Auto installment loan rates are climbing sharply as funding conditions worsen for card issuers and capital companies. Some capital firms have pushed rates above 10%, and the rise in card bond yields suggests rates could climb further.
According to the Credit Finance Association on Saturday, the average installment rate for new cars at six dedicated card issuers last month — based on a 30% cash down payment and a 36-month term — ranged from 4.60% to 6.63%. That is more than a 2 percentage-point increase in four months, compared with the low-3% to low-4% range in the fourth quarter of last year.
Major capital companies posted higher rates than card issuers, at 5.12% to 8.80%. Meritz Capital’s top rate reached 10.8%. Hana Capital’s average rate rose 1.58 percentage points, from 5.52% in the previous quarter to 7.1% in April.
The increases reflect higher funding costs for card issuers and capital companies. Unlike banks, specialized credit finance companies do not take deposits and largely fund lending by issuing specialized financial company bonds and commercial paper.
Amid instability in the Middle East, yields on three-year AA+ card bonds have stayed in the 4% range, hitting 4.167% on March 23. With a typical two- to three-month lag before higher funding costs feed into loan pricing, installment rates are expected to face additional upward pressure.
Still, rates may vary by model and automaker marketing strategy. Automakers sometimes work with financial firms to offer ultra-low-rate financing or cashback on key models to boost sales, which can keep rates low despite higher funding costs. Some Chinese-made electric vehicles are being offered with financing starting in the 0% range.
An industry official said higher funding costs leave room for additional rate increases, but added that a dual-track market — with ultra-low rates for low-priced Chinese EVs regardless of broader rate moves — is likely to persist for the time being.
* This article has been translated by AI.
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