payable, the payments and the terms and conditions of each agreement. Prefinance helps you do exactly this by comparing offers from a panel of specialist finance brokers.
When comparing, consider:
APR: This is the total cost of borrowing, including interest and any fees, expressed as an annual percentage. A lower APR means lower overall costs. Our specialist brokers offer rates from 7.9% APR, with a representative APR of 8.9%.
Deposit: The amount you put down upfront can significantly impact your monthly payments and the total interest paid. You can learn more about how much deposit you should put down for car finance.
Term Length: The duration of your finance agreement (e.g., 24, 36, 48 months) affects both your monthly payments and the total interest. Longer terms usually mean lower monthly payments but more interest paid overall.
Mileage Limits (PCP): If you opt for PCP, be realistic about your annual mileage to avoid excess mileage charges.
Personal Loans: Is a personal loan right for you, or would you prefer the extra peace of mind that a regulated finance agreement brings.
The Prefinance Advantage for Tesla Finance
As a comparison service, Prefinance isn't a lender or a broker ourselves. Instead, we connect you with specialist finance brokers who can access a wide range of finance products. This means you can compare multiple offers for your Tesla finance in one place, potentially uncovering significant savings. For Tesla finance specifically, our data shows that customers could achieve an average monthly saving of £18.24, leading to an average total saving of £905.85 over the term, compared to typical dealer finance rates. This is based on an average APR of 8.9% through our panel, versus a dealer average of 11.03% for Tesla finance.
You can use our tools to calculate your car finance costs and get a quote.
Considerations for Electric Vehicle Finance
Financing an electric vehicle like a Tesla comes with some unique considerations:
Residual Values: Electric vehicles can have mixed residual values, which can be beneficial or detrimental for PCP agreements as it can lead to a higher our lower GMFV and thus higher/lower monthly payments. What we are finding is that EVs with higher ranges hold their value better. So a Tesla long range might be a better bet than a standard RWD. Run the quotes for yourself to find out.
Running Costs: While finance payments are a key part of the cost, remember to factor in charging costs, insurance, and maintenance. Electric cars often have lower running costs than petrol or diesel equivalents, especially if you avoid public charging. Home tariffs can fill up a battery for a few pounds, saving a fortune on fuel.
Government Tax Changes: Keep an eye on any ongoing government tax changes for electric vehicles, which could impact the overall cost of ownership.
The electric vehicle market is dynamic, with new models and technologies emerging regularly. This can influence resale values and the attractiveness of different finance products. For example, the Mercedes C-Class Electric is challenging the Tesla Model 3, indicating a competitive landscape. And there seems to be a new Chinese brand entering the market every month too.
Here's a general comparison of the main finance products:
Feature | Personal Contract Purchase (PCP) | Hire Purchase (HP) | Lease Purchase |
|---|---|---|---|
Ownership at End | Option to buy (balloon payment), return, or part-exchange | Yes, after all payments and option fee | Commitment to buy (balloon payment) |
Monthly Payments | Typically lower | Typically higher | Lower than HP, similar to PCP |
Mileage Limits | Yes, agreed at start of contract | No | Usually no, but check terms |
Deposit Required | Usually required | Usually required | Usually required |
Ideal For | Regularly updating car, lower monthly costs | Owning the car outright, no mileage worries | Businesses or those committed to buying with lower payments. Not a recommended option for Tesla currently unless a business user. |
For a more detailed comparison, you can read our guide on PCP vs HP Car Finance.
Finding Your Tesla Finance Deal
Financing a Tesla isn't complicated. By understanding the different finance products and comparing offers from various providers, you can secure a deal that fits your budget and lifestyle. Prefinance is here to simplify this process, connecting you with specialist finance brokers who can provide competitive rates with a representative APR of 8.9%.
Ready to explore your options? Get a car finance quote today and see how much you could save on your Tesla.
