The upper limit of annual interest rates lowered to 20%, consumer finance enters a "painful period"

Source: 21st Century Business Herald Author: Li Lanqing

The recently concluded October was far from peaceful for consumer finance companies, small and medium-sized banks, and the loan assistance industry.

After the official implementation of the “New Regulations on Loan Assistance,” another wave of rate reductions targeting licensed consumer finance institutions has begun. According to multiple consumer finance and loan assistance organizations, under regulatory guidance, licensed consumer finance companies are required to reduce their overall new loan issuance’s average comprehensive financing cost to within 20% (inclusive) starting from the first quarter of next year. Additionally, policies to lower the upper limit of interest rates in the small loan industry are also being solicited for opinions.

Compared to the previous regulatory guidance requiring the weighted average interest rate (annualized) of single loans to be within 20% by mid-December, this new requirement has been given a buffer period and some relaxation of the interest rate range. However, for the consumer finance and loan assistance industries, as well as for small and medium-sized banks that need to “prepare in advance,” there is still considerable pressure. In this context, some institutions are delaying financing plans, others are suspending new loans, and some are initiating personnel optimization.

Several interviewees told reporters that “cost reduction” will become the industry’s key focus in the coming period, and the previous model relying on loan assistance to expand into lower-tier markets may no longer be sustainable. Meanwhile, not only the consumer finance industry but also small and medium-sized banks must complete the construction of their own channels as an important next step.

Most consumer finance institutions have average loan interest rates above 20%

In recent years, against the backdrop of continuous reductions in the Loan Prime Rate (LPR) and improved protection of financial consumers’ rights, lowering customer loan interest rates has become the “main theme” across the entire financial industry.

Specifically, in the consumer finance sector, the recent rate cut marks the second such reduction in the past five years. The previous round occurred around 2021, when consumer finance institutions, under regulatory requirements, gradually lowered the maximum annualized interest rate on personal loans from 36% to 24%.

How are the loan interest rates currently implemented across institutions? Public disclosures, such as those in financial bond issuance rating reports, reveal relevant data. More detailed information can be gleaned from the latest ABS (asset securitization) product pool asset data.

Based on this, the 21st Century Business Herald has summarized the loan interest rate implementation status of 11 consumer finance institutions updated in 2025. Currently, most institutions have reduced their average loan interest rates to within the “red line” of 24%. However, due to differences in shareholder backgrounds, business models, and customer bases, product pricing varies significantly among institutions, with some institutions having over half of their products exceeding 20%.

It should be noted that industry insiders have pointed out that the calculation methods for disclosed loan interest rates vary among institutions. Some disclose annual weighted average rates, others disclose new issuance average rates, some disclose overall asset average rates, and some do not include actual financing costs under guarantee enhancement or equity products in their calculations. Therefore, these figures should be taken as references only.

For example, MaShang Consumer Finance reports that its loan pricing is controlled below 24%. However, in the “An Yi Hua 2025 Third Phase Personal Consumption Loan Asset-Backed Securities Issuance Prospectus,” the weighted average annual interest rate of pooled assets reaches 23.96%, with single loan minimum interest rates at 17.4% and maximum at 24%. The proportion of loans with interest rates between 23% and 24% accounts for 99.8%.

Haier Consumer Finance’s on-balance average loan interest rate is 22%, with the latest ABS pool assets having a weighted average annual interest rate of 23.65%.

Zhongyuan Consumer Finance’s average loan interest rate is 17.92%, with the latest ABS pool assets at an average of 22.5%.

Suyin KaiJi Consumer Finance’s weighted average loan interest rate is within 20%, but by the end of March 2025, 72.43% of loans had interest rates between 18% and 24% (inclusive).

China Post Consumer Finance’s average loan interest rate is within 20%, with loans over 20% accounting for 52.10% by the end of 2024.

Among the 11 disclosed consumer finance institutions, Ningbo Yinzhou Consumer Finance has the lowest customer interest rate level, with an average annual loan rate of 11.56%. The single loan interest rates range from 3.06% to 14.9%.

Accelerated transformation under the “cost reduction” consensus

As the interest rate ceiling is further lowered to 20%, coupled with the suspension of “24%+ equity” products that previously expanded profit sources for consumer finance companies, “cost reduction” has become a market consensus.

“After the rate cut, our customer base is quite different from before. Cost reduction is now the top priority,” said a senior executive at a central China consumer finance institution.

Breaking down the operating costs of consumer finance institutions, they include funding costs, traffic costs, risk costs, and operational costs. In recent years, funding costs have significantly decreased, but traffic and risk costs have increased.

