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 L Qing

The October that has just passed has been far from calm for consumer finance companies, small and medium-sized banks, and the loan-assistance (assist-lending) industry.

After the “new assist-lending regulations” were officially implemented, another round began to cut the interest rates on new issuances by licensed consumer finance institutions. Reporters from 21st Century Business Herald learned from multiple consumer finance and assist-lending institutions that, guided by regulatory communication, licensed consumer finance institutions must, starting from the first quarter of next year, reduce the average all-in financing cost of overall newly issued loans for the quarter to no more than 20% (inclusive). In addition, a policy to further reduce the interest rate ceiling for the micro-lending industry is also currently soliciting opinions.

Compared with the earlier regulatory guidance requiring that by mid-December, the weighted average interest rate on each individual loan (annualized interest rate, same below) be reduced to no more than 20%, this new requirement has now provided a certain buffer period and, to some extent, loosened the interest rate band. However, for the consumer finance and assist-lending industries—and for small and medium-sized banks that need to “prepare for the rain”—there remains significant pressure. Against this backdrop, some institutions have delayed their financing plans, some have paused new loan origination, and some have begun optimizing their staffing.

Multiple interviewees told the reporter that “lowering costs” will become the industry’s keyword going forward. The model that previously relied on assist-lending to expand lower-tier customer groups and grow market scale may be difficult to continue. At the same time, it is not only the consumer finance industry; small and medium-sized banks must also complete the important task of building their own direct channels.

Several consumer finance institutions’ average loan interest rates above 20%

In recent years, against the backdrop of ongoing LPR cuts and increasingly improved protection of financial consumers’ rights and interests, interest rate reductions on borrower loans have been the “main theme” across the entire financial industry.

Specifically for the consumer finance industry, the recent rate cut is the second time in nearly five years. The prior round was around 2021, when, under regulatory requirements, consumer finance institutions gradually reduced the upper limit of annualized interest rates on personal loans from 36% to 24%.

So how are each institution’s loan interest rates being executed now? Based on publicly available information, the relevant data can be found in the main-entity rating reports disclosed with financial bond issuance; more microscopic data can be gleaned from the pool assets of the latest ABS (asset-backed securities) products.

Based on this, reporters from 21st Century Business Herald compiled the interest rate implementation status of 11 consumer finance institutions updated for 2025. At present, the average loan interest rates of each institution are generally below the 24% “red line.” However, due to differences in shareholder backgrounds, business/operating models, and customer base foundations, product pricing varies greatly across institutions. In some institutions, the proportion of products priced above 20% accounts for more than half.

It should also be noted that industry insiders told the reporter that the calculation bases for loan interest rates disclosed in rating reports differ across institutions. Some disclose the annual weighted average interest rate; some disclose the average interest rate of newly originated loans; some disclose the overall average interest rate of total assets. Also, when calculating, some may not include the actual financing costs under models such as secured credit enhancement and equity products. Therefore, the figures should be treated only as references.

For example, in the case of马上消金, its disclosed loan pricing is all controlled below 24%, but in the “Anxin Yi Fang 2025 Third Series Personal Consumer Loan Asset-Backed Securities Offering Memorandum,” the weighted average annual interest rate of the pool assets reaches 23.96%. The lowest interest rate on single loans is 17.4%, and the highest is 24%. The share of loans with interest rates between 23% and 24% is 99.8%;

For 海尔消金, its in-book average loan interest rate to customers is 22%, and the weighted average annual interest rate of the pool assets in the latest ABS is 23.65%;

For 中原消金, its average loan interest rate is 17.92%, and the weighted average annual interest rate of the pool assets in the latest ABS is 22.5%;

For 苏银凯基消费金融, the weighted average loan interest rate is within 20%, but by end of March 2025, the proportion of loans with interest rates within 18%–24% (inclusive) was 72.43%;

For 中邮消金, the average loan interest rate is within 20%, and as of end-2024, the proportion of loans with interest rates above 20% reached 52.10%;

Among the 11 consumer finance institutions mentioned in the above disclosures, the one with the lowest customer-facing interest rate level is 宁银消费金融. Its average annual loan interest rate is 11.56%, and the distribution of single-loan interest rates ranges from 3.06% to 14.9%.

“Lowering costs” consensus drives faster transformation

When the interest rate ceiling is cut again to 20%, combined with the earlier halting of “24%+ equity-type” products that consumer finance companies used to broaden profit sources, “lowering costs” has become a market consensus.

“After the interest rate ceiling is reduced, our borrower pool differs significantly from before. Lowering costs is definitely the top priority right now,” a senior executive at a consumer finance institution in central China said.

Further breaking down the operating costs of consumer finance institutions, there are four components: funding costs, traffic/acquisition costs, risk costs, and operating costs. In recent years, funding costs in the consumer finance industry have fallen markedly, but both traffic costs and risk costs have risen somewhat.

