Banks began to issue car loans for longer terms
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The terms of car loans from Russian banks are increasing. For some major players, loans over seven years already account for two-thirds of total issuances. The trend is associated with rising car prices, rising interest rates and tightening regulatory measures. By extending the terms, banks try to reduce the monthly payment for the borrower so that it meets the debt load limits. But at the same time, the current high rates are also fixed for the long term, while the risks of default are mitigated by the presence of collateral that is more than liquid in the current situation.
Banks began to issue car loans for longer terms. According to a Kommersant survey, in 2024 the share of funds provided for seven years or more has increased significantly. At Rosbank, in less than three months of this year, 66% of car loans were issued for a period of seven years or more. This is almost 20 p.p. more than the average share for 2023. Otkritie Auto said that in January-March, 67% of car loans were issued for long periods compared to 54% a year earlier.
“Based on the results of the incomplete first quarter, almost every second loan for the purchase of a car was issued by our clients for a maximum period of seven years. Compared to 2023, the share of such loans increased by almost 9 percentage points,” VTB reported. Five-year loans take up about a quarter of the total volume of transactions, and loans with longer terms remained among the most popular in 2023 and 2024, confirms Alfa Bank.
The share of short-term loans with a term of up to three years from a number of banks has decreased to just a few percent. In particular, at Otkritie Auto it is 4% for the second year in a row. In Rosbank, the share decreased from 22.5% in 2023 to 4.4% in 2024. In general, according to OKB, the average term of a car loan by the beginning of 2024 had reached almost six years, while a year earlier it was five years, and at the beginning of 2022 – four and a half years.
The trend of increasing loan terms is associated with the dynamics of car prices, the growth of the key rate and the tightening of regulation of the credit market by the Central Bank, market participants explain. The average loan size grew steadily in the first half of 2023 (about 18%), and in July the Central Bank began increasing the key rate, which increased from 7.5% to 16%.
“As the loan amount and rate increase, the burden on the borrower increases, so to reduce the monthly payment, clients choose loans for longer terms,” explains Expobank Managing Director Dmitry Maslov. This allows loans to be issued to over-leveraged borrowers, since the debt burden is diluted over a longer period. According to the Central Bank, the share in loans to borrowers with a maximum debt burden of more than 80% has remained in the range of 24–28% since the fourth quarter of 2022.
The weighted average rate on car loans in January, according to OKB, was 19.53% per annum, the maximum since May 2022. At the same time, the total cost of the loan, that is, taking into account all additional payments by borrowers, only slightly exceeded 20% per annum. However, according to Frank RG data, the monthly volume of loans issued since June last year has confidently exceeded 140 billion rubles, and in February 2024 it updated its historical maximum, exceeding 171 billion rubles. (see “Kommersant” dated March 7). Banks are interested in extending loan terms in order to fix the existing high rates, emphasizes Valery Piven, head of the ACRA financial institutions ratings group.
The risks of the bankers themselves increase slightly when the terms are extended. “As the terms increase, the risk of social default increases in proportion to the increase in the period. But this is compensated by a longer period for the bank to receive interest income,” notes Otkritie Auto. In addition, the risk is covered by the loan collateral, which in the current conditions remains highly liquid. As Yegor Lopatin, director of the group of financial institution ratings of the NKR agency, explains, over the past few years a car, even when leaving the showroom new, loses little in price, and in some cases becomes more expensive.
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