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 October that has just passed has been anything but calm for consumer finance companies, small and medium-sized banks, and the loan-assistance (guarantee-and-loan) industry.

After the “new rules for loan assistance” officially took effect, another round of rate reductions targeting new interest rates for newly issued loans by licensed consumer finance institutions has been launched. A reporter 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 overall comprehensive financing cost of all newly issued loans for that quarter to within 20% (inclusive). In addition, a rate-cap reduction policy for the micro-loan industry is also being solicited for feedback.

Compared with the earlier regulatory guidance requiring that by mid-December each single-loan weighted average interest rate (annualized interest rate; the same applies below) be reduced to within 20%, this requirement now provides a certain grace period and, to some extent, relaxes the interest-rate range. But for consumer finance and loan-assistance industries—and for small and medium-sized banks that need to “prepare for the rain in advance”—there is still a certain degree of pressure. Against this backdrop, some institutions have postponed financing plans, some have paused newly issued loans, and some have begun personnel optimization.

Multiple interviewees told the reporter that “cost reduction” will become the keyword for the industry going forward. The past model that relied on loan assistance to expand into lower-tier customer groups and grow market scale may be hard to continue. At the same time, it is not only the consumer finance industry—small and medium-sized banks also must complete the important task of building their own direct channels next.

Average loan interest rates of multiple consumer finance institutions at more than 20%

In recent years, against the backdrop of continuous reductions in the LPR and increasingly improving protection of financial consumers’ rights and interests, cutting lending interest rates has been the “main theme” across the entire financial industry.

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

So how are the loan interest rates of different institutions being implemented? Based on publicly available information, the relevant data can be seen in the main-issuer credit rating reports disclosed with financial bond issuance. More granular data can also be gleaned from the asset pool information of the latest ABS (asset-backed securities) products.

Based on this, a reporter from 21st Century Business Herald compiled the loan interest rate implementation of 11 consumer finance institutions updated for 2025. Overall, 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 expansion models, and customer-base foundations, pricing differences among consumer finance institutions’ products are substantial. In some institutions, the proportion of products above 20% makes up more than half.

It should be noted, however, that industry participants also told the reporter that the calculation bases for disclosed loan interest rates differ among institutions. Some disclose the annual weighted average interest rate, some disclose the average interest rate of newly issued loans, some disclose the overall average interest rate of assets, and some, in their calculations, do not include actual financing costs under models such as guarantee-enhancement credit support and equity products. Therefore, these figures should be regarded only as references.

For example, while the loan pricing disclosed by Jisu Consumer Finance is all controlled below 24%, in the “Anyi Hua 2025 Third Personal Consumer Loan Asset-Backed Securities Issuance Disclosure” the weighted average annual interest rate of the assets in the pool reaches 23.96%; the lowest interest rate for a single loan is 17.4%, and the highest is 24%. The proportion of loans with interest rates between 23% and 24% is 99.8%;

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

Central Plains Consumer Finance’s average loan interest rate is 17.92%, and the weighted average annual interest rate of the assets in the pool for the latest ABS is 22.5%;

Suyin Kaiji Consumer Finance’s weighted average loan interest rate is within 20%, but by the end of March 2025, the proportion of loans with interest rates ranging from 18% to 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 mentioned above, Ningyin Consumer Finance has the lowest customer-facing rate level. Its average annualized loan interest rate is 11.56%, and the interest rate distribution for single loans ranges from 3.06% to 14.9%.

“Cost reduction” consensus drives accelerated transformation

When the interest-rate cap is reduced again to 20%, and coupled with the earlier suspension of the “24%+ equity” type of products that consumer finance companies had been expanding as profit sources, “cost reduction” has become a market consensus.

“After the interest-rate reduction, our customer base differs significantly from before. Cost reduction must be the top priority now.” A senior executive at a consumer finance institution in central China said.

Further breaking down the business-expansion costs of consumer finance institutions, there are four parts: funding costs, traffic (customer acquisition) costs, risk costs, and operating costs. In recent years, funding costs in the consumer finance industry have declined noticeably, but both traffic costs and risk costs have increased to some extent.

In fact, as early as around 2021 when the 24% interest-rate cap was determined, the industry had already started a round of discussions about a “rate survival line.” At that time, the thresholds of 15%, 18%, and 20% were all mentioned, but because there was relatively limited room for cost reductions at the time, 24% was viewed as a relatively commercially sustainable interest-rate boundary.

A senior executive of a consumer finance institution in western China analyzed the institution’s current cost structure for the reporter: funding costs are about 3%, traffic costs are 4% to 5%, risk costs are about 7%; together the three add up to about 15%, leaving about 5% within the 20% interest-rate cap for operating costs.

