The reasons why private lending rates are higher than those of banks are as follows:
1, the procedure is simple. Different from bank loans, private financing needs to provide a large number of materials such as business license, code certificate, accounting statements, purchase and sale contracts, identity documents of the person in charge, and capital verification reports. And you don't need to go through the formalities of signing and notarization. Generally, it is only necessary to review the property certificate and repayment ability and sign a contract.
2. You can borrow money as needed. Private lending generally takes only 3-5 days or even less to obtain the required funds.
3. The conditions for obtaining funds are relatively low. Small and medium-sized enterprises have high loan risk, small demand and high management cost. When banks issue loans, they are generally required to provide sufficient mortgage collateral. Moreover, private lending generally has a lower threshold, which is obviously more suitable for small enterprises.
4. Efficient use of funds. The term of bank loans generally appears in the form of fixed term, while private loans can be repaid immediately, which is suitable for small enterprises with high frequency of use.
What's the interest on the small loan?
To calculate the interest rate of small loans, we need to know the interest rate of small loans.
1, bank loan interest rate
Generally, it refers to the benchmark loan interest rate or LPR interest rate issued by the People's Bank of China, and then appropriately adds some points for risk pricing.
The benchmark loan interest rate: 1 year 4.35%, 1-5 years 4.75%, 5 years or more 4.9%.
The interest rate of LPR is updated once a month on 20th, which has the nature of floating market. For example, the updated LPR interest rate on August 20, 2022: 1 year is 3.65%, and it is 4.3% over five years.
2, other financial institutions loan interest rates
It will be supervised by the financial supervision department, and the risk pricing will be carried out within the scope permitted by law. The annual interest rate of the loan is generally not more than 24%, and the maximum is not more than 36%.
For example:
The annualized interest rate of good-term loans of Zhaolian Consumer Finance is between 7.3% and 23.725%.
For the comfort of consumer finance, the annualized interest rate of the loan is between 7.2% and 24%.
3. Private lending rate
Generally refers to the lending rate between individuals, or between individuals and organizations that are not supervised by the financial supervision department.
Generally speaking, the loan interest rate shall not exceed 4 times of the updated one-year LPR interest rate on the 20th of each month to be protected by law.
Taking the updated LPR interest rate on August 20, 2022 as an example, the one-year LPR interest rate is 3.65%, multiplied by 4 times, and it can be concluded that the highest interest rate of private lending should not exceed 14.6%.
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Extended data:
What is the interest calculation formula for small loans?
1, daily interest.
Loan interest = loan amount * daily interest rate * actual loan days.
2. Calculate interest on a monthly basis
When repaying interest, total interest = loan amount * monthly interest rate * number of periods;
Interest before principal repayment, total interest = loan amount * monthly interest rate * number of installments;
Matching principal repayment, with total interest = (number of installments+1)* loan amount * monthly interest rate ÷ 2;
Matching principal and interest repayment, total interest = installment * [loan principal * monthly interest rate *( 1+ monthly interest rate) installment ]=[( 1+ monthly interest rate) installment-1]- loan principal.
3. Conversion between daily interest rate, monthly interest rate and annual interest rate
Annual interest rate = monthly interest rate * 12 months = daily interest rate *360 days, which is just a general situation. Some lending institutions may stipulate 365 days a year, depending on the actual situation.
Why are microfinance companies prone to usury?
The main reasons are:
First, the profit model is different.
The biggest difference between banks and small loan companies is that banks absorb public deposits, while small loan companies do not have the conditions to absorb deposits. In addition, with the policy support of the state and the government, and the various interests of intermediary business, banks can obtain very sufficient savings funds.
Small loan companies can only rely on their own funds to lend and collect interest, and the profit model is too simple. In order to protect their own interests, we can only raise the loan interest rate, which is easy to create the illusion of usury and rely on financing to absorb funds. Before last year, many banks did not lend, but lent to microfinance companies, which then lent.
Second, the loan model is different.
Commercial banks not only have large scale and many outlets, but also have perfect personnel management and distribution systems. As long as you meet the application conditions for bank loans, you can go to the bank, which belongs to the desk system and usually does not charge any formalities.
The small loan company is responsible for the system by a special person, which means that each loan application, review and lending requires a loan specialist, which invisibly increases the operating cost of small loans and the handling fee for loan application.
Third, the examination and approval mechanism is different.
As the safest financial institution in China, banks have excellent risk control, especially for loans with large loan amount and long loan period, which require borrowers to provide guarantees, otherwise they will not lend, and the approval mechanism is very strict.
Small loan companies mainly serve individuals, self-employed businesses and small and medium-sized enterprises. Their purpose is to help borrowers turn around in the short term, and the loan amount is generally not too high. Considering the cost of the loan model, the interest rate of microfinance is much higher than that of banks.
Small finance said that small loans are generally only suitable for short-term emergencies and are not suitable for large investments. In addition, when choosing a small loan company, citizens must choose a formal and professional lending institution, and do not lend impulsively because of the fast speed and high amount of loans, so as not to fall into the usury trap of criminals.