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, guided by regulatory authorities, 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, the policy to lower the upper limit of interest rates for small loans is also being solicited for opinions.

Compared to the previous regulatory guidance requiring the weighted average interest rate (annualized) on single loans to be within 20% by mid-December, this new requirement has been given a buffer period and the interest rate range has been somewhat relaxed. 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. Under this context, some institutions are delaying financing plans, others are suspending new loans, and some are initiating personnel optimization.

Many interviewees told reporters that “cost reduction” will become the industry’s key word in the coming period, and the previous model of expanding market size by relying on loan assistance to reach lower-tier customers 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 task.

Average loan interest rates of several consumer finance institutions exceed 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 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 of various institutions currently performing? Public data shows that disclosures from financial bond issuances and the latest ABS (asset securitization) product pool asset data provide some insights.

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 these institutions, with some having over half of their products exceeding 20%.

It should be noted that industry insiders have pointed out that different institutions disclose loan interest rates based on different calculation methods—some report annual weighted average rates, others disclose new issuance average rates, some show overall asset average rates, and some do not include actual financing costs under guarantee or equity modes. 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 individual 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 customer 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, loans with interest rates between 18% and 24% (inclusive) accounted for 72.43%.

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 distribution of individual loan rates ranges from 3.06% to 14.9%.

Accelerated transformation under the “cost reduction” consensus

As the interest rate cap is further lowered to 20%, coupled with the suspension of “24%+ equity” products previously used by consumer finance companies to expand profits, “cost reduction” has become a market consensus.

“After the rate cut, our customer base is quite different from before. Cost reduction is definitely the top priority now,” said a senior executive from 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 cap was established around 2021, there was already a discussion within the industry about the “interest rate survival line.” At that time, thresholds of 15%, 18%, and 20% were proposed. However, due to limited room for cost reduction at that time, 24% was regarded as a relatively sustainable commercial limit.

A senior executive from a western China 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 cap, there is about 5% room left for operational costs.

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

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

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

Objectively, in a low-interest-rate environment, declining funding costs are a significant advantage for the consumer finance industry’s “cost reduction.” According to the “Development Report of Chinese Consumer Finance Companies (2025)” issued by the China Banking Association, last year’s policy support and improved market liquidity created favorable conditions for consumer finance companies’ financing, with 19 out of 30 institutions having 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.

Currently, customer acquisition channels are divided into online and offline, self-operated and third-party referral channels. 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 the composition of risk costs is complex, including not only bad debt losses but also risks related to corporate governance, outsourcing personnel management, and reputation risks from complaints. This demands higher risk management standards 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 show 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,” a payment credit tool, ranges from 0% to 24%, while “Jiebei,” a personal loan product, ranges from 5.475% to 24%. As Jiebei’s scale expands, the proportion of loans with interest rates above 18% has been increasing since 2023.

Additionally, Ningbo Yinzhou Consumer Finance, which has the lowest loan interest rate among the previously mentioned institutions, 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 main partners include top 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 is accelerating its online and offline self-operated business to better balance scale expansion and risk control.

Regardless of the business model, in a scenario of limited scale growth, enhancing independent customer acquisition capabilities to reduce traffic and risk costs remains a “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 loan assistance by small and medium-sized banks.

For a long time, small and medium-sized banks in central and northeastern China have been important sources of funding for loan 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% “red line,” the rising compliance and traffic costs have made this business “not cost-effective.”

In fact, following the recent rate reduction requirements, many industry insiders expressed concerns about the future risks of high-interest loan 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.