Should I Apply for a Tax Loan?
In Hong Kong, Tax loans take the heat off taxpayers because they help you with paying off your tax bills, not to mention you also get to borrow money at lower interest rates than normal personal loans. We have previously introduced the characteristics of tax loans and important facts to consider when getting a tax loan. We’ve also reviewed and compared some of the best tax loan plans of 2018 in Hong Kong to help you with this process. But just to play devil’s advocate, before making the final decision, the one key question you really need to ask yourself is: do you really need to apply for the loan?
1. Gain the Lowest Rate on Advertisement
This might seem to be a simple question from the onset. Some will raise their hands and answer, “I borrow because I don’t have enough money for tax payment! WHY WOULD YOU ASK?!” If you are a typical member of the “working poor” that is always in the red, then, no matter how you slice it, you probably need the loan. However, you had better think twice if you want to take on a tax loan simply because of the low-interest rate. The interest rate of the tax loan depends on the loan amount. Normally, applicants have to borrow at least HK$500,000 to enjoy lower rates that are advertised by banks.
2. Provision of Tax Payment
In principle, you should never rely on a tax loan for tax payment. Only apply for a tax loan when you really cannot afford the taxes. From now on, you should develop a habit of saving money for tax payment by adding a “tax column” into your budget. Smart ones will ask again, “It is too troublesome to set up a fixed monthly savings amount. Are there any simpler ways?” You may consider buying the Electronic Tax Reserve Certificates (TRCs) promoted by the government at a minimum of HK$300 and in multiples of HK$50. TRCs purchased will be deposited into your TRC account. You can enjoy the auto tax payment service when taxes are due. Save up for a rainy day by purchasing some TRCs and solve the tax payment problems in the upcoming years.
3. Know Your Liabilities Level
Some people apply for a tax loan not only for paying taxes but also as cost-effective investment cash. They make a quick buck through interest arbitrage and short-term speculation. We cannot stop you if you are confident in your investment ability. Yet, investment involves risks. There is no forever “loss-free” situation. Nowadays, the deposit allowance offered by banks is almost dispensable. High return on investment comes with high-risk investment products. Hence, carefully estimate your risk tolerance ability before borrowing a tax loan for investment. You may be in deficit if you cannot recoup the interest, and the loss would outweigh the gain.
If you have experience applying for a tax loan, share with us by leaving a comment here!
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