BEIJING (Reuters) – China’s central bank announced on Wednesday a review of auto loans to promote trade-ins and eliminate government-mandated minimum down payments for consumers financing new car purchases.
The revisions, the first since early 2018, are the latest attempt to boost consumer confidence in the world’s largest auto market, where a cutthroat price war and slowing demand have riled both automakers and authorities .
Financial institutions can independently determine the lowest payments they will accept on personal auto loans for gasoline-powered cars and new energy vehicles (NEVs), the central bank said in a statement issued jointly with the National Financial Regulatory Administration (NFRA).
Prior to the review, which comes into effect immediately, new generation vehicles were subject to a minimum down payment of 15% and internal combustion vehicles were subject to a down payment limit of 20%.
“Financial institutions should reasonably determine auto loan down payments, terms and interest rates based on borrowers’ credibility and repayment abilities,” the statement reads.
The regulator also said it encouraged financial institutions to reduce or eliminate penalties for prepaying loans during the process of exchanging old cars for new ones.
But China’s efforts to boost car sales by cutting payments on auto loans risk being undermined by a price war and consumer caution, analysts say.
Last week, the NFRA told Reuters that China will soon implement a policy to reduce down payments on car loans.