Decline in Interest Charges for Tax Loans - Lowest in 5 Years inMost Cases - CHOICE # 446

It's tax paying time. But the good news is: you probably pay less this year in interest charges if you have to take out a tax loan from a bank.

The annual survey of the Consumer Council, with information collected from 21 banks and financial institutions, showed a general decline in the interest rates (Annualized Percentage Rates APR) of tax loans this year.

Compared with last year, the APRs of tax loans came down from a range of 1.97% - 10.39% to 1.85% - 6.09%.

The biggest saving for consumers was found in the case of a $5,000 tax loan (repayable by 12 monthly instalments) - at an average APR of 4.18% or down 0.75% compared with last year.

The interest rate reduction this year is particularly noticeable at the highest end i.e. 6.09% which is, in fact, the lowest in 5 years since 2009. In 2011, for instance, the highest APR charge was 10.81%, a significant 4.72% more than this year.

Generally, the higher the loan amount the lower the interest rate charge. But, as shown in the survey, even for the same amount of loan different banks could fetch a wide varying range of APR charges.

In the majority of tax loans surveyed (in the range of $5,000 to $50,000), the APRs spanned from 1.85% to 6.09%, a considerable difference of 4.24% in interest charges. So the advice is to always shop around for comparison.

Or, if you are a preferential bank customer, you may enjoy even better APR. For example, for a $500,000 tax loan, a general customer will get APR from 1.85% to 4.26%, whereas a preferential client will receive a reduced APR from 1.65% to 3.81%.

Further, if you are a customer with good credit records, and financial status, you can seek to negotiate for a personalized service on the loan amount, interest rate, and repayment period.

Alternatively, consumers can choose to borrow against the credit limit of their credit cards for tax payment. In the survey, 13 credit card issuers offered such a service with 54 to 60 days of interest-free period - and some with promotions such as cash rebates, bonus points or gift vouchers to cardholders.

The hazard is - and a very real one as many have probably made the same mistake before - if you fall behind payment you are liable to pay hefty finance charges (generally more than 30% APR) plus late payment surcharge, and turn what is intended to be a short-term loan into possibly a long drawn-out debt burden for years to come.

So, unless you are positively certain of your repayment ability in full, regularly and promptly, on or before the due date, think twice before taking the plunge.

In addition to comparing interest rates, consumers are advised to pay heed to the possibility of tax loans being subject to also late charge, and early prepayment charge: the surcharge for late payment is 2% to 5% of the outstanding loan, and for early prepayment 1% to 2.5% of the original loan or outstanding amount.

Consumers are advised against borrowing tax loan for investment. The financial market is too volatile to risk a loss these days.

15 of the financial institutions promote their loan products or services through telemarketing. If you are suspicious about any telemarketing calls, do not disclose your personal information, and if necessary contact the financial institutions or the Police immediately.