Avoid making minimum payments on credit cards, and never sign up for installment plans or consumer loans for purchases; if borrowing is unavoidable, first convert the interest rate to an annual percentage rate before comparing options
Minimum payment is a type of loan where interest is calculated daily; based on the upper limit prior to 2020, it converts to approximately 18% per year, and using it voids the interest-free period. Installment plans may state "monthly fee of 0.6%," which calculates to approximately 13.8% per year, not 7.2%. Because the principal is being repaid monthly while the fee is still charged based on the original amount, to determine which loan is more expensive, only look at the annualized interest rate, not the daily interest or monthly fee rates.
No direct cost involved. You simply need to set aside enou…
Prior to 2020, credit card interest rates were regulated: the maximum daily rate was 0.05% and the minimum was…
No direct cost involved. You simply need to set aside enough cash to pay the full balance by the due date. The real challenge is resisting the urge to use installment plans to spread out large purchases. When borrowing is truly necessary, spend a few minutes determining the annual percentage rate for each loan.
Prior to 2020, credit card interest rates were regulated: the maximum daily rate was 0.05% and the minimum was 0.7 times that maximum (70%). At 0.05% daily, the simple annual rate comes to 18.25%: interest is not added back to the principal. Starting in 2021, issuers and cardholders may negotiate rates independently. After making minimum payments, the unpaid portion of the balance continues to accrue interest daily, and the interest‑free period is forfeited. The central bank requires issuers to display the annualized interest rate prominently, rather than showing only daily rates or daily repayments. Since 2021, all lenders must prominently disclose annualized rates in advertisements and contracts. Daily and monthly rates may also be shown, but must not be more prominent than the annualized rate. This rate must incorporate all interest and directly related fees. For installment plans, the actual amount financed is calculated based on the remaining principal after each payment. An example from the central bank shows that borrowing 100,000 yuan over 12 months with a 0.5% monthly fee plus a 1,000 yuan service charge results in an annual rate of roughly 12.80% under simple interest and about 13.58% under compound interest; Looking only at the charges suggests 0.5% × 12 + 1% = 7% a year. The actual annualized cost is almost twice that because principal declines each month while the installment fee continues to be charged on the original 100,000 yuan. Similarly, a credit‑card installment plan with 0.6% fees per installment over 12 installments and no other fees has a nominal annual rate of 7.2%; the compound annualized rate is about 13.8%, around 1.9 times the nominal figure. This multiplier stays between 1.8 and 2 for terms ranging from 6 to 36 months. Loans from individuals or unlicensed firms fall under private lending; if the agreed rate exceeds four times the one‑year LPR at the time of signing, courts will not enforce the excess portion. As of August 20, 2026, the one‑year LPR is 3.0%, so the legal ceiling is 12%. When interest is deducted upfront, courts calculate the principal using the amount actually received; this rule does not apply to banks or licensed consumer‑finance firms, nor to the seven categories of local financial organizations, including micro-loan companies, pawn shops and financial leasing companies. Therefore, the 12% ceiling cannot be applied to their loans; instead, the contract‑stated annual rate must be used (China, 2020‑2021).
中国人民银行 (2020). 关于推进信用卡透支利率市场化改革的通知（银发〔2020〕327 号）. https://xining.pbc.gov.cn/zhengwugongkai/4081330/4406346/4693549/4159909/index.html；中国人民银行 (2021). 中国人民银行公告〔2021〕第 3 号（第一、三、四条，附件《采用内部收益率法计算贷款年化利率示例》第三例）. https://www.gov.cn/zhengce/zhengceku/2021-03/31/content_5597156.htm；最高人民法院 (2020 年第二次修正). 关于审理民间借贷案件适用法律若干问题的规定（第一、二十五、二十六条）. http://gongbao.court.gov.cn/Details/94b6623974526df7d2430a3c73f050.html（最高人民法院公报）；最高人民法院 (2020). 关于新民间借贷司法解释适用范围问题的批复（法释〔2020〕27 号）. https://www.court.gov.cn/fabu/xiangqing/285171.html；全国银行间同业拆借中心受中国人民银行授权 (2026). 2026 年 8 月 20 日贷款市场报价利率（LPR）公告. https://www.chinamoney.com.cn/chinese/rdgz/20260820/3399885.html
Open source link18.25% is calculated directly by multiplying "0.05% × 365"; compound interest has not been factored in. If interest compounds monthly, it would be even higher. Some individual banks offer discounts; please refer to the annual interest rate specified on your own billing statement. When you are truly facing cash flow difficulties, prioritize seeking loans from regular channels with lower interest rates; do not delay and let interest accumulate on the minimum payment. When comparing two loans, ask the lender for the annual interest rate calculated using compound interest. If the lender provides a simple interest rate, they are required by regulation to specify "simple interest," which will be lower than compound interest. The 13.8% and 1.8 to 2 times figures were calculated by the author of this book following the People's Bank of China's algorithm, which is documented in the verification records. Do not touch usury in private lending; see also Section 7, Item 15 (Do not borrow at usurious rates). For fees charged separately by dealers when applying for a car loan, see this section, Item 49 (4S shop financial service fees). For situations where you are already unable to repay, see Section 7, Item 23 (Credit cards, online loans already unpayable).