The upper limit of the annual interest rate has been lowered to 20%, and consumer finance is entering a "painful adjustment period."

Source: 21st Century Business Herald; Author: Li Lanqing

The past October, which has just ended, has been far from peaceful for consumer finance companies, small and medium-sized banks, and the loan-assistance industry.

After the “new rules for loan facilitation” were formally implemented, another round of interest-rate reductions targeting newly issued rates by licensed consumer finance institutions was launched. Reporters from 21st Century Business Herald learned from multiple consumer finance and loan-assistance institutions that, guided by regulatory windows, licensed consumer finance institutions must, starting from the first quarter of next year, reduce the average all-in financing cost of newly issued loans for the quarter to no more than 20% (inclusive). In addition, the interest-rate cap reduction policy for the micro-loan (small loan) industry is also currently soliciting opinions.

Compared with the earlier regulatory guidance that required single-loan weighted average interest rates (annualized interest rates, the same below) to be reduced to no more than 20% by mid-December, this requirement now provides a certain grace period and, to some extent, relaxes the interest-rate range. But for the consumer finance and loan-assistance industries—and for small and medium-sized banks that need to “prepare in advance”—there is still considerable pressure. Against this backdrop, some institutions have postponed financing plans, some have paused new loan issuance, and others have begun optimizing personnel.

Multiple interviewees told reporters that “cost reduction” will become the keyword for the industry going forward. The model that previously relied on loan facilitation to expand lower-tier customer groups and grow market scale may be difficult to sustain. At the same time, not only the consumer finance industry, but also small and medium-sized banks next will have to complete the important task of building in-house channel capabilities.

Average loan interest rates of multiple consumer finance institutions are above 20%

In recent years, against the backdrop of the LPR being continuously cut and the protection of financial consumers’ rights and interests becoming increasingly robust, cutting customer loan interest rates has been the “main theme” across the entire financial industry.

Specifically for the consumer finance industry, recent interest-rate reductions have been the second round in nearly five years. The previous round was around 2021, when, under regulatory requirements, consumer finance institutions gradually reduced the cap on the annualized interest rate for personal loans from 36% to 24%.

How are each institution’s loan interest rates being executed now? Based on publicly available information, the relevant data can be seen in the issuer credit rating reports disclosed in corporate bond issuance; more granular data can be gleaned from the pool of assets in the latest ABS (asset-backed securities) products.

Based on this, reporters from 21st Century Business Herald compiled the loan interest-rate execution status of 11 consumer finance institutions with updates in 2025. At present, the average loan interest rates of each institution have generally been reduced to within the 24% “red line.” However, due to differences in shareholder background, business development models, and customer base, the product pricing among consumer finance institutions varies significantly. For some institutions, the proportion of products above 20% accounts for more than half.

It should be noted, however, that some industry insiders told reporters that the calculation bases for loan interest rates disclosed in rating reports differ among institutions. Some disclose annual weighted average interest rates, some disclose average interest rates for newly issued loans, some disclose overall average interest rates on assets, and some, in their calculations, do not include actual financing costs under models such as guarantee enhancement and equity-based products. Therefore, the figures should be considered only as a reference.

For example, in the loan pricing disclosed by Ample (Jingxi) Consumer Finance, all pricing is controlled below 24%. But in the “An’yi Hua 2025 Third Personal Consumer Loan Asset-Backed Securities Issuance Prospectus,” the weighted average annual interest rate of the pooled assets is 23.96%, the lowest interest rate for single loans is 17.4%, and the highest is 24%. Loans with interest rates between 23% and 24% account for 99.8%;

Haier Consumer Finance’s average on-book loan interest rate to customers is 22%, and the weighted average annual interest rate of the pooled assets in its latest ABS is 23.65%;

Zhongyuan Consumer Finance’s average loan interest rate is 17.92%, and the weighted average annual interest rate of the pooled assets in its latest ABS is 22.5%;

SuYin Kaiji Consumer Finance’s weighted average loan interest rate is within 20%, but as of the end of March 2025, the proportion of loans with interest rates between 18% and 24% (inclusive) is 72.43%;

Postal Savings Consumer Finance’s average loan interest rate is within 20%. As of the end of 2024, the proportion of loans with interest rates above 20% reached 52.10%;

Among the 11 consumer finance institutions in the disclosure data above, the lowest customer-facing rate level is Ningbo Bank Consumer Finance. Its average annual loan interest rate is 11.56%, and the distribution of single-loan interest rates is in the range of 3.06% to 14.9%.

With cost reduction as a consensus, transformation accelerates

When the interest-rate cap is reduced again to 20%, combined with the earlier suspension of “24%+ equity” type products used by consumer finance companies to expand profit sources, “cost reduction” has become a market consensus.

“After the interest-rate cap reduction, the customer base we face differs a lot from before. Cost reduction is definitely the top priority now,” said a senior executive at a consumer finance institution in central China.

Further breaking down the development costs of consumer finance institutions, there are four components: funding costs, traffic (customer acquisition) costs, risk costs, and operating costs. In recent years, funding costs in the consumer finance industry have fallen significantly, but both traffic costs and risk costs have risen to some extent.

In fact, as early as when the 24% interest-rate cap was set around 2021, the industry had already sparked a round of discussion about a “rate survival line.” At that time, benchmarks like 15%, 18%, and 20% were all brought up, but because the room for cutting various costs was relatively limited, 24% was viewed as a relatively commercially sustainable interest-rate threshold.

