(Yicai) April 25 -- Some Chinese banks have strengthened their regulations on the early repayment of car loans to avoid financial losses.

Staffers from the Hangzhou branches of Industrial and Commercial Bank of China and Agricultural Bank of China confirmed to Yicai that they have adjusted their auto loan repayment rules, allowing borrowers to pay off their car loans only after three years instead of two years.

Clients insisting on early repayment will be subject to a fine equal to 8 percent of the loan amount if they pay off their debt within the first year, 5 percent if they do so between one and two years, and 3 percent between two and three years, the ICBC employee noted.

Other banks in Zhejiang province are also considering making similar adjustments, Yicai learned from insiders. Lenders in Jiangxi province and Shenzhen have already tightened their car loan repayment rules.

To attract clients, banks usually pay auto dealers to promote their loan products. As a result, dealers can offer customers buying cars through bank loans below-market prices. However, early repayments disrupt this mutually beneficial arrangement, shrinking banks’ interest income.

A person from Fujian province who purchased a car in December told Yicai that he could have paid upfront but opted for a five-year loan after the dealer’s persuasion. If he repays the loan after two years and avoids high interest rates for three years, his total cost will be lower than the upfront payment, he said.

China’s financial regulators have noted these agreements between banks and dealers and initiated a crackdown on such practices last year. The adjustments to auto loan rules align with tightened regulatory scrutiny.

Editor: Futura Costaglione