Several State-Owned Banks in Zhejiang "Block" Early Car Loan Repayments, "5 Full 2" Changed to "5 Full 3" Starting Today

Caixin reporters confirmed through interviews that several state-owned banks in Zhejiang have collectively raised the minimum repayment period for auto loans. Specifically, the 3-year loan's minimum repayment period has been increased from 1 year to 1.5 years, and the 5-year loan's minimum repayment period has been extended from 2 years to 3 years. Early repayment before reaching the minimum period will incur corresponding penalties. Some branches of the Agricultural Bank of China in Zhejiang have already implemented these requirements today, while branches of the Industrial and Commercial Bank of China will officially enforce them after April 15.

Industry insiders interviewed believe that banks' "blocking" of early auto loan repayments may be aimed at alleviating profit pressures. Additionally, since last year, some regions have gradually halted the "high-interest, high-return" model for auto loans.

Caixin reporters noted that the news of banks extending the minimum repayment period for auto loans has had a significant impact on local consumers and auto dealers. Currently, many netizens have expressed that "if a 5-year loan requires 3 years of repayment, it might be better to pay in full for the car."

On the dealer side, most 4S stores currently require customers to use loans for car purchases and do not "welcome" full payments. On one hand, they can attract customers through interest subsidies, and on the other hand, they can receive certain rebates from banks. A salesperson at a 4S store told Caixin reporters that the extension of the minimum repayment period for auto loans by banks may affect customers' willingness to take out loans, thereby impacting overall sales.

Several state-owned banks have raised the minimum repayment period for auto loans.

This morning, a credit officer at a branch of the Agricultural Bank of China in Zhejiang told Caixin reporters that the auto loan repayment policy at their branch has been revised, with the minimum repayment period for 5-year loans increased from "2 years" to "3 years." The officer stated that the branch had just received the notice recently, and "today is the first day of implementation."

Additionally, a credit officer at a branch of the Industrial and Commercial Bank of China in Zhejiang also told Caixin reporters that their branch had received a notice requiring changes to the auto loan repayment policy, similarly increasing the minimum repayment period for 5-year loans from "2 years" to "3 years." Furthermore, the officer added that the minimum repayment period for 3-year loans has also been revised, from "1 year" to "1.5 years."

Caixin reporters learned from consulting several 4S store salespeople in Zhejiang that they have indeed received notices from banks requiring the implementation of the new repayment requirements. "We received the notice from the bank a few days ago, stating that the minimum repayment period for auto loans would be adjusted, and (for 5-year loans) the minimum period for early repayment would be 3 years," said a salesperson at a 4S store in Wenzhou, Zhejiang.

A person claiming to be a service provider for a bank told Caixin reporters that the changes in the auto loan repayment policy were made simultaneously by several major banks in Zhejiang, with notices issued by the "provincial branches." According to the source, except for a few cities in Zhejiang that have not "reached an agreement," most other regions will make the required adjustments.

The aforementioned 4S store salesperson told Caixin reporters that, to their knowledge, only Zhejiang has such requirements, and they are "unclear" whether other regions have similar policies. The bank branch officer also stated that they are unaware of policy changes at other banks or in other regions.

According to reporters, most bank auto loans currently require customers to meet the minimum repayment period to avoid penalties. The specific minimum repayment period depends on the loan term and the agreements signed between consumers, banks, and 4S stores.

The aforementioned bank credit officer pointed out that early repayment before reaching the minimum period will result in the bank charging a certain percentage of penalties, and 4S stores will also impose corresponding penalties, which is "a significant disadvantage" for consumers. Therefore, it is recommended to repay according to the agreement.

Why are banks "blocking" early auto loan repayments? What are the impacts?

Regarding banks' "blocking" of early auto loan repayments, interviewed industry insiders believe that the motivation is primarily to alleviate profit pressures. Yu Fenghui, a senior researcher at the Pangoal Institution, told Caixin reporters that from the banks' perspective, extending the minimum repayment period for auto loans is a strategic adjustment aimed at mitigating the profit pressures caused by early repayments.

"Banks rely on loan interest as one of their income sources, and early repayments reduce this expected income. By setting a longer minimum repayment period, banks can ensure more interest income over the loan cycle, thereby maintaining profitability," he said. Additionally, Yu Fenghui believes that this may also be the result of banks' comprehensive consideration of market funding costs, credit risks, and other factors.

It is understood that previously, banks adopted the "high-interest, high-return" model to expand their share in the auto finance market, attracting customers and dealers with high interest rates and rebates. However, since last year, various regions have strengthened control over the auto finance market, gradually halting the "high-interest, high-return" model. On January 14, the Chongqing Bureau of the National Financial Regulatory Administration issued a notice requiring relevant financial institutions to rectify the "high-interest, high-return" practices in auto loan business and comprehensively clean up existing business in accordance with industry self-discipline requirements.

On the other hand, from an industry perspective, the banking sector's interest margin has continued to narrow in recent years, putting widespread pressure on operations. According to data from the National Financial Regulatory Administration, the net interest margin of commercial banks at the end of Q4 2024 was 1.52%, a historical low. Against this backdrop, the average profit margin of auto loan business has also declined compared to the past. "Banks extending the minimum repayment period for auto loans is another form of 'profit protection,'" said another industry insider.

Yu Fenghui stated that from the consumers' perspective, banks extending the minimum repayment period for auto loans may increase financial burdens, especially for those who plan to repay early to reduce total interest expenses. "However, for consumers who do not intend to repay early or do not mind paying additional interest, this change has little impact," he said.