A senior executive at a consumer finance institution in western China analyzed the current cost structure of his institution to reporters: funding costs are about 3%, traffic costs are 4%–5%, risk costs are about 7%. When the three are added together, they total about 15%, leaving about 5% of room for operating costs under the 20% interest-rate cap.

“The business can still be rolled out, but we can’t build scale,” he said.

Reporters from 21st Century Business Herald learned that after the issuance of the interest-rate reduction requirement, the consumer finance industry tightened its “openings” for incremental customer acquisition overall. The South International JP Morgan Consumer Finance, which had planned to issue ABS with a scale of 2 billion yuan at the end of October, also announced—just 6 days after publishing its materials—its postponement of the issuance “after comprehensive consideration of market conditions and actual circumstances.” In addition, other consumer finance institutions’ fundraising plans were also, according to reporters, “put on hold.”

“Under circumstances where incremental scale is unlikely to break through, institutions’ own financing willingness and needs will also not be particularly strong,” said another senior executive at a consumer finance institution to reporters.

From an objective perspective, in a low-interest-rate environment, falling funding costs become a major favorable factor for consumer finance firms to “reduce costs.” The “China Consumer Finance Company Development Report (2025)” released by the China Banking Association (hereinafter the “2025 consumer finance report”) shows that last year, policy support and improved market liquidity conditions provided favorable conditions for consumer finance companies to finance, and financing costs fell further. Among 30 consumer finance institutions that carry out financing businesses, 19 have weighted financing cost ratios between 2.5% and 3.0% (inclusive).

However, further declines in traffic costs, risk costs, and operating costs mean that some consumer finance institutions have reached the “fork in the road” for transformation.

In terms of how customer acquisition channels are categorized, consumer finance companies currently acquire customers through two logic types: online and offline channels; and in-house acquisition and third-party referral channels. These form four major categories: offline in-house, offline third-party intermediary cooperation, online in-house, and online third-party platform cooperation.

It needs to be explained that the composition of risk costs is relatively complex. In addition to losses from non-performing assets, it includes corporate governance risks, risks in controlling outsourced personnel, and even reputation risks triggered by complaints, among others. Therefore, it places higher requirements on risk management across the full business lifecycle of each consumer finance institution. In addition, under online business models, because consumer finance institutions’ cooperation arrangements with third parties such as internet platforms, guarantee providers, and loan-assistance institutions differ in terms of division of responsibilities and profit-sharing models, they can be further divided into multiple sub-models such as pure referral, joint operation (cooperation), revenue sharing, and credit enhancement.

Different business models and resource endowments lead to significant differences among institutions in how they allocate the three cost components above, which also affects the final pricing of their loan products.

Even within the same company, different products can show significant pricing differences. A typical case is Ant Consumer Finance, which covers both Ant’s “Huabei” and “Jiebei.” The annualized interest rate of “Huabei,” positioned as a payment credit tool, is in the 0%–24% range. The annualized interest rate of “Jiebei,” positioned as a personal consumer loan product, is in the 5.475%–24% range. Because Jiebei’s business scale has expanded, since 2023 the share of loans with interest rates distributed above 18% has shown an upward trend.

In addition, taking Ningbo Bank Consumer Finance—the consumer finance institution with the lowest loan interest rates mentioned above—as an example, its main business models include three types: online in-house, online joint operation, and offline in-house. Among them, by the end of 2024, the share of online joint operation business was 69.7%, down 20.41 percentage points from 90.11% at the end of 2022. Its cooperation channels mainly include major internet platforms such as Ant (Alipay), ByteDance, Baidu, Meituan, and WeBank. The cooperation models include two types: revenue sharing and credit enhancement. Moreover, in recent years, supported by its major shareholder Ningbo Bank, Ningbo Bank Consumer Finance has been accelerating the expansion of both its online and offline in-house business, enabling a better balance between scaling up and risk control.

Regardless of what business development model it uses, in a context where scale is difficult to grow, improving independent customer acquisition capability—thereby lowering traffic and risk costs—is a “required-answer” for the consumer finance industry, and even for small and medium-sized banks.

On November 6, Urumqi Bank announced that it would stop carrying out cooperation-based personal online consumer loans, and it also published a list of existing business cooperation. This has been viewed as a typical example of loan facilitation contraction by small and medium-sized banks.

For a long time, small and medium-sized banks in central and western China as well as in Northeast China have been important sources of funding for loan-facilitation industry loan products with interest rates of 24% and above. But after the new loan facilitation rules require that all service fees, guarantee fees, and so on be included in the all-in financing cost, and after the “24% all-in financing cost” red line was set, compliance costs and traffic costs increased, making this business “not worth it.”

In fact, after this round of consumer finance interest-rate reduction requirements, multiple industry insiders told reporters that they are worried about the future risks of high-interest loan-facilitation cooperation for small and medium-sized banks. “It’s not excluded that regulators will further guide platforms to reduce interest rates, ultimately bringing customer-facing rates down to the 12%–16% range. Licensed financial institutions can’t simply act as funding sources for personal online lending products; they must build their own channels and capabilities,” said an industry insider.

(Editor: Wenjing)

Keywords:

                                                            Interest rates
                                                            Consumer finance