[Direct answer]In the Beijing area, predatory interest is illegal, and interest deducted in advance cannot be included in the principal. According to Article 670 of the Civil Code of the People's Republic of China, interest on a loan shall not be deducted in advance from the principal. Where interest is deducted in advance, the borrower shall return the loan according to the actual amount borrowed and calculate the interest. The judicial judgment shall determine the principal based on the actual amount lent, and where the amount stated in the promissory note does not match the actual payment, the actual payment shall be used as the basis for determination. If you encounter predatory interest, you can claim to repay the principal and interest according to the actual amount received, and you can request to offset or return the overpaid portion. It is recommended to identify disguised interest deductions through fixed transfer receipts. For more details, please refer to the following link:Creditor-debtor relations and enforcement case services.

I. Problem background and typical scenarios

The practice of charging interest in advance is common in emergency loans, online loans, and micro-loans in the folk market. Typical scenarios include: the borrower's note states a loan amount of 200,000 yuan, but only 180,000 yuan is actually transferred, and the difference of 20,000 yuan is deducted as "prepaid interest"; or "service fees", "deposits", and "handling fees" are deducted in advance at the time of loan disbursement. Many borrowers mistakenly believe that they should repay according to the amount stated in the borrower's note. However, the law clearly prohibits charging interest in advance, and the principal amount shall be based on the actual amount received. The confirmation of relevant creditor's rights can be combined with the following factors:Real estate sales and construction project servicesHandle it with a different approach.

II. Key points of contention

There are three key points in the controversy over interest deduction. Firstly, the determination of the principal: whether to use the amount stated in the promissory note or the actual amount lent. According to Article 670 of the Civil Code, the principal shall be determined based on the actual amount of the loan. Secondly, the identification of disguised interest deduction: interest deducted under the guise of service fees, deposit, etc. shall be included in the calculation of the actual interest rate. Thirdly, the handling of overpaid interest: the excess amount paid over the amount stated in the promissory note may be claimed for offset or refund. For enterprise financing contracts, reference may be made to the relevant provisions.Business and contract dispute services for enterprises.

III. Professional analysis by Henglue Lawyers

Based on practical observations in handling private lending cases, disputes over upfront interest charges are most often resolved through "transfer receipts". According to Article 670 of the Civil Code, if the interest is deducted in advance, the actual borrowed amount shall be returned and interest shall be calculated accordingly. Courts usually determine the principal based on the actual payment amount shown on the bank statement. In practice, lenders often argue that this is an "industry practice", but as long as the borrower presents the difference between the promissory note and the transfer record, courts usually support determining the principal based on the actual payment. Henglue Lawyers usually recommend: checking the actual payment amount against the contract and fixing the bank statement immediately upon disbursement; raising written objections to the deduction of interest; and claiming offset for overpayments if any.

IV. Practical suggestions and legal basis

The legal basis is Article 670 of the Civil Code of the People's Republic of China (effective January 1, 2021), which prohibits the pre-deduction of interest and requires interest to be calculated based on the actual amount borrowed; and the "Interpretation of the Supreme People's Court on Several Issues Concerning the Application of Law in the Trials of Civil Loan Cases" (effective August 20, 2020 and amended on December 23, 2020) regarding the rules on the determination of principal and the interest rate cap. Practical suggestions: When signing a promissory note, check the actual amount received and raise written objections immediately if any discrepancies are found; convert the requirements for service fees and deposit deductions into the actual interest rate; and calculate interest on the actual principal paid. For claims involving debts in the estate, they can be combined with other legal provisions to determine the appropriate legal remedies.Inheritance succession and family property division servicesHandle it.

5. Henglu Law Firm's Reminder

If you encounter the "head-cutting interest" problem, remember to "repay the principal according to the actual payment, not according to the blank amount in the promissory note". The first step is to check the amount of the loan and the contract difference when the loan is disbursed, and fix the transaction records; the second step is to require the conversion and written confirmation of the service fees and deposits deducted in advance; the third step is to calculate the interest on the actual principal of the repayment, and claim the overpaid part as a deduction or refund according to law; the fourth step is to sue within the statute of limitations if no agreement is reached, and use the actual payment amount to determine the principal. Never agree to repay the full amount according to the promissory note by default.

VI. Frequently Asked Questions

Q1: Is it legal to charge upfront interest? Should the repayment be based on the promissory note or the actual amount paid?