“Business can still be carried on, but we can’t scale it up.” He said.

A reporter from 21st Century Business Herald learned that after the issuance of the interest-rate reduction requirements, the consumer finance industry tightened the “channels” for incremental customer acquisition overall. The planned NanYin FaBa Consumer Finance, which was scheduled to issue RMB 2 billion in ABS in late October, also announced—six days after releasing its materials—that it would postpone the issuance “after comprehensive consideration of the market environment and actual circumstances.” The reporter also learned that other consumer finance institutions’ fund-raising plans have similarly been “put on hold.”

“With incremental scale unlikely to break through next, institutions’ own financing willingness and demand also won’t be very prominent.” Another senior executive at a consumer finance institution told the reporter.

Under objective conditions, in a low-interest-rate environment, the downward movement of funding costs is a strong tailwind for “cost reduction” in the consumer finance industry. The “Development Report on China’s Consumer Finance Companies (2025)” released by the China Banking Association (hereafter the “2025 Consumer Finance Report”) shows that last year, policy support and improvements in market liquidity conditions provided favorable conditions for consumer finance companies’ financing; financing costs further declined. Among 30 consumer finance institutions that carry out financing businesses, 19 had weighted financing cost rates 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.

From the perspective of how customer acquisition channels are divided, consumer finance companies currently classify their customer acquisition into two logics: online and offline channels; and two types: self-operated and third-party lead-generation channels. These, respectively, form four major categories: offline self-operated, offline third-party intermediary cooperation, online self-operated, and online third-party platform cooperation.

It should be noted, however, that the composition of risk costs is relatively complex. In addition to losses from non-performing assets, there are also governance risks, risks in controlling outsourced personnel, and even reputation risks triggered by complaints, and so on. This raises higher requirements for risk management across the entire business lifecycle of each consumer finance institution. Moreover, under online business models, because cooperation arrangements among consumer finance institutions, internet platforms, guarantee/credit-enhancement entities, loan-assistance institutions, and other third parties differ in terms of responsibility allocation and profit-sharing models, there can also be multiple sub-business models such as pure lead generation, joint operation, revenue sharing, and credit enhancement.

Different business models and resource endowments cause each institution’s allocation differences across the three cost categories above to be significant, which in turn affects the pricing of final loan products.

Even within the same company, different products can show large pricing differences. A typical case is Ant Consumer Finance, which handles Ant’s two major products, “Huabei” and “Jiebei.” Its “Huabei” annualized interest rate, positioned as a payment credit tool, is within the 0% to 24% range. Its “Jiebei” annualized interest rate, positioned as a personal consumption loan product, is within the 5.475% to 24% range. Due to scale expansion of the Jiebei business, since 2023 the share of loans with interest rates of 18% and above has shown an upward trend.

In addition, taking Ningyin Consumer Finance—one of the examples with the lowest loan interest rates mentioned above—as an example, its main business models include three types: online self-operated, online joint operation, and offline self-operated. Among them, as of 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, ByteDance, Baidu, Meituan, WeBank, and others. Its cooperation models include two types: revenue sharing and credit enhancement. Moreover, in recent years, supported by its major shareholder, Bank of Ningbo, Ningyin Consumer Finance has accelerated the expansion of both its online and offline self-operated business, enabling a better balance between scale expansion and risk control.

Regardless of what business model it uses, under the background of limited ability to grow scale, enhancing independent customer-acquisition capability so as to reduce both traffic and risk costs is a “must-answer question” for today’s consumer finance industry and even for small and medium-sized banks.

On November 6, Urumqi Bank announced it would stop carrying out cooperative personal online consumer loans, and released a list of cooperation for existing stock businesses, which is seen as a typical example of small and medium-sized banks contracting loan-assistance activities.

For a long time, small and medium-sized banks in Central-West, Northeast China have been major sources of funding for loan-assistance industry loan products with interest rates of 24% and above. But after the new rules for loan assistance require that all service fees, guarantee fees, and other items be included in comprehensive financing costs, and after a “24% comprehensive financing cost” red line was set, the rise in compliance costs and traffic costs made the business “not worth it.”

In fact, after the interest-rate reduction requirements in this round for consumer finance companies, multiple industry insiders have expressed concerns to the reporter about the risks of high-interest loan-assistance cooperation involving small and medium-sized banks in the future. “It’s not ruled out that the regulator will guide platforms to further cut rates, ultimately bringing customer-facing rates down to the 12%–16% range. Licensed financial institutions cannot simply become the funding source for individual online lending products; they must build their own channels and capabilities.” An industry insider said.

(Editor: Wen Jing)

Keywords:

                                                            Interest rate  
                                                            Consumer finance