How Much Can Interest Rates Be?

China has a long and complex history when it comes to interest rates and the regulation of interest rates for loans. In recent years, the Chinese government has introduced a series of regulations aimed at protecting borrowers and curbing predatory lending practices. These regulations have set limits on the interest rates that lenders can charge for loans, and have also established guidelines for the calculation of interest on loans.

The first stage was implemented in 1991, where Article 6 of the “Several Opinions of the Supreme People’s Court on the Trial of Loan Cases” stipulated that private lending interest rates could be higher than banks, but not exceed four times the interest rate of the same type of bank loan (including the interest rate principal). Any excess interest beyond this limit would not be protected. This regulation had a significant impact on China’s private lending behavior for more than 20 years.

The second stage of interest rate regulation was introduced on September 1, 2015, through Article 26 of the “Provisions of the Supreme People’s Court on Several Issues Concerning the Application of Law in the Trial of Private Lending Cases.” This article set the upper limit of private lending interest rate protection to an annual interest rate of 24%. If the interest rate agreed by both parties did not exceed this limit, the people’s court would support it. However, if the interest rate exceeded an annual interest rate of 36%, the excess interest rate agreement would be invalid. In such cases, if the borrower requested the lender to return the interest paid for the excess part exceeding the annual interest rate of 36%, the court would support it. This regulation aimed to protect borrowers and set a clear limit for interest rates in private lending, which was commonly referred to as the “monthly interest rate of 2%.”

The third and current stage of interest rate regulation was introduced on August 18, 2020, through an amendment to Article 26. This amendment links private lending interest rates to the one-year loan prime rate (LPR) and sets the upper limit of private lending interest rate protection to four times the same period LPR at the time of contract formation.

The one-year loan prime rate is published by the National Interbank Funding Center authorized by the People’s Bank of China every month since August 20, 2019. Therefore, since the LPR can change monthly, the upper limit of the private lending interest rate may also change every month. However, if the interest rate agreed by both parties exceeds four times the LPR at the time of contract formation, the excess part of the interest rate agreement would be considered invalid. As of July 2023, the one-year LPR in China is 3.85%, which means that the maximum interest rate for loans is 15.4%. This regulation aims to balance the interests of both borrowers and lenders and promote a healthy private lending market.