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 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? Here are the things you may want to consider.
To borrow or not to borrow? What to consider when applying for a tax loan?
If you have an unpaid credit card balance or borrowed money from a bank or finance company, you are considered in debt. However, it has become incredibly convenient to borrow money, and consumers often get lured into debt traps by persuasive advertisements. So, before deciding whether or not to borrow, here are important factors to consider.
Do not borrow if you cannot afford to repay
The desire to consume is insatiable. You may swipe your credit card to purchase the latest iPhone and then contemplate taking out a loan for a luxurious vacation the following month. However, relying on borrowed funds can lead to financial troubles. Borrowing money doesn’t actually enhance your buying power. In reality, you must repay the principal amount along with interest, which can have a negative impact on your financial situation. It’s crucial to recognize that borrowing money to invest entails significant risks and can result in substantial losses. Similarly, taking a loan for gambling is a one-way ticket to trouble. It’s unwise to wager borrowed money on an uncertain outcome, particularly when you can’t afford to lose.
Figure out the repayment details
When considering borrowing, take a moment to calculate the monthly repayment amount, loan term, and cost of borrowing using the Borrowing and Debt Calculator. If you find it challenging to repay the monthly amount, it’s best to decline the loan. Remember, taking out additional loans to repay existing ones will not solve your problem and will only worsen your financial situation. If you are struggling with debt, seek assistance from professional support.
Even if you have the means to repay, think twice before borrowing
Borrowing money may seem easy and repayment may appear manageable, but the reality is often more challenging than expected. The additional expenses from monthly repayments and interest can burden your monthly budget. Taking out loans without careful consideration can develop into a habit that leads to serious debt problems.
Remember, borrowing is not always the only solution. For instance, if you have a goal of going on a trip, you can save money over a few months to achieve it without borrowing. Making the decision to borrow should always be approached with careful thought.
Think twice if you borrow to invest
Some individuals apply for a tax loan not only to pay taxes, but also as a cost-effective investment option. They aim to profit through interest arbitrage and short-term speculation. While we cannot prevent you from pursuing this investment strategy if you are confident in your abilities, it is important to acknowledge the inherent risks involved. There is no such thing as a completely risk-free situation. Nowadays, the deposit allowances provided by banks are often negligible. Higher returns on investment are typically associated with higher-risk investment products. Therefore, it is crucial to carefully assess your risk tolerance before borrowing a tax loan for investment purposes. If you are unable to recoup the interest, the potential loss could outweigh any gains.
Electronic Tax Reserve Certificates (TRCs): Pay your tax in advance the tax season
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.
MoneySmart tax loan offers
Tax loans with low interest rates offer more than just assistance with tax bills. They can also be used for different purposes, including home renovations, wedding expenses, or purchasing a new car. Take advantage of the attractive MoneySmart tax loan offers, which come with generous cash rebates and vouchers, to fulfill your financial needs beyond tax payment.
Monthly Payment
HK$12,680
- APR*
- 1.38%
- Total Amount Payable
- HK$304,320
- Total Interest Payable
- HK$4,320
- Monthly Payment
- HK$12,680
If they are not fitting your need, check out more about tax loans here!
Frequently asked questions:
Should I borrow if I can’t afford to repay?
It’s important to consider your ability to repay before borrowing. Borrowing money may seem tempting, but it can lead to financial troubles if you can’t afford to repay the principal amount along with interest. It’s crucial to recognize that borrowing money to invest entails significant risks and can result in substantial losses.
What should I consider before borrowing?
Before deciding whether or not to borrow, calculate the monthly repayment amount, loan term, and cost of borrowing. If the repayment amount poses a challenge, it’s best to decline the loan. Taking out additional loans to repay existing ones will not solve your problem and will only worsen your financial situation. If you’re struggling with debt, seek assistance from professional support.
Is borrowing always the best solution?
Borrowing money may seem easy and manageable at first, but it can burden your monthly budget with additional expenses from repayments and interest. Taking out loans without careful consideration can develop into a habit that leads to serious debt problems. Remember, borrowing is not always the only solution. It’s important to think twice and explore alternative options, such as saving money over time to achieve your goals without borrowing.
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