It is not guaranteed that you will have a carefree life in Hong Kong even if you have a well-paying job. Many people become members of the “working poor” because of the inflation of property market prices, the burdensome cost of raising children, and the pressure of putting money into their pension. Not to mention, most of the time, people with higher paying jobs tend to be the ones with the most stress.
Regardless of whether you are living from paycheck to paycheck or saving up for a rainy day, you still have to pay taxes! Taxpayers receive their tax bills from the Inland Revenue Department around September to October every year and have to pay for it by the following January. What if you are stuck in a financial rut? Well thankfully there is a solution, because every year during tax season, banks and private lenders offer special personal loan plans commonly called “tax loans” to help taxpayers pay off their tax bills. So what exactly differentiates tax loans plans from personal loan plans?
1. Low-interest rate for tax payment
Tax loan interest rates range between 1% – 5% in general, which are lower than the personal loan and credit card interest rates. Sometimes banks will even promote “no interest” or “particularly low-interest rates for first few months” to ensure that the loan offering is attractive. Be careful to note that lower interest rates are usually applicable only when you borrow over a certain amount, often times as much as over HK$500,000. (In other words, your monthly income should be at least HK$38,000!)
2. Shorter repayment period
A typical tax loan can have a repayment period that ranges anywhere from 6 – 24 months, which is shorter than most personal loan repayment periods. For personal loans, people are typically allowed to repay within 84 months. This is something very important to take note of as it will obviously affect how you manage your finances in the short term.
3. Lower maximum loan limit
Similar to the above point, because tax loans are specially offered and promoted during the end of the year, they tend to come with limitations such as having lower maximum loan limits than typical personal loans. Take for example the latest promotion plans of the most popular banks – the maximum loan limit is usually 10 – 12 times the taxpayer’s monthly income, while normally the personal loan max limit is 11 – 13 times an individual’s monthly income and your assets and liabilities level.
4. Additional application requirements
Tax loans are offered only during the tax season. You need to submit your latest tax bill in order to get your final loan amount approved. You will also be required to provide proof of financial circumstances. Note that if you fail to provide the latest tax bill to banks, they may approve the application as a personal loan. To borrow or not to borrow? Borrow only if you can repay!
Curious about getting a tax loan? Compare tax loan rates at MoneySmart.hk.
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