New rules for car loans allow zero down payment, conducive to boosting auto sales

New rules for car loans allow zero down payment, conducive to boosting auto sales
New rules for car loans allow zero down payment, conducive to boosting auto sales

The manufacturing line of a NEV factory in Southwest China’s Chongqing Municipality Photo: VCG

To boost a trade-in program in the auto sector, China’s financial regulators on Wednesday jointly announced the removal of a regulatory cap on automotive purchasing loans for self-use combustion engine cars and new-energy vehicles (NEV), giving financial institutions full discretionary power. 

Analysts said the new rule for car loans will allow zero down payment, which is conducive to boosting auto sales. They also said that such move is among the country’s recent effort to boost the trade-in of consumer goods and large-scale equipment renewal, in a bid to promote consumption from both the supply and demand side.

The People’s Bank of China (PBC), China’s central bank, and the National Financial Regulatory Administration (NFRA) jointly issued a notice on Wednesday, clarifying that the maximum proportion of loans issued for self-use traditional power vehicles and self-use NEVs shall be determined independently by financial institutions. 

This means that financial institutions can issue loans at the full price of the car, that is, “zero down payment.”

Previously, the loan ratio of self-use fossil fuel cars was capped at 80 percent and that for self-use NEVs was 85 percent.

The PBC and NFRA also pointed out that the new rule aimed at increasing financial support for automobile trade-in scenarios.

Analysts said that the new financial rule for the automobile sector is in line with China’s massive consumption stimulation move – replacement of old consumer goods with new ones and renewals of large-scale equipment.

The policy was part of the goals set in the 2024 Government Work Report released on March 5, saying that China will encourage and promote consumer goods trade-in programs and boost spending on intelligent connected NEVs, electronic products, and other big-ticket items. 

And according to a circular issued on March 13, the State Council, China’s cabinet, released an action plan to promote large-scale equipment renewals and trade-ins of consumer goods, according to a circular issued on March 13.

The State Council is encouraging more policy in support of trade-in for automobiles. It also called on central departments and provincial governments to appropriately reduce the down payment ratio for passenger car loans.

By 2027, the recycling of scrapped cars will roughly double when compared with 2023 and used car transactions will increase by 45 percent compared with 2023, read the circular.
Statistics from the Ministry of Commerce revealed that China’s car ownership reached 340 million by the end of 2023. 

Analysts pointed out that the promotion and implementation of a new round of automobile trade-in policy will boost the demand for automobiles from “having a car” to “having a high-quality car.”