In Hong Kong, the 2023 tax season is here, and as expected, banks are once again engaged in a fierce annual competition to promote their tax loans. They use attention-grabbing phrases like "no interest," "low-interest rate for the first few months," or "cash rebate" as marketing tactics. It may seem like the banks are offering free credit, which sounds too good to be true. That's why we wrote this blog post about how to choose a tax loan plan in Hong Kong. Read on to find out more!
How to choose a tax loan plan in Hong Kong?
Before you applying for your tax loan plan? As we will explore below, you had better consider a few things before selecting the best plan.
Do a comparison using the APR
The banks offer a variety of attractive options when it comes to promotions. You have to spend lots of time calculating the actual amount you’re going to pay because the devil is in the details. The interest rate is not the only standard to distinguish whether a tax loan plan is good enough. There might be hidden costs like administrative fees, service charges, etc. They are not reflected in the interest rates.
Luckily, you can simply compare the actual expense of a loan by using the annual percentage rate (APR), which includes all related interests, administration fees, and service charges. One thing to note, though – the APR excludes overdue repayment and the service charge of early repayment (you will avoid this if you pay on time).
Be aware of terms and conditions
Some tax loan plans may appear very appealing due to their extremely low interest rates. However, it is important to remember that there is no such thing as a free lunch. These promotions often come with certain credit conditions. For instance, applicants must be privileged customers of the bank, which requires setting up an account and depositing a certain amount of money. Alternatively, the bank may specify a minimum loan limit, such as $500,000, in order to qualify for a lower rate discount. Plus, banks typically set the maximum credit limit at 10-12 times an individual's monthly income.
If you do not meet the minimum income requirement, you will not be eligible for the related discount. So, be aware of terms and conditions.
Tax loan promotions for first/online application
Many banks offer special promotions or online application promotions for first-time applicants. It's important to pay attention to the small amounts because they can add up to significant savings. Don't forget to consider them when choosing your tax loan plan!
Monthly Payment
HK$12,710
- APR*
- 1.78%
- Total Amount Payable
- HK$305,040
- Total Interest Payable
- HK$5,040
- Monthly Payment
- HK$12,710
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Shorten repayment period
Banks typically offer a repayment period of 6 - 24 months, which is shorter than that of most personal loan companies. Extending the loan repayment can help to alleviate stress. However, it's important to note that the longer the repayment period, the higher the actual interest expense will be. In general, it is not recommended to choose plans that require more than a 12-month repayment period.
Related articles
Want to learn more about tax loans? Check out our other articles:
Tax Payment 101 - What is a Tax Loan? How to Choose a Tax Loan Plan in HK?
Best Tax Loan Plans in Hong Kong 2023
Should I apply for a tax loan?
Borrow not only if you can repay, but also when you have the definite purpose! Curious about getting a tax loan? Compare tax loan rates at MoneySmart.hk.
