Automakers Roll Out Seven-Year Auto Loans as Banks Show Limited Interest

Li Yunqi China Securities Journal

Since the beginning of this year, automakers such as Tesla, Xiaomi Auto, and Li Auto have launched seven-year car loans in rapid succession, offering low interest rates and low monthly payments to reduce the barriers to purchasing a vehicle, sparking a wave of financial promotions in the auto market. These products are divided into two categories: bank loans and financial leasing, with significant differences in ownership, risk control, and costs. During this wave, banks have been cautious due to the risks of collateral depreciation and default. Experts advise consumers to carefully calculate total expenses, understand the nature of the contract, and be aware of the risks of ultra-long-term loans.

Seven-Year Car Loans Follow One After Another

Li Auto sales staff stated that the company has launched a seven-year car loan service, with Yixin Group as the partner financial institution, and only equal principal and interest repayment methods are available. According to a trial calculation on the company’s official website, the annualized interest rate (simple interest) for the seven-year loan is 3.22% and 4.69%, with different rates for different models.

In addition, unlike typical credit loans, consumers are required to mortgage the vehicle registration certificate, commonly known as the green book, to Yixin Group. “This is to prevent fraud, and the green book must be returned when the loan is repaid,” said the aforementioned Li Auto sales staff. The company’s official website shows that the six- to seven-year car loans are provided by Tianjin Hengtong Jiahé Financial Leasing Co., Ltd., a subsidiary of Yixin Group. After the lease term, consumers obtain ownership of the vehicle as agreed.

Tesla’s seven-year car loan product is a bank loan, with consumers able to choose between China CITIC Bank or Shanghai Pudong Development Bank, and no vehicle registration certificate mortgage is required. Tesla’s official website indicates that some models have a seven-year loan with an annualized interest rate as low as 0.98%.

Xiaomi Auto also launched a seven-year car loan product for the YU7 series models. Depending on the down payment, the approximate annualized interest rates are 2.55% and 3.77%. Currently, Xiaomi Auto’s seven-year car loans can be processed through partner banks or leasing companies. Several consumers have reported on social platforms that they have obtained seven-year loans through banks such as Ping An Bank and Shanghai Pudong Development Bank.

Zeng Gang, Deputy Director of the National Financial Development Laboratory, stated that the proliferation of seven-year car loan plans by automakers is mainly driven by three considerations: First, as a disguised price reduction promotion, ultra-long loans with low or zero interest effectively lower the purchase threshold and offer substantial benefits to consumers; second, to precisely reach sinking markets, alleviate inventory pressure, and significantly reduce down payments and monthly payments, thereby attracting young groups and users in lower-tier markets who are constrained by funds, boosting sales and accelerating capital recovery; third, to hedge against policy rollbacks and market hesitation, as the current half-price purchase tax policy for new energy vehicles is transitional, some consumers are hesitant, and automakers hope to dispel concerns through attractive financial leverage to gain a competitive edge.

Clear Differences Between the Two Product Types

“Bank car loans and financial leasing products differ mainly in legal relationships and ownership rights,” said Sun Bo, partner at Yingke (Xi’an) Law Firm. Bank loan schemes are governed by the Civil Code concerning loan contracts and security rights, with strong compliance and stable funding sources. In contrast, financial leasing involves separation of ownership and usage rights; before paying off the vehicle and related fees, the vehicle remains owned by the leasing company.

Sun Bo explained that banks are regulated by laws such as the “Personal Loan Management Measures” and “Automobile Loan Management Measures,” which impose strict requirements on down payment ratios and loan terms, reflecting a conservative risk appetite. Leasing companies operate more flexibly, often lowering down payments, extending terms, or using “flexible residual payments” to reduce monthly payments, helping automakers quickly clear inventory. When a consumer defaults on a car loan, banks can only exercise security rights through judicial procedures, whereas leasing companies, as the vehicle owners, face fewer obstacles in repossessing the vehicle.

Lou Feipeng, researcher at China Postal Savings Bank, noted that bank car loans are collateral loans where consumers own the vehicle, with stricter approval processes. Leasing, in essence, is “rent-to-own,” with more flexible approval and support for zero down payments, but at higher funding costs. The main differences lie in ownership rights, risk bearing, and business models; overdue leasing may result in vehicle repossession, and paid rent is non-refundable.

Banks Are Cautious About Entering

Compared to three- or five-year car loans, seven-year loans are less attractive to banks. Currently, only a few automakers like Tesla, Xiaomi Auto, and NIO have established bank partnerships; most other automakers offer leasing products.

Zeng Gang believes that due to rapid technological iteration in new energy vehicles, the residual value after seven years may plummet sharply, posing a risk of collateral value falling far below the loan amount. Additionally, the longer repayment period introduces uncertainty; if borrowers experience income fluctuations or find that continuing to repay is more costly than purchasing a better-equipped new car, the likelihood of default and vehicle abandonment increases significantly.

The “Automobile Loan Management Measures” stipulate that the loan term (including extensions) for auto loans shall not exceed five years. However, in March 2025, the State Financial Supervision and Administration Commission issued a notice allowing commercial banks to extend the loan period for personal consumption loans from no more than five years to no more than seven years in stages.

Is there a compliance risk for banks participating in seven-year car loans? Sun Bo believes that auto consumer loans are a core scenario for personal consumption loans, with full policy support, and banks are qualified to conduct such business. However, practical operations must strictly verify the actual consumption scenario, prohibit circumventing the “Automobile Loan Management Measures,” and adhere to prudent management principles, avoiding excessive customer targeting or loosening risk controls under transitional policies.

Zeng Gang reminds ordinary consumers to evaluate three key aspects when choosing a car loan: First, carefully calculate the “total cost” over the entire period, including “down payment + seven-year total interest + residual payment”; second, understand the contract’s nature to avoid ownership traps—before signing, confirm whether it is a bank mortgage loan or a leasing contract, and assess your repayment stability and potential vehicle repossession risks; third, consider the vehicle replacement cycle and early repayment penalties—since new energy vehicles evolve rapidly, selling or trading the vehicle mid-term requires settling remaining loans or buying out the vehicle, which may involve high early repayment penalties or fees. Always review the early repayment clauses in the contract.