In fact, when the 24% interest rate ceiling was established around 2021, there was already industry discussion about the “interest rate survival line.” At that time, interest rates of 15%, 18%, and 20% were discussed, but due to limited room for cost reduction, 24% was seen as a relatively sustainable commercial limit.

A senior executive from a western consumer finance institution analyzed their current cost structure: funding costs about 3%, traffic costs 4-5%, risk costs about 7%, totaling approximately 15%. Under the 20% interest rate ceiling, there is about 5% room left for operational costs.

“Business can still continue, but scale cannot grow,” he said.

The 21st Century Business Herald has learned that after the implementation of the rate reduction requirements, the consumer finance industry has generally tightened its new customer acquisition channels. For example, NanYin France Finance, which planned to issue 2 billion yuan in ABS by the end of October, announced a delay six days after releasing information, citing “market environment and actual conditions.” Other consumer finance institutions’ fundraising plans have also reportedly been “put on hold.”

“In the face of limited incremental growth, the institutions’ willingness and demand for financing will also be limited,” said another senior executive at a consumer finance company.

Objectively, in a low-interest-rate environment, declining funding costs are a significant advantage for cost reduction in the consumer finance industry. According to the “Development Report of Chinese Consumer Finance Companies (2025)” (hereinafter “2025 Consumer Finance Report”) published by the China Banking Association, last year’s policy support and improved market liquidity created favorable conditions for consumer finance companies’ financing, further lowering costs. Among 30 consumer finance institutions engaged in financing, 19 had a weighted financing cost rate between 2.5% and 3.0% (inclusive).

However, further reductions in traffic, risk, and operational costs mean some consumer finance institutions are facing a “fork in the road” for transformation.

Regarding customer acquisition channels, current options include online and offline channels, with self-operated and third-party referral models. These form four main categories: offline self-operated, offline third-party intermediary cooperation, online self-operated, and online third-party platform cooperation.

It should be noted that risk costs are complex, including not only bad debt losses but also corporate governance risks, outsourcing management risks, and even reputation risks from complaints. Therefore, higher requirements are placed on risk management across the entire business process. Additionally, in online business models, cooperation modes with internet platforms, guarantors, and loan assistance agencies vary, including pure referral, joint operation, profit sharing, and credit enhancement.

Different business models and resource endowments lead to significant differences in the allocation of costs among institutions, which in turn affect the final loan product pricing.

Even within the same company, different products can have large pricing differences. For example, Ant Financial’s “Huabei” and “Jiebei” products, both under Ant’s consumer finance, have annualized interest rates ranging from 0% to 24%. “Huabei,” as a payment credit tool, has an interest rate in this range, while “Jiebei,” a personal consumption loan product, ranges from 5.475% to 24%. As Jiebei’s business expanded, the proportion of loans with interest rates above 18% has increased since 2023.

Similarly, Ningbo Yinzhou Consumer Finance, which has the lowest interest rates among the institutions mentioned, mainly operates through online self-operation, online joint operation, and offline self-operation. By the end of 2024, online joint operation accounted for 69.7%, down from 90.11% at the end of 2022. Its cooperation channels mainly include major internet platforms like Ant, ByteDance, Baidu, Meituan, and WeBank, with cooperation modes including profit sharing and credit enhancement. Supported by its major shareholder, Ningbo Bank, Ningbo Yinzhou Consumer Finance’s online and offline self-operated businesses are accelerating, better balancing scale expansion and risk control.

Regardless of the business model, in a scenario of limited scale growth, improving independent customer acquisition capabilities to reduce traffic and risk costs remains the “must-answer” for the consumer finance industry and small and medium-sized banks.

On November 6, Urumqi Bank announced the suspension of cooperation-based personal internet consumer loans and released a list of existing business cooperation, seen as a typical contraction of small and medium-sized banks’ loan assistance.

For a long time, small and medium-sized banks in central and northeastern China have been important sources of funding for loan assistance products with interest rates of 24% or higher. However, after the new loan assistance regulations include all service fees, guarantee fees, etc., into the comprehensive financing cost, and set the 24% cap as a “red line,” the rising compliance and traffic costs have made this business “not cost-effective.”

In fact, after the current round of rate cuts, many industry insiders expressed concerns about the future risks of high-interest loan assistance cooperation with small and medium-sized banks. “It’s possible that future regulatory guidance will push platform-side interest rates down to 12%-16%, and licensed financial institutions cannot simply be the funders of personal online loans; they must establish their own channels and capabilities,” said an industry insider.