Tax loans are getting more expensive this year as interest rates have been raised amidst downturn in economic outlook.
The 20 tax loan schemes collected from banks and financial institutions by the Consumer Council have revealed an upward trend in the annual percentage rates (APR).
The interest rates quoted for ordinary customers have rebounded to APR 2.31% - 10.81% this year, up from the record low of APR 1.75% - 9.76% in 2010.
Compared to last year, the average APR for a HK$5,000 loan climbed 0.63% to 5.14%, and for a HK$500,000 loan, the average APR rose 0.58% to 3.62%.
Preferential customers or customers who used specific banking services may enjoy a better rate from APR 1.45% to 4.38% for a HK$500,000 loan compared to an APR 2.31 to 6.30% for general customers.
Banks may offer personalized APR according to a customer's credit record, financial status and capital costs of the bank, and consumers are advised to maintain a good credit score to get better rates.
Apart from the borrowing costs, customers will have to pay extra for either late payment or early payment.
Consumers may face a hefty annual interest rate up to 42% for late payment plus handling fees and lower ratings of credit record.
For early payment, they may be charged a handling fee equivalent to 1% to 2.5% of the original loan or outstanding loan balance, in addition to interests and concessions provided to customers on obtaining the loan.
Some banks will only allow early payment of the entire outstanding loan amount instead of partial payment.
A number of banks offer a loan amount up to a maximum of 12 times the salary or $2 million, with a repayment tenure generally ranging from 6 to 18 months. Consumers should be aware that a longer repayment schedule means a higher APR, and that the borrower may have to face additional financial burden if the tenure straddles more than one tax season.
For those who want to obtain the loan for investment purpose, they may face the liquidity constraints given the volatility in the financial market, the Council warned. And the prevalent monthly interest rate of 2% to 5% for late payment along with other borrowing costs may cancel out the profits incurred.
To take out a tax loan this season, consumers are advised of the following:
- Keep in mind that promotional slogans like "$0 interest" or "fees waiver" are just advertisements which do not serve as good reference for consumers. Consumers are advised to compare the APRs instead - which factored in all borrowing costs like interest rate expenses, interest rebates, discounts and handling fees.
- Read carefully the terms when applying for tax loan. The rates promoted in the market may only be applicable to selected customers and applications of a specific amount, or for applicants who apply before a specific date.
- To ensure personal data is well protected, consumers should read the bank notice related to Personal Data (Privacy) Ordinance and the Code of Practice on Consumer Data carefully to understand how their personal data is handled.
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