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 recently passed October was anything but calm for consumer finance companies, small and medium-sized banks, and the loan facilitation industry.

Following the official implementation of the “New Loan Facilitation Regulations,” a new round of rate reductions for licensed consumer finance institutions has begun. Reporters from the 21st Century Business Herald learned from several consumer finance and loan facilitation institutions that, following regulatory guidance, licensed consumer finance institutions must reduce the average comprehensive financing cost of newly issued loans for the current quarter to 20% (inclusive) or below starting from the first quarter of next year. Additionally, a rate reduction policy regarding the upper limit of interest rates in the microloan industry is also under consideration.

Compared to the previous requirement to reduce the weighted average interest rate of a single loan (annualized rate, the same below) to below 20% by mid-December, this new requirement has provided some buffer and has somewhat relaxed the interest rate range. However, there remains pressure on the consumer finance and loan facilitation industries, as well as on small and medium-sized banks that need to “prepare for a rainy day.” In this context, some institutions have postponed financing plans, others have paused new loans, and some have started optimizing their personnel.

Several interviewees indicated to reporters that “cost reduction” will become the keyword for the industry going forward, and the previous model that relied on loan facilitation to expand the market size among lower-tier customers may be difficult to sustain. Meanwhile, not only the consumer finance industry but also small and medium-sized banks must complete the important task of building their own channels moving forward.

Average loan rates for several consumer finance institutions exceed 20%.

In recent years, with the continuous reduction of the Loan Prime Rate (LPR) and the improvement of financial consumer rights protection, lowering customer loan interest rates has become the “main theme” of the entire financial industry.

Specifically, in the consumer finance industry, the recent interest rate reduction marks the second decrease in the past five years, the previous round was around 2021 when consumer finance institutions gradually reduced the annualized interest rate cap for personal loans from 36% to 24% under regulatory requirements.

How are the loan rate implementations of various institutions currently? According to publicly available information, the ratings reports disclosed by financial bond issuances reveal relevant data, while more micro-level data can be inferred from the latest ABS (Asset-Backed Securities) product’s underlying asset conditions.

Based on this, reporters from the 21st Century Business Herald organized the loan rate implementation status of 11 consumer finance institutions updated in 2025. Currently, the average loan rates of various institutions have generally been reduced to below the “red line” of 24%, but due to differences in shareholder backgrounds, business models, and customer bases, there are significant variations in product pricing among consumer finance institutions, with some institutions having over half of their products above 20%.

However, it should be noted that some industry insiders told reporters that the loan rate calculation standards disclosed in the rating reports vary among institutions, with some disclosing annual weighted average rates, others disclosing new issuance average rates, some disclosing overall asset average rates, and others not including actual financing costs under guarantees, credit enhancement, and equity products in their calculations; thus, these figures should only be used as a reference.

For example, while the loan pricing disclosed by the consumer finance company is controlled below 24%, in the “An Yi Hua 2025 Third Phase Personal Consumer Loan Asset-Backed Securities Issuance Prospectus,” the weighted average annual interest rate of the underlying assets reaches 23.96%, with the lowest single loan interest rate at 17.4% and the highest at 24%, while the proportion of loan rates between 23% and 24% reaches 99.8%;

The average loan rate for Haier Consumer Finance is 22%, and the weighted average annual interest rate of the latest ABS underlying assets is 23.65%;

Zhongyuan Consumer Finance has an average loan rate of 17.92%, with the weighted average annual interest rate of the latest ABS underlying assets at 22.5%;

Soochin Kaiqi Consumer Finance has a weighted average loan rate below 20%, but by the end of March 2025, the proportion of loans with interest rates between 18% and 24% (inclusive) is 72.43%;

China Post Consumer Finance has an average loan rate below 20%, and by the end of 2024, the proportion of loans with rates above 20% reaches 52.10%;

Among the 11 disclosed consumer finance institutions, the one with the lowest customer interest rate level is Ningyin Consumer Finance, with an average annual loan rate of 11.56%, and single loan interest rates ranging from 3.06% to 14.9%.

Under the consensus of “cost reduction,” transformation accelerates.

As the interest rate cap is again lowered to 20%, coupled with the previous halt of “24% + equity” type products that consumer finance companies used to expand profit sources, “cost reduction” has become a market consensus.

“After the rate reduction, the customer base we face is quite different from before, and cost reduction is definitely the top priority now,” said a senior executive from a consumer finance institution in central China.

Further analyzing the operational costs of consumer finance institutions, they include four components: funding costs, customer acquisition costs, risk costs, and operational costs. In recent years, funding costs in the consumer finance industry have significantly decreased, but customer acquisition costs and risk costs have increased.

In fact, as early as around 2021, when the 24% interest rate cap was set, there was a discussion in the industry about the “interest rate survival line,” at which time rates of 15%, 18%, and 20% were mentioned, but due to limited room for cost reductions at that time, 24% was seen as a relatively commercially sustainable interest rate boundary.

