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

Cost: 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.

In plain terms: Minimum payments on credit cards function like loans with daily interest accrual; this effectively translates to roughly 18% per year, and the interest‑free period is lost the moment you make such a payment. An installment plan advertised as “0.6% monthly fee” actually equates to about 13.8% annually, not 7.2%. Because the principal amount declines each month while the fee stays fixed based on the original sum, the true cost is higher. When comparing loans, always look at the annual percentage rate rather than daily or monthly rates.

Benefit: Prior to 2020, credit card interest rates were regulated: the maximum daily rate was 0.05% and the minimum was 70% of that maximum. At 0.05% daily, the simple annual rate comes to 18.25%. 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. Regulators now require issuers to display the annual percentage rate prominently; daily rates and monthly fees must not be highlighted more heavily. 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; the nominal figure of 7% is far lower because it ignores the gradual reduction of principal. Similarly, a credit‑card installment plan with 0.6% monthly fees over 12 months yields an annual rate near 13.8%, roughly twice 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%. Interest deducted upfront is counted toward the principal for calculation purposes; this rule does not apply to banks or licensed consumer‑finance firms, nor to certain local financial institutions such as micro‑loan companies, pawn shops, or leasing firms. Therefore, the 12% ceiling cannot be applied to their loans; instead, the contract‑stated annual rate must be used (China, 2020‑2021).

Evidence grade: C

Sources: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

Notes: The 18.25% figure results from multiplying 0.05% by 365 without accounting for compounding; the true rate would be higher if compounded monthly. Some banks offer discounts; always refer to the annual rate shown on your statement. If cash flow becomes tight, seek lower‑rate financing from reputable lenders rather than relying on minimum payments that accumulate interest. When comparing two loans, request the annual rate calculated via compound interest; if only simple interest is provided, it must be labeled as such, as it will be lower than the compound figure. The 13.8% figure and the 1.8‑to‑2 multiplier were derived using the central bank’s methodology, which is documented in the verification records. Avoid usurious private loans; see Section 7, Item 15 for further guidance. 〔0.7〕 〔1.9〕