GuShiio.com ① Why did banks take the initiative to lower the interest rate on existing consumer loans? A reporter from the Financial Union confirmed that the main reason was that the relevant banks had previously issued consumer loan products using floating interest rate pricing contracts similar to mortgage products.
② Similar reductions in stock interest rates are not common in the market. More generally, as the LPR continues to be lowered, bank consumer loan interest rates continue to roll to new lows.
Cailian News Agency, February 19 (Reporter Zou Juntao)After the interest rate on existing mortgage loans was cut, the interest rates on existing consumer loans of some banks have also moved recently.
On February 19, a financial consumer posted information on social platforms saying that a stock bank recently took the initiative to cut the interest rate on previously issued existing consumer loan products. A reporter from the Financial Union noted that a similar situation is not an isolated case. Social platform information shows that the interest rates of existing consumer loan products issued by some other banks have also been adjusted recently.
Why did banks take the initiative to lower the interest rate on existing consumer loans? The reporter from the Financial Union further verified with relevant banks and industry insiders and learned that the main reason was that the relevant banks had previously issued consumer loan products using floating interest rate pricing contracts similar to mortgage products.
The difference is that consumer loan products are linked to the one-year loan market quoted rate (LPR) rather than the five-year loan. When the one-year LPR is adjusted, its existing consumer loan interest rate will also be adjusted simultaneously.
Industry insiders interviewed said that short-term loans such as consumer loans are priced based on one-year LPR, which is a market-oriented pricing method encouraged by regulations. However, most banks in the market are still accustomed to using fixed interest rate model pricing.
A reporter from the Financial News Agency noticed that interest rates on bank consumer loan products continued to reach new lows in the beginning of the year. With the adjustment of LPR and proactive concessions from banks, the current annualized interest rate (simple interest) of consumer loan products from large joint-stock banks has dropped to 2.58%. Previously, the annualized interest rate of similar products newly issued in the industry was generally 2.65% or above.
After existing mortgage loans “cut interest rates”, some banks took the initiative to cut existing consumer loan interest rates
Recently, some netizens posted on social platforms saying,”XX Bank is quite generous. He actually took the initiative to reduce my existing consumer loans to 2.65%.” He also said that other banks would also ask for interest coupons from familiar account managers. Because of the mention of banks taking the initiative to cut loan interest rates, this post’s comment area attracted many netizens to discuss how to do most inquiries.
A reporter from the Financial Union communicated with him and learned that the interest rate cut was made on the initiative of the banking system. Subsequently, according to the content of the post, a reporter from the Financial News Agency verified the relevant situation with the bank’s customer service staff and received a reply: According to the agreement with the customer, there will indeed be cases where the interest rate on existing consumer loans will be actively lowered.
Bank staff explained to reporters that the product has a fixed interest rate for one year and a floating interest rate for more than one year. The pricing method of floating interest rates is calculated and determined by the risk pricing model based on the one-year loan market quoted interest rate (LPR) announced by the National Interbank Funding Center at the end of the day before the actual loan issuance date.
According to the content of the post, the loan period signed by the netizen and the stock bank is 3 years, and the loan date is July 2024. According to data from the National Interbank Funding Center, in 2024, the center announced that the one-year loan market quoted rate (LPR) has experienced two reductions, from 3.45% to 3.35% in July 2024, and from 3.35% in October 2024. Further reduced to 3.10%.
Industry insiders told the Financial News Agency that LPR, as the core indicator of market-oriented interest rates, is the basis for loan pricing of financial institutions. For short-term loans such as consumer loans, one-year LPR is usually used as the basis for pricing.
Yu Fenghui, a senior researcher at Pangu think tank, pointed out in an interview,”Now many banks in the industry are doing this. For example, large banks have basically adopted this model. After all, this is a market-oriented pricing method encouraged by supervision.”
Reporters from the Financial Union today asked many banks about the pricing methods for consumer loan products. It is true that some large banks also adopt floating interest rate models for some consumer loan products. For example, Bank of Communications responded that there are differences in the pricing methods of consumer loan products issued by the bank in various places, but the bank’s head office has “online mortgage” personal consumer loan products that can be determined based on the loan market quoted interest rate (LPR) plus (minus) points.
However, there are still a large number of bank consumer loans that only offer fixed interest rates. “Most of the consumer loan pricing models of banks are determined according to their own circumstances. Fixed interest rates are more conducive to banks controlling risks.” Some insiders think so. A reporter from the Financial Union today asked a person claiming to be working in a rural commercial bank in South China whether the bank could reduce the interest rate on existing consumer loans. The other party gave only a plan to “borrow new loans and repay old loans, and the interest rate will be lowered.”
Falling below 2.6%, consumer loan interest rates continue to reach new lows
An interview with a reporter from the Financial News Agency learned that the current proportion of contracts with a term of more than one year in the consumer loan market is not high, so similar reductions in existing interest rates are not common. More generally, as the LPR continues to be lowered, bank consumer loan interest rates continue to rise to new lows, and the annualized interest rates (simple interest) of some bank consumer loan products have dropped to 2.58%.
However, market information shows that the current interest rate of new consumer loan products in the market is still generally above 2.6% annualized. For example, China Merchants Bank, the annualized interest rates promoted by the bank’s two consumer loan products on China Merchants Bank’s App and Credit Card Platform start at 2.65% and 2.88%(interest rate coupons) respectively. In addition, the annualized interest rate for new customers of its consumer loan product “Ningmohua” that Bank of Ningbo has long promoted reaches about 2.8%.
At the same time, several banks also pointed out that some customers can also enjoy lower preferential interest rates than advertised. A business manager of a major joint-stock bank told a reporter from the Financial Union that the current lending rate is the lowest in history for many years.
“In 2025, consumer lending, as a key business in the retail sector, is expected to receive more attention against the background of easing post-loan pressure.” Su Yorui, a senior researcher at Suxi Zhiyan, accepted an interview with a reporter from the Financial Union that consumer loan interest rates are expected to remain stable overall in 2025, and commercial banks may consider targeted interest rate cuts in new customers and some key scenarios.
Why do banks charge consumer loan interest rates so much? Yu Fenghui believes that first, in the current overall economic environment, high-quality assets are difficult to find, and consumer loans are considered a business with relatively low risks and relatively high potential; second, they want to expand market share. However, he also warned that continuous internalization may lead to compression of bank profit margins. If review standards are relaxed in order to compete for customers, it may also increase the risk of non-performing loans.