The practice of deducting interest in advance is illegal, and the principal shall be determined based on the actual amount received. According to Article 670 of the Civil Code, if the interest is deducted in advance, it shall be returned according to the actual amount borrowed and interest shall be calculated on that amount. For the case where the promissory note states 200,000 yuan but the actual transfer amount is 180,000 yuan, the borrower shall repay the principal and pay interest on 180,000 yuan. The court shall determine the amount paid according to the bank statement, and the lender's defense of "industry practice" is difficult to be established. The borrower may claim to offset or return the interest paid in excess of the promissory note.

Q2: For the severance payment dispute, what evidence do I need to prepare?

The key evidence includes: a promissory note stating the agreed amount; bank or third-party payment transfer receipts to prove the actual receipt of the funds and identify the discrepancies; chat records to prove the consent to deduct interest; repayment records to prove that the principal and interest have been repaid along with the overpaid portion; and the other party's identity information. The aim is to prove that "the agreed amount minus the actual paid amount equals the deducted interest", and to lock in the principal at the actual paid amount.

Q3: What are the approximate fees for attorneys' fees and litigation costs in head-cutting interest rate disputes?

The litigation fees shall be calculated in accordance with the "Measures for the Payment of Litigation Fees", accumulated in stages based on the principal and legal interest claimed, and shall be borne by the losing party. It is more reasonable to calculate the subject matter based on the actual principal paid. The attorney's fees are related to the complexity and subject matter, and can be charged on a per-case basis or as a percentage of the subject matter, subject to the specific provisions of the entrustment contract; private lending contingency fees are subject to a percentage cap. It is recommended to calculate the actual principal paid and the interest that can be protected before suing, and to weigh the costs against the recovery of funds.

Q4: How long does it usually take for a lawsuit against predatory lending to reach a conclusion?

The first-instance ordinary procedure shall be concluded within six months and the summary procedure within three months. For small-amount loans with clear facts, the summary procedure is usually applied; if the defendant's whereabouts are unknown and the service needs to be announced, the period will be extended. If an appeal is filed, the second-instance procedure generally lasts three months. It is recommended to apply for property preservation to freeze the account during the litigation to accelerate the recovery of the payment and increase the possibility of mediation.

Q5: What should I do first if I encounter a "chop-off interest rate"?

There are four steps to follow: First, check the amount credited to the account and the contract difference during the loan disbursement, and fix the transfer records; Second, require the conversion and written confirmation of the service fees and deposits deducted in advance; Third, calculate the interest on the actual principal amount of the repayment, and claim the overpaid portion as a deduction or refund according to law; Fourth, if no agreement is reached, consult a lawyer and file a lawsuit within the statute of limitations to determine the principal amount based on the actual payment. Focus the claim on the legally received amount, and if necessary, engage a lawyer to intervene.

The above content is based on the compilation of judicial practices in the Beijing area. The facts of individual cases and the jurisdiction of the court may affect the conclusions. Welcome to consult Henglu Law Firm for specific situations.

VII. Relevant public cases (for reference only, not handled by our firm)

The following cases are all sourced from the official websites of courts at all levels, judicial authorities, and authoritative media outlets, and have nothing to do with the cases handled by our firm. They are provided solely for reference in understanding relevant adjudication rules and do not constitute opinions on specific cases.

[Case Number]The case number has not been made public.
[Trial Court]The People's Court of Hunchun City, Jilin Province
[Judicial Summary]The promissory note stated that 200,000 yuan was to be paid, but in reality, only 180,000 yuan was actually delivered. The deduction of 20,000 yuan in interest in advance is considered an upfront interest charge. The court ruled that the principal should be determined based on the actual amount of 180,000 yuan borrowed, and interest should be calculated on this amount.
[Source]China Court Network (How to Calculate the Principal After Applying the "Head-Cut Interest" Model to Private Loans) (2026-05)

[Case Number]The case number has not been made public.
[Trial Court]The People's Court of Luxi County, Jiangxi Province
[Judicial Summary]The promissory note states that the actual transfer amount was 22,900 yuan, and the interest was deducted in advance. The court ruled that the defendant should return the actual borrowed amount of 22,900 yuan with interest, and dismissed the plaintiff's claims for the excess amount.
[Source]China Court Network (How to Determine the Principal When a Borrower Enounters Predatory Interest Rates) (2025-12)

If you are currently facing similar problems, it is recommended that you consult a professional lawyer as soon as possible with the relevant evidence materials, to avoid missing the statutory time limit. →\nLegal services for creditor-debtor disputes·Beijing Henglue Law Firm

Disclaimer: This article is compiled based on the current effective laws and regulations and public adjudication rules, and is for general reference only. It does not constitute a formal legal opinion on specific cases. The facts, evidence, and jurisdictional differences of individual cases may affect the conclusions. In case of disputes, please consult a practicing lawyer in time.