Tax loans are more expensive this year - by an average of 2%.
This was borne out in a Consumer Council survey on 17 banks offering tax loan schemes at seemingly low interest rates in competition for customers.
The survey found the Annualized Percentage Rates (APR) of these schemes to vary from 5.49% to 10.2%, representing an increase of 2% on average over the previous year.
The comparison was based on a $100,000 loan over a 12-month repayment period.
The survey noted the myriad of promotional claims in the annual drive for tax loans by banks and lenders.
But one single factor that is most important that consumers should always enquire into is the APR in comparison of the various loan schemes on offer.
APR can accurately reflect the cost of the borrowing, taking into account besides the interest rate, such factors (if any) as interest rebate, repayment holiday, and handling fees and charges, etc.
Consumers should also check out the promotional claims to ensure correct understanding of the purported benefits.
For example, some offers are applicable to only certain types of customers for a prescribed sum of loan, or before a certain application deadline.
The claim "guarantee lowest interest rate" is open to interpretation and can mean differently to different banks. It can mean simply the lowest interest rate that a particular bank can approve to you individually irrespective of what other interest rates are on offer in the market.
Some banks offer preferential interest rates for joint applications with spouse, relative or friend. But consumers should be wary that in some cases, they will be held responsible in the event of non-repayment of the other parties.
Despite the "savings" from the lower interest rates of tax loans, it is inadvisable and highly risky to borrow for investment purpose.
In order to enjoy the benefits of tax loans, the borrower must observe good financial management practice by repaying promptly on time to avoid excessive penalty interest and late fees.
The payback time with investment usually may not match with the payment schedule of a loan, thus resulting in potential heavy loss through additional interest and penalty charges.
With regard to the credit insurance policy that is usually included in the handling fee, be wary that it may not cover suicide and illness in the first 90 days of the insurance period.
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