Text/Long Xiaolin

Recently, the topic of lowering private lending interest rates has aroused heated discussion. According to the regulations of the Supreme People's Court, the new judicially protected upper limit of private loan interest rates is four times the recently announced one-year loan prime rate (LPR). The current one-year LPR is 3.85, so the upper limit of judicially protected private lending interest rates is 15.4. Judicial protection rates for the top 24 dropped significantly. Once interest rates are announced, market sentiment is divided into two sides, including joy and lamentation.

For a private loan, the interest rate of 15.4 is not high. Even the credit card installment interest rates of some banks are higher than this interest rate, but the cost of private loans is obviously higher than that of banks. The main reason is that private loans are prone to bad debts, which can eat up the interest income from multiple loans.

However, after the judicially protected private loan interest rates dropped, private lending institutions also have certain benefits, that is, they at least have the capital to compete with bank credit card business on the interest rate level. If the interest rate on a private loan is lower than the credit card installment rate, will anyone use a credit card to pay in installments?

First of all, due to the reduction in judicial protection interest rates, private loans should have a certain impact on bank credit card installment payments. If the interest rate of a private loan is lower than the interest rate of a credit card installment payment, you will definitely choose a private loan instead of a credit card installment payment if you want to make overdraft consumption. Therefore, the reduction in private loan interest rates may divert some customers from credit card installment business, or force some banks to lower credit card installment interest rates.

However, it is impossible for private loans to completely replace bank credit card installment business just by lowering loan interest rates. Here are the reasons:

1. Credit card installment rates at many banks are still lower than the current protected interest rates for private loans. Only a subset of banks have credit card installment rates above 15.4, and there may even be only a small percentage of many credit card installment rates that are lower than this. In addition, 15.4 is only the upper limit of the legally protected interest rate for private loans, but the actual loan interest rate may still be higher than this. Therefore, it is more cost-effective to pay in installments using a credit card at some banks.

2. The scale of private loans cannot eat up all the credit card installment business. China's mainstream source of loan funds is still banks, and private loans can only serve as a supplement. Even if the private loan interest rate is completely lower than the credit card installment rate, there is not that much private loan capital to meet the demand of the loan market. Moreover, after the private lending interest rate is significantly reduced, a large amount of capital may withdraw from the private lending market in a short period of time because it cannot make money, leading to a tight supply of private lending capital.

3. Compared with private loans, many people are more willing to trust banks. Since private lending has limited supervision and is easily used by criminals, bank lending is obviously much more regulated. For those who want to borrow money, they naturally do not want to fall into the pit, so they may prefer to use high-interest credit card installment services rather than contact private loans.

The substantial reduction in judicially protected interest rates on private loans may be a reorganization of private loans. In the short term, the size of private loans may be significantly reduced, which will have a certain impact on the supply of the loan market, but in the long term, it can make private loans more standardized and attract more high-quality customers to help their development and growth. , which is also a benefit. For those who need to borrow money, the benefits are clear.

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