Plastic helps financing get traction with car buyers

BEIJING - BMW's financing unit in China last week signed an agreement with the credit card operation of China Minsheng Bank to offer cars loans.

Under the strategic partnership, the bank will offer installment loans at BMW dealers in 30 cities across the country. Both sides are also considering introducing a co-branded credit card.

The German premium carmaker set up its financing operations in China late last year.

GM, Volkswagen, Ford, Toyota, Daimler, Nissan, Fiat, PSA Peugeot Citroen and Volvo also have auto financing companies in the country.

While China trails far behind mature markets in the proportion of buyers that finance new car purchases, younger generations accustomed to using credit cards offer huge potential for finance companies and banks.

In the first six months this year, the central bank raised the reserve ratio requirement for lenders six times and increased the interest rate three times to soak up liquidity, making the banks reluctant to offer car loans to individual buyers.

As a result, credit card installment payments have become more popular. An additional appeal is less stringent approval procedures.

More convenient, with lower fees, credit cards rather than traditional bank loans will become the main financial instrument used by those who finance new car purchases, some analysts said.

But only a few banks now offer the services. The down payment is usually about around 20 to 30 percent, with fees ranging from zero to around 12 percent depending on the length of time, which spans several months to three years.

Also, not all cars can be bought with credit cards. According to the website of China Minsheng Bank, it now cooperates with automakers including FAW-Volkswagen, Shanghai Volkswagen, Beijing Hyundai, Dongfeng Honda, Chang'an and Lifan to offer credit card installment payments.

China Merchants Bank was among the first to begin credit card services for car purchases. It now covers brands including Toyota, Volkswagen, Audi, Skoda, Chevrolet, Buick, Mercedes-Benz, Jeep, Honda, Nissan, Geely, Peugeot Citroen, Kia and Hyundai.

China Daily