The Consumer Council has conducted a survey on the tax loan market and found it so competitive that consumers may find it hard to resist the lure of cheap credit.
Some of the 19 banks surveyed offered not just loan for the amount of the personal tax but up to a maximum 300% of what the taxpayers actually need to fully settle their tax bills.
Commonplace among the features advertised for tax loans this year are: handling charge free, zero interest rate, longest repayment period, highest loan amount, lowest interest rate guarantee, etc.
But as any prudent consumer should know, the advice of the Consumer Council is to always compare the credit cost by the Annualized Percentage Rates (APRs) of the loans, which take into account all fees and charges as well as terms of payment.
In addition, consumers should also bear in mind their ability to make repayment (usually over a period of 12 months by an equal number of instalments) promptly on time.
For the penalties of late payment could be considerably high - especially if one chooses to pay personal tax by using credit cards. What benefits you initially gain from seemingly cheap tax loans could be offset manifolds by the additional interest over the long term.
The survey revealed that the APRs are actually at considerable variance from bank to bank.
For example, on the basis of a repayment period of 12 months, the APRs for a loan amount of $10,000 ranged from 3.65% to 13.45%. For a $100,000 loan, the APRs varied from 3.20% to 8.16%. And for a loan of $500,000, the range was 2.12% to 6.14%.
In general, the higher the loan amount the lower the APR the banks will offer. So, in view of the variations, shopping around is important in order to secure the best possible interest rate, and terms and conditions.
Also, as shown in the survey, some low APRs are beyond the reach of ordinary consumers as such preferential rates may be applicable only to selected customers or subject to such considerations as specific application periods or under certain conditions.
Some banks advertised "lowest interest rate guarantee" which carried different interpretations to different banks.
In one case, the guarantee is applicable only to customers who can successfully apply for and disburse a tax loan over the subsequent consecutive years, keep good repayment records and do not settle the loan early, and only then will the customers be entitled to the prevailing lowest interest rate as provided by the bank.
In another, the guarantee is a lower interest rate in comparison to what interest rate a consumer has already successfully applied with another bank (with proof of approval). A consumer may be liable to the levy of an administrative fee for the cancellation of an application already approved.
A relatively new innovation is the use of credit cards to settle personal tax. More and more banks are offering this option to their cardholders.
The benefit of this option is that, like other transactions paid for by credit cards, the cardholders can enjoy interest-free repayment period and in many cases earn bonus points.
The risk, however, is that if the cardholders fail to keep up with the repayment on time, credit card interest rates would apply.
Consumers should also pay heed that if there still exists outstanding balance in their credit card accounts, the interest-free repayment period will most likely be forfeited as with other new purchases.
Further some credit cards provide interest-free instalment plans for tax loan but they may levy a handling or an administrative fee.
For comparison of the APRs and terms and conditions of tax loan plans of 19 banks included in the survey, consumers are urged to consult this current (December) issue of CHOICE.
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