(Yicai) March 6 — Affected by China’s relatively loose monetary policy, interest rates on consumer loans have dropped to as low as 3 percent, leading some customers to take such loans to repay their mortgages that have interest rates of around 4.5 percent.
After the Chinese New Year holiday, people can apply for consumer loan products with an annual interest rate of around 3 percent to 3.5 percent, a finance blogger familiar with various bank loan types told Yicai.
“According to individual customer circumstances, the loan interest rates and value vary, with a possible interest rate of as low as 3 percent,” a customer manager from China Merchants Bank told Yicai regarding one of the lender’s latest loan products.
A home buyer with a mortgage in Shenzhen told Yicai that although her housing loan interest rate was lowered earlier this year, it is still around 4.5 percent, while a consumer loan has an interest rate of 3 percent. She plans to apply for a CNY300,000 (USD41,670) consumer loan and use it to repay the mortgage, resulting in significant savings on interest.
Another house buyer from Dongguan told Yicai that he got a CNY100,000 consumer loan last year and used it to repay his mortgage to save on interest expenses. As there is a 1.8 percentage point gap between the consumer loan rate he can apply for and his existing mortgage rate, he plans to request a new CNY300,000 loan.
However, experts warn of the legal and financial risks of getting consumer loans to repay mortgages.
“Bank loans are designated for specific purposes and cannot be diverted for other uses,” Wang Yuchen, director of Beijing Jinsu Law Firm, said to Yicai. The government explicitly prohibits the inflow of consumer loans into the property market, Wand noted, adding that once home buyers get found using consumer loans to repay mortgages, they face the risk of loan suspension or early full repayment, and their credit score can be severely affected.
In addition, consumer loans are short-term while housing ones are long-term, so converting to the former will increase the borrower’s monthly repayment amount, Zhou Yiqin, founder of Guanshao Consulting, told Yicai. If borrowers encounter income issues during the consumer loan’s repayment period, it can easily turn into a non-performing loan, Zhou pointed out.
Editors: Tang Shihua, Martin Kadiev