A senior executive from a western consumer finance institution analyzed the cost structure of his institution: funding costs are about 3%, customer acquisition costs are around 4% to 5%, and risk costs are about 7%, totaling approximately 15%, leaving a 5% space for operational costs under the 20% interest rate cap.

“Business can still continue, but scale cannot be achieved,” he stated.

Reporters from the 21st Century Business Herald learned that after the rate reduction requirements were issued, the consumer finance industry has overall tightened the “gate” for acquiring new customers. The Nanyin Fa Ba Consumer Finance, which planned to issue 2 billion yuan in ABS at the end of October, also announced after six days of disclosing information that it would postpone the issuance “after comprehensively considering the market environment and actual conditions.” According to further reports, other consumer finance institutions have also shelved their fundraising plans.

“In the coming period, with growth in scale difficult to break through, the institutions’ own willingness and demand for financing will not be too pronounced,” another executive from a consumer finance institution told reporters.

From an objective standpoint, in a low-interest-rate environment, the decline in funding costs has become a significant advantage for the consumer finance industry’s “cost reduction.” The China Banking Association’s “China Consumer Finance Company Development Report (2025)” (hereinafter referred to as the “2025 Consumer Finance Report”) indicates that last year, policy support and an improved market liquidity environment provided favorable conditions for consumer finance companies’ financing, further reducing financing costs. Among the 30 consumer finance institutions engaged in financing business, 19 had weighted financing cost rates between 2.5% and 3.0% (inclusive).

However, further reductions in customer acquisition costs, risk costs, and operational costs mean that some consumer finance institutions have reached a “crossroads” for transformation.

In terms of customer acquisition channels, consumer finance companies currently categorize customer acquisition into online and offline channels, dividing them into self-operated and third-party referral channels, forming four major 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 relatively complex, involving not only non-performing asset losses but also corporate governance risks, outsourcing personnel management risks, and even reputation risks arising from complaints, thus raising higher requirements for risk management throughout the business processes of each consumer finance institution. Additionally, in the online operational model, due to differences in cooperation models, responsibility distribution, and profit-sharing models with internet platforms, guarantees, and loan facilitation institutions, they can also be subdivided into various business models such as pure referral, joint operations, profit sharing, and credit enhancement.

Different business models and resource endowments lead to significant disparities in the allocation of the aforementioned three costs among institutions, thus affecting the final pricing of loan products.

Even within the same company, different products can exhibit considerable pricing differences. A typical example is Ant Group’s consumer finance, which handles two major products, “Huabei” and “Jiebei.” The annualized interest rate for the “Huabei,” positioned as a payment credit tool, ranges from 0% to 24%, while the “Jiebei,” positioned as a personal consumer loan product, has an annualized interest rate ranging from 5.475% to 24%. Due to the expansion of the Jiebei business scale, the proportion of loans with interest rates above 18% has shown an upward trend since 2023.

Additionally, taking Ningyin Consumer Finance, which has the lowest loan rates mentioned above, as an example, its main business models include online self-operated, online joint operations, and offline self-operated. As of the end of 2024, the proportion of online joint operations is 69.7%, down by 20.41 percentage points from 90.11% at the end of 2022. Its cooperative channels mainly include leading internet platforms such as Ant Group, ByteDance, Baidu, Meituan, and WeBank, with cooperation models including profit sharing and credit enhancement. Furthermore, in recent years, with the support of its major shareholder, Ningbo Bank, Ningyin Consumer Finance has accelerated its expansion of both online and offline self-operated businesses, achieving a better balance between scale expansion and risk control.

Regardless of the business model, in a context where scale growth is challenging, enhancing independent customer acquisition capabilities to reduce customer acquisition and risk costs is a “must-answer question” for the current consumer finance industry and small and medium-sized banks.

On November 6, Urumqi Bank announced the cessation of cooperative personal internet consumer loans and released a list of existing business cooperation, which is regarded as a typical case of the contraction of loan facilitation by small and medium-sized banks.

For a long time, small and medium-sized banks in the central and western regions, as well as northeast China, have been important funding sources for loan facilitation industry products with interest rates of 24% and above. However, after the new loan facilitation regulations included all service fees, guarantee fees, etc., in the comprehensive financing cost and set a “red line” for the comprehensive financing cost at 24%, the rise in compliance costs and customer acquisition costs has rendered this business “unprofitable.”

In fact, following the current round of consumer finance rate reduction requirements, several industry insiders have expressed concerns to reporters about the future risks of high-interest loan facilitation cooperation for small and medium-sized banks. “It cannot be ruled out that subsequent regulation will guide platform-side rate reductions, ultimately bringing customer interest rates down to the range of 12% to 16%. Licensed financial institutions cannot simply become funding sources for personal online loan products; they must establish their own channels and capabilities,” an industry insider stated.