In fact, as early as when the 24% interest rate ceiling was set around 2021, the industry already launched a round of discussions about the “interest rate survival line.” At that time, figures like 15%, 18%, and 20% were all mentioned. But because there was relatively limited room for reducing various costs at that time, 24% was viewed as a relatively commercially sustainable interest rate threshold.

A senior executive at a consumer finance institution in western China analyzed the cost structure of his institution to the reporter: funding costs are about 3%, traffic costs are 4% to 5%, risk costs are about 7%; the three together add up to roughly 15%. Under the 20% interest rate ceiling, there is still 5% of room allocated for operating costs.

“The business can still be carried out, but we can’t grow the scale,” he said.

Reporters from 21st Century Business Herald learned that after the issuance of the interest rate reduction requirements, the consumer finance industry tightened the “openings” for acquiring new customers. The South/Nan Yin Fa Ba Consumer Finance, which originally planned to issue ABS with a scale of RMB 2 billion by late October, also announced, six days after publishing its materials, that it would postpone the issuance “after comprehensive consideration of the market environment and actual circumstances.” In addition, the reporter understands that other consumer finance institutions’ fund-raising plans were also “put on hold.”

“Under conditions where incremental scale is difficult to break through, an institution’s own willingness and needs to finance also will not be particularly prominent,” another senior executive at a consumer finance institution told the reporter.

From an objective standpoint, in a low-interest-rate environment, the decline in funding costs is an important tailwind for “lowering costs” in the consumer finance industry. The China Banking Association’s “China Consumer Finance Company Development Report (2025)” (hereinafter the “2025 Consumer Finance Report”) shows that last year, policy support and improvements in market liquidity conditions provided favorable circumstances for consumer finance companies to obtain financing, and financing costs further decreased. Among 30 consumer finance institutions conducting financing business, 19 had a weighted financing cost ratio 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 a “fork in the road” for transformation.

From the standpoint of customer acquisition channels, consumer finance companies currently segment customer acquisition into two logic categories: online vs. offline channels, and self-operated vs. third-party lead-generation channels. These form four major categories: offline self-operated; offline third-party intermediary cooperation; online self-operated; and cooperation with online third-party platforms.

It should also be noted that the composition of risk costs is relatively complex. Besides losses from non-performing assets, it includes corporate governance risk, outsourcing personnel management risk, and even reputation risk triggered by complaints, etc. 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 the cooperation patterns and responsibilities and profit allocation arrangements differ between consumer finance institutions and third parties such as internet platforms, guarantors, and assist-lending institutions, there can also be multiple sub-business models, such as pure lead generation, joint ventures, revenue sharing, and credit enhancement.

Different business models and resource endowments cause significant differences in how each institution allocates the three cost categories above, which in turn affects the final pricing of loan products.

Even within the same company, different products can show substantial pricing differences. A typical case is Ant Consumer Finance, which carries two major products from Ant: “Huabei” and “Jiebei.” The annualized interest rate of “Huabei,” positioned as a payment credit tool, is within 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 the scale expansion of Jiebei increased, since 2023 the share of loans with interest rates above 18% has shown an upward trend.

In addition, taking 宁银消金—the consumer finance institution with the lowest disclosed loan interest rates—for example, its main business models include three types: online self-operated, online joint venture, and offline self-operated. Among them, the share of online joint venture business at end-2024 was 69.7%, down 20.41 percentage points from 90.11% at end-2022. Its main cooperation channels include major internet platforms such as Ant, ByteDance, Baidu, Meituan, and WeBank. Its cooperation models include two types: revenue sharing and credit enhancement. And in recent years, supported by its major shareholder, Ningbo Bank, Ningyin Consumer Finance has accelerated the expansion of both its online and offline self-operated businesses, enabling a better balance between scale expansion and risk control.

Regardless of the business model, under conditions where scale is hard to grow, improving the institution’s independent customer acquisition ability—thereby reducing traffic and risk costs—is the “required answer” for the consumer finance industry as well as for small and medium-sized banks today.

On November 6, Urumqi Bank announced that it would stop conducting cooperative personal online consumer loan business and released a list of existing business cooperation. This was widely viewed as a typical example of assist-lending contraction by small and medium-sized banks.

For a long time, small and medium-sized banks in central and western China and in the northeastern region have been important sources of funding for assist-lending products with interest rates of 24% and above. But after the new assist-lending regulations require that all service fees, guarantee fees, and so on be included in the all-in financing cost, and after a 24% all-in financing cost “red line” is established, increases in compliance costs and traffic/acquisition costs have made this business “not worthwhile.”

In fact, after this round of consumer finance interest rate reduction requirements, multiple industry insiders told the reporter that they are worried about the risk of high-interest assist-lending cooperation with small and medium-sized banks in the future. “It’s not impossible that regulators will guide platforms to further cut interest rates, ultimately bringing customer-facing rates down to the 12%–16% range. Licensed financial institutions cannot simply be a funding source for personal online lending products; they must build their own channels and capabilities.” One industry insider said.

(Editor: Wen Jing)

Keywords:

                                                            Interest rate
                                                            Consumer finance