7 Years of Car Loan Boom: Car Manufacturers Race Ahead While Banks Remain Idle

By 2026, the hottest trend in the auto market isn’t price cuts but the launch of 7-year ultra-long-term loans. Tesla kicked off the trend, followed quickly by Xiaomi Motors, and then brands like Li Auto, Xpeng, NIO, Zeekr, BYD, Geely, and others launched 84-term plans in quick succession, featuring low down payments, low monthly payments, and low interest rates, pushing the car-buying threshold to the limit.

This financial strategy led by automakers is essentially aimed at tapping into potential consumer groups, quickly clearing inventory, and easing cash flow pressures. The market widely interprets this as the arrival of a “new era of auto finance,” but a key fact often overlooked is that, as the true financial backbone of the auto finance market, most banks have remained on the sidelines and have yet to enter the ultra-long-term car loan space.

The root cause lies in banks’ risk considerations. Cars depreciate quickly as consumables, making collateral residual value uncertain over a 7-year period; vehicles are highly liquid assets, but managing and disposing of them incurs high costs; coupled with the uncertainty of long-term repayment ability, banks are hesitant.

Most Banks Remain Idle

A quiet battle over financial services has begun. Early this year, Tesla launched a 7-year ultra-low-interest car loan, taking the lead in the industry. Following this, Xiaomi, BYD, Li Auto, NIO, and others quickly followed, extending loan periods from the traditional 3 or 5 years to 7 years, turning the slogan “Drive a new car with just the cost of a daily coffee” into a new marketing mainstream.

For automakers, a 7-year car loan is a “win-win” marketing move. On one hand, low monthly payments precisely target young consumers and budget-conscious families, attracting potential buyers and quickly reducing inventory; on the other hand, it allows rapid capital recovery, easing cash flow pressures.

However, a review of many automakers’ official websites shows that most of these ultra-long low-interest financial products are mainly offered by leasing companies, with only a few banks like CITIC Bank and SPD Bank taking sporadic actions. The vast majority of banks have not yet entered this field.

Why are banks hesitant? A senior official from a banking department told Beijing Business Today that it’s not due to sluggish response but a rational assessment of risk management and resource allocation. For banks, a 7-year car loan isn’t just a simple extension from 3 to 7 years; it involves a fundamental change in underlying logic and risk structure.

Take mortgage loans as an example: they can extend up to 30 years because real estate has value preservation or appreciation potential, and physical stability. Cars, however, are typical consumables with rapid depreciation and scrap risks. An official explained: a car driven for 7 years—especially ride-hailing or high-intensity use vehicles—may be near scrapping standards by year 5. If the loan term covers until the vehicle’s end of life, and the borrower defaults, the collateral may have no residual value or may not even cover disposal costs.

Beyond depreciation risks of collateral, the management difficulty of “wheeled” assets further heightens banks’ concerns. An industry insider likened it: “Houses don’t run away, but cars do. If a borrower drives a car to remote areas and deliberately defaults, the cost for the bank to repossess could be higher than the vehicle’s remaining value.”

Xue Hongyan, a special researcher at the Shanghai Commercial Bank, pointed out that the “collective rush” of automakers launching ultra-long-term car loans since 2026 is an inevitable result of the new stage of market competition. Automakers use the low down payment and monthly installment advantages of ultra-long loans to lower barriers, attract lower-tier markets, and ease high inventory pressures. The core reason for banks’ cautious stance is the inherent conflict between their capital structure, profit logic, and regulatory constraints. Banks mainly rely on short-term deposits for liabilities, while 7-year loans are long-term assets, making liquidity management more difficult. In a declining interest rate environment, long-term low-interest loans risk earning interest margin but losing on costs. More critically, regulatory restrictions on car loans and the fact that banks’ risk control models typically predict individual repayment capacity over no more than 5 years mean that uncertainties in employment, income, and credit over 7 years significantly increase, making bad debt risks hard to control.

Where Do Banks Stand?

For a long time, China’s personal auto loan market has seen banks and auto finance companies developing in parallel, each leveraging their advantages to serve different segments. Banks, with their low-cost, low-interest advantages, dominate high-quality customer groups and mainstream markets, typically limiting car loan terms to around 5 years. Auto finance companies, relying on automaker subsidies, focus on easy application and lower thresholds, with loan terms also capped at 5 years.

In March last year, the General Office of the Financial Supervision and Administration issued the “Notice on Developing Consumer Finance to Boost Consumption” (hereafter “the Notice”), which explicitly raised the upper limit for individual internet consumer loans from 200,000 yuan to 300,000 yuan in stages; and allowed commercial banks to extend personal consumption loan terms from no more than 5 years to no more than 7 years. The policy aims to encourage financial institutions to explore more efficient, convenient, and consumer-friendly consumer finance products, opening a policy window for ultra-long-term car loans.

However, despite policy liberalization, market response has not been widespread. Some banks have promoted “7-year consumer car loans” through official channels, but these products are essentially unsecured credit loans—no vehicle collateral, no vehicle management involved—differing from automaker leasing or traditional car loans, with risk exposure and management closer to large-scale unsecured consumer credit.

Most 7-year ultra-long-term car loans on the market are mainly handled by leasing companies partnering with automakers. A car salesperson explained that this mode offers relatively relaxed approval thresholds, without strict requirements for social security, housing fund, or fixed assets, making it suitable for freelancers or customers with minor credit issues, enabling ultra-low monthly payments. However, the vehicle’s “green book” (vehicle registration certificate) must be mortgaged to the leasing company to control risk, meaning the vehicle cannot be transferred until the loan is fully repaid.

In this model, ownership of the vehicle does not belong to the borrower. Wang Deyue, a lawyer at Beijing Xunzhen Law Firm, pointed out that under Article 1209 of the Civil Code of China, since the vehicle is registered in the leasing company’s name, if the driver commits a hit-and-run and cannot pay compensation, the leasing company, as the owner, could be held liable for additional damages due to “management fault.” Moreover, if the vehicle is used outside the registered purpose or uninsured for commercial use, it could trigger illegal operation and insurance denial issues. For consumers, high tail payments, strict overdue clauses, and information asymmetry often lead to rights being compromised, and the overall cost usually exceeds traditional loans, making it not a truly inclusive financial solution.

Banks also express concerns about this model. The same banking official noted that the legal risks are significant: if a borrower driving a vehicle registered to the leasing company causes a major accident and flees, and the borrower cannot pay damages, the family might claim against the vehicle owner. Such complex legal disputes have not been fully tested in current products, and banks worry about potential future conflicts.

From an internal product review perspective, banks remain cautious about ultra-long-term loans. An insider said that any new financial product must undergo rigorous approval by the new product committee to ensure risk control and compliance. Questions like “Who repairs the car if it breaks down?” “How to pursue a hit-and-run?” “Who bears responsibility?” are fundamental to the product’s lifecycle risk management. Without clear solutions, such products are unlikely to pass committee approval and reach the market.

Large-Scale Adoption Is Unlikely

For banks, capital safety is the “lifeline.” “As for ultra-long-term car loans, banks dare not do it blindly,” the banking official summarized. Their cautious approach stems from a respect for risk. If, after years of market testing, the model proves feasible and profitable, banks will follow.

But for now, “let’s wait and see” remains the most rational stance.

Zeng Gang, chief expert and director of the Shanghai Financial Development Laboratory, pointed out that banks mainly rely on short-term deposits for funding, while their long-term assets like 7-year loans create a maturity mismatch. In a declining interest rate environment, locking in low rates for 7 years could lead to squeezed profit margins if future funding costs rise. Additionally, the risk pricing experience for ultra-long loans is limited—new energy vehicle residual values decline rapidly, and collateral value after 7 years could be significantly lower, with existing risk models not fully applicable.

Zeng predicts that in the next 1-2 years, banks are unlikely to widely adopt ultra-long-term car loans, but pilot programs with leading automakers may gradually advance. Banks face practical pressures to respond to consumer policies and expand retail lending, and auto finance remains an important channel for cultivating long-term customers. To truly deploy such products, substantial adjustments are needed: introducing flexible repayment structures like increasing payments over time; establishing dynamic evaluation systems covering vehicle residuals and automaker health; exploring asset securitization to ease liquidity mismatches.

Xue Hongyan shares this view, emphasizing that in the next 1-2 years, banks’ proactive adoption of 7-year ultra-long loans will be limited due to unresolved maturity mismatch and risk control challenges. Automakers are the main drivers pushing this model. If banks do get involved, they should focus on high-quality customer segments, set reasonable down payment ratios, collaborate with automakers to share interest rate burdens, and incorporate floating interest rates or early repayment options. Risk control should strengthen long-term repayment capacity assessments, dynamic residual value tracking, and early warning systems. Funding strategies could include issuing long-term bonds to match loan durations, alleviating “short deposit, long loan” pressures. The key to balancing risk and growth is maintaining “prudence first,” controlling business scale through small pilots, avoiding reckless expansion, and ensuring limited growth within manageable risk levels.

For banks considering future ultra-long-term car loans, adjustments in product design, risk management, and funding are essential. Wang Deyue suggested that product features like introducing dynamic interest rates—low for the first 3 years, floating for the next 4—could hedge long-term funding costs; bundling vehicle insurance and maintenance services could reduce asset damage risks. Risk management should develop dedicated 7-year evaluation models, strengthen income continuity verification, vehicle residual value forecasts, and require guarantors or physical collateral to mitigate guarantee risks. Funding strategies might include issuing 5-7 year special financial bonds to match loan durations, easing liquidity pressures caused by maturity mismatches.

Beijing Business Today, reporter Song Yitong

(Edited by Qian Xiaorui)