Shanghai, June 8, 2025 — Shanghai’s banking sector is moving to phase out the controversial “high-interest, high-commission” car loan model, with major lenders extending minimum repayment terms and reducing dealer rebates. The shift follows complaints from consumers like Wang (pseudonym), who recently saw a loan agreement’s early repayment window extended from two to four years, reflecting tighter bank approvals and regulatory scrutiny.
The Unraveling of a Controversial Lending Model
For years, auto finance relied on subsidized rebates and “long-loan, short-repayment” structures to attract buyers. Banks offered dealers commissions of 10–17% of total loan interest, who in turn subsidized car prices. “A 100,000 yuan loan could save me 10,000 yuan compared to paying cash,” Wang said.
But visits to Shanghai’s 4S stores reveal a stark change: state-owned banks have raised the minimum early repayment threshold to four years, while dealer commissions have been slashed. “Previously, 11% of interest went to dealers and customers; now sales staff get nothing,” one salesperson noted. Premium clients may still negotiate two-year terms, but joint-stock banks warn of price hikes as rebates disappear.
Fudan University researcher Shi Shuo called the model a product of intense internal competition: “Banks used high rebates to incentivize dealers, but this fueled a price war, squeezing profits and raising regulatory risks.”
Regulatory and Industry-wide Crackdown
Since May, banking associations in Sichuan, Kaifeng , and Xinyang have banned excessive commissions. Chongqing’s regulator last January ordered banks to rectify high-rebate practices and clean up existing loans.
Sichuan’s guidelines explicitly prohibit “unfair competition via high commissions,” while Kaifeng demands an end to dealer promotions of high-commission products. Shanghai led the charge in November 2024 with a tripartite initiative urging fair lending practices.
“Shorter-term pain may occur as banks lose clients, but long-term focus will shift to product quality,” noted Suxizhi Research analyst Su Xiaorui.
Toward Sustainable Auto Finance
Shi Shuo emphasized the need for “orderly competition, consumer protection, and innovative services.” With China’s automotive industry expanding globally, he added, “overseas operations must adapt to new challenges in fintech and regulation while maintaining domestic standards.”
While consumers may face slightly higher costs initially, the industry’s pivot to transparency and sustainability—backed by stricter oversight—aims to balance institutional stability and buyer welfare.
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