Private lending, minjian jiedai, in Chinese law
Chinese law distinguishes loans by financial institutions from private lending, minjian jiedai, between individuals, companies and other non-financial entities. Private lending is recognised by the Civil Code, which requires loan contracts between natural persons to be honoured once the money is actually delivered.
The Civil Code also states that when two natural persons do not agree on interest, the loan is treated as interest-free. It expressly prohibits usurious lending, and courts examine whether a private lender is in fact running an unlicensed lending business.
The four-times-LPR ceiling
Since the Supreme People's Court revised its private lending provisions in August 2020, courts support agreed interest only up to four times the one-year Loan Prime Rate at the time the contract is formed. This replaced the earlier 24 and 36 percent thresholds.
With the one-year LPR at historically low levels, the ceiling for private loans now sits in the low teens. Interest above it cannot be enforced, and any excess already paid can be offset against the principal or reclaimed through the courts.
Who the ceiling applies to
The court later clarified that licensed financial institutions, including consumer finance companies and microloan companies supervised by financial regulators, are not covered by the private lending provisions. Their pricing is controlled instead through regulatory guidance and supervision.
Regulators have nevertheless pushed lenders and online loan facilitation platforms to bring annualised comprehensive financing costs down, with a strong emphasis on keeping them within 24 percent. Lenders charging more face scrutiny, and borrowers can complain to the financial regulator's consumer hotline.
The end of peer-to-peer lending
China once had thousands of P2P lending platforms. After widespread fraud, defaults and investor losses, regulators began a clean-up in 2016, and by late 2020 authorities announced that operating P2P platforms had fallen to zero. Some platforms converted into licensed microloan companies.
Today, an individual cannot legally borrow through a peer-to-peer platform in the mainland. Online credit apps operated by technology groups generally act as loan facilitators for partner banks and consumer finance companies, which hold the licence and fund most of the loans.
Licensed non-bank lenders
Consumer finance companies are licensed by the National Financial Regulatory Administration and offer unsecured personal loans, often through retailers and online channels. Microloan companies, licensed and supervised at provincial level, lend small amounts to individuals and small businesses within their region or online under licence.
Rural credit cooperatives were historically the closest equivalent to credit unions, but most have been converted into rural commercial banks. Village and township banks continue to serve rural households, often with smaller personal and agricultural loans assessed through local knowledge.
Credit reporting
The Credit Reference Center of the People's Bank of China maintains the national credit report, covering bank and most licensed non-bank loans. Baihang Credit and other licensed agencies collect additional data from online lenders, gradually bringing internet credit into formal reporting.
Late payments recorded in the central credit report can affect future mortgage approvals for years. Individuals may obtain their own report free of charge a limited number of times each year, through bank branches, machines or the online service.
Family loans and the IOU
Loans between relatives and friends remain extremely common, especially for weddings, home deposits and business start-ups. Chinese practice relies on a written IOU, jietiao, signed by the borrower and stating the amount, date, repayment terms and any interest.
Courts expect proof that money was actually transferred, so payment by bank transfer or mobile payment is far safer than cash. Litigation must usually start within three years of the due date, otherwise the claim may become time-barred under the Civil Code.
Tax and legal pitfalls of family loans
Interest received by an individual lender is subject to personal income tax under the category for interest income, though collection on small family loans is often limited. Interest-free loans between close relatives carry no tax for the borrower.
Problems arise when relatives lend repeatedly to others for profit, which may be considered illegal lending business and prosecuted. Courts also scrutinise disguised arrangements known as taolu dai, routine loans, in which inflated IOUs and fake defaults are used to seize assets.
Who uses each option
Salaried urban residents with good credit reports generally borrow from banks or bank-partnered online credit products. Borrowers with thin credit histories may obtain consumer finance loans at higher cost, while rural households often rely on village banks or family networks.
Small business owners use microloan companies, bank inclusive finance products and family loans. Anyone tempted by offers from unlicensed lenders should remember that courts will not protect excessive rates, but collection by such lenders can still be aggressive and illegal.
Mainland China borrowing options compared
| Option | Supervisor | Cost limit | Documents |
|---|---|---|---|
| Bank personal loan | NFRA and PBOC | Regulatory pricing, low rates | ID card, income proof, credit report |
| Consumer finance company | NFRA | Guidance toward costs within 24 percent | ID, income, online verification |
| Microloan company | Provincial financial regulator | Licensed pricing, regional rules | ID, business documents |
| Private loan between individuals | Civil Code, courts | Four times one-year LPR | Jietiao IOU, transfer records |
Steps to borrow privately in China
- Request your PBOC credit report and check for errors or unknown loans.
- Compare offers from banks and licensed consumer finance companies first.
- Verify a lender's licence through the regulator or the company's published credentials.
- Calculate the annualised comprehensive cost including all service and guarantee fees.
- For a private loan, sign a clear jietiao and transfer funds electronically.
- Keep all repayment records and messages until the loan is fully repaid.
Warning signs for borrowers in China
- Requests for a deposit, verification fee or unfreezing fee before a loan is released; licensed lenders never collect such payments, and police frequently warn about this scam in online lending apps.
- IOUs written for more than the amount actually received.
- Apps demanding access to contacts and photos, later used for harassment.
- Rates disguised as service, membership or guarantee fees.
- Lending repeatedly to strangers for profit, which may amount to illegal lending.
Frequently asked questions about private loans in China
These answers summarise mainland Chinese rules in general terms. Hong Kong, Macau and Taiwan have separate legal systems. LPR levels, regulatory guidance and court practice evolve, so check current figures and seek local legal advice before lending or borrowing significant sums.
What interest can a friend legally charge?
A private lender may agree any rate, but courts will only enforce interest up to four times the one-year LPR applicable when the contract was signed. If no interest was agreed between individuals, the loan is treated as interest-free.
Are P2P lending apps still operating?
Mainland P2P lending platforms were closed or converted by the end of 2020. Apps offering loans today should be licensed lenders or facilitators working with licensed institutions. An app presenting itself as a peer-to-peer marketplace is a warning sign.
How long can a lender wait before suing?
The general limitation period is three years, starting when the lender knew or should have known that repayment was overdue. Without an agreed due date, the lender can demand repayment at any time, giving the borrower a reasonable period to pay.
Do family loans appear in the credit report?
No. Loans between individuals are not reported to the PBOC Credit Reference Center. They therefore neither build nor damage a borrower's official credit history, although a court judgment for non-payment can lead to placement on the list of dishonest debtors.
Useful organisations and resources
- CNBC: China tightens rules on consumer finance companies — Report on the 2024 NFRA rules for licensed consumer finance companies, including capital, shareholder and lending conduct requirements.
- Gizchina: Xiaomi Consumer Finance licence approved — Example of a newly licensed consumer finance company, showing how technology groups enter regulated personal lending in China.
- Kapronasia: banks dominate consumer finance in China — Research note explaining why commercial banks remain the main source of consumer credit compared with finance companies and platforms.
- Wharton: microfinance in China after new guidelines — Analysis of microcredit companies and village lenders in China and the rules that let them extend small loans.
Official and legal references
- Caixin: China’s top court slashes legal private-lending rates — Report on the 2020 judicial interpretation tying the private lending ceiling to four times the one-year LPR.
- Caixin: impact of the top court’s interest-rate ruling — Analysis of which lenders the new private lending ceiling covers and its effect on finance companies.
- Xinhua Silk Road: China revises ceiling on private lending rates — Summary of the revised Supreme People's Court provisions on private lending interest, which tie the enforceable ceiling to the Loan Prime Rate.
- PBOC: guidelines on rural household micro-credit by rural credit cooperatives — People's Bank of China guidance setting how rural credit cooperatives extend small unsecured loans to farming households.