Tax Loans – How to Pay Tax Hassle-Free
It’s that time of the year where you need to pay attention to the dreaded green envelope from the tax guys. Have you found the best way to finance your tax liabilities, as the tax season is drawing close? Among the myriad of advertisements on the street which all claim to offer the “cheapest” loan product in Hong Kong, have you found the one to best suit your needs? No? We have taken a closer look at the products offered by a couple of major banks in Hong Kong for you.
Keep in mind these loans are usually cash deposits into your bank account, so the bank does not see whether or not you pay the IRD (Inland Revenue Department.) They just want to be paid back.
- Standard Chartered – offers the Lowest Monthly Flat Interest Rate: 0%
“Tax Season’s Standard Chartered Personal Installment Loan” offers 0% interest rate throughout the repayment period and is certainly the cheapest in the market. However, the product charges 1% to 2% handling fees per year depending on the loan amount you borrow. It also restricts the repayment period to 12 months.
Its lowest annualized percentage rate (APR), which is the “real” interest rate after all the administrative and miscellaneous charges have been factored in, is in fact 1.88% for a loan amount of HK$1,000,000 or above, and 3.62% for a loan amount between HK$5,000 and HK$20,000.
- Wing Hang – offers the Lowest Annualized Percentage Rate: 1.65%
The APR shows how much a tax loan costs in terms of total interest payments and other charges and is the best indicator to determine its value. Wing Hang Credit’s “3-Month Interest-Free Skip-Payment Pure Tax Loan” does in fact offer the lowest APR we found on the market. At only 1.65% (with monthly flat rate of 0.1%), and a choice between a 12 and a 24 months payment period it really is a good deal. However, in order to enjoy it, one needs to borrow at least HK$1.5 million or above. If the loan amount is lower than HK$200,000, the APR will be up to 2.5%.
To reassure customer confidence in their lowest-rate pledge, Wing Hang also offers a “lowest interest guarantee“ insuring customers just in case they do find a better deal. Upon proof of a lower interest rate offered by another major financial institution within 15 days of the loan approval, Wing Hang promises to provide a further 20% discount on that bank’s loan to beat the offer, cool!
- HSBC and Wing Hang – the Highest Upper Loan Amount: 10-20x Monthly Salary
In general, the maximum loan amount you can borrow from a bank is a multiple of your monthly income (usually 6-8 times) or the maximum loan limit stipulated by the bank, