Don't make only the minimum credit card payment, and don't take installments or consumer loans for purchases; if you must borrow, convert the interest into an annualized rate before comparing

Cost

Free. Keep enough cash before the statement date to pay in full. The hard part is holding back from spreading a large purchase over installments. When you must borrow, spend a few minutes asking for the annualized rate on each loan.

What you get

Before 2020, the credit card overdraft rate had a ceiling and a floor: the ceiling was a "daily rate of 5 in 10,000 (万分之五)," and the floor was 0.7 times the ceiling. 5 in 10,000 a day comes to 18.25% a year, and that is simple interest: at 18.25% a year, interest is not added back into the principal. Since 2021, the rate has been negotiated between the card issuer and the cardholder. After you make only the minimum payment, interest is charged every day on the full unpaid principal, and the interest-free period is voided at the same time. The People's Bank of China (央行) has required card issuers to display the annualized rate (the rate converted to a full year) in a prominent way and "not display only the daily rate or the daily repayment amount." Since 2021, every lender must show the annualized rate prominently in advertisements and contracts. The daily and monthly rates may be shown alongside it, but not more prominently than the annualized rate. The annualized rate must include interest and all fees directly tied to the loan. For loans repaid in installments of principal, it is calculated on the principal actually left after each installment. The People's Bank of China gave a worked example: borrow 100,000 (10万) CNY, repaid over 12 months, with an installment fee of 0.5% of the original principal each month. A service fee of 1000 CNY is also charged at the time of borrowing. As simple interest, the annualized rate is about 12.80%. As compound interest (the internal rate of return method), the annualized rate is about 13.58%. Looking only at the rates, you would think it costs just 0.5% × 12 + 1% = 7% a year. The real figure is nearly double that, because the principal falls each month while the installment fee keeps being charged on 100,000 (10万) CNY. By the same method, a credit card installment over 12 periods with a 0.6% fee per period and no other charges is nominally 7.2% a year. As compound interest, the annualized rate is about 13.8%, about 1.9 times the nominal figure. For 6 to 36 periods, it is always between 1.8 and 2 times. If the lender is an individual or an ordinary company, it is private lending. If the agreed rate is above 4 times the one-year LPR (loan prime rate, the benchmark lending rate) at the time the contract was signed, the court will not support the part above it. The one-year LPR on August 20, 2026 is 3.0%, and 4 times that is 12%. Interest deducted from the loan in advance is treated by the court as part of the principal only to the extent of the money you actually received. This line does not reach licensed financial institutions such as banks and consumer finance companies. It also does not apply to 7 kinds of local financial organizations, such as small loan companies, pawnshops and financial leasing companies. So you cannot apply 12% to their loans; look at the annualized rate written in the contract (China, 2020 and 2021)

Notes

The 18.25% is simply 5 in 10,000 × 365 multiplied out, without interest on interest. If it really compounded monthly, it would be higher still. A few banks give discounts, so go by the annualized rate stated on your own statement. When you truly can't make ends meet, first look for a legitimate channel with a lower rate, and don't drag on with minimum payments while interest rolls up. When comparing two loans, ask the lender for the annualized rate calculated as compound interest. If the lender gives a simple-interest figure, the rules require it to say "simple interest," and simple interest comes out lower than compound. The 13.8% and the 1.8 to 2 times were calculated by this book using the People's Bank of China's method, and the method is written in the verification record. Stay away from loan sharks in private lending; see also §7.15 (don't borrow from loan sharks). For the extra fees a dealer charges when you take out a car loan, see §5.49 (the 4S dealership's financial service fee).

Evidence grade

C : The author's experience or common practice, without direct literature.

Sources

1. 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
2. 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
3. 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）
4. 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
5. 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

Translated from the Chinese original. Original book, section 5, tip 7. This section is about money and spending. It is general information, not financial or investment advice. Content may be out of date and rules differ by place. When you actually deal with an agency, a doctor or a court, follow what local officials, doctors and lawyers tell you. Disclaimer