In Hong Kong, 2018 tax season is upon us and as expected, banks are once again engaged in a heated annual propaganda war to promote their tax loans. They use eye-catching words such as “no interest”, “low-interest rate for first few months” or “cash rebate” as gimmicks. It almost sounds like the banks are giving you a free credit. It might sound too good to be true but why not go for it?
The devil is in the details. The interest rate is not the only standard to distinguish whether a tax loan plan is good enough or not. As we will explore below, you had better consider a few things before selecting the best plan.
1. Do 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. 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).
2. Be aware of terms and conditions
Some tax loan plans seem to be very attractive because of an extremely low interest rate. But… there is no such thing as a free lunch. These promotions usually attach credit conditions. For example, applicants must be privileged customers of the bank, which means you have to set up an account and deposit a certain amount of money, or else they specify a minimum loan limit like $500,000 in order to enjoy a lower rate discount. The banks now mostly take 10 – 12 times of individual’s monthly income as the maximum credit limit. If you cannot meet the minimum income requirement, you can never enjoy the related discount.
3. Tax Loan Promotions for first/online application
Most banks offer special promotions or online application promotions to first applicants. If you look after the pennies, the pounds will look after themselves. Remember to count them in as well when selecting your tax loan plan!
4. Shorter repayment period
The repayment period offered by banks is typically 6 – 24 months, which is shorter than that of most personal loan companies. Extending the loan repayment helps to ease the stress. The longer the period, however, the higher the actual interest expense is. Generally speaking, plans that require more than 12-month repayment period are not recommended.
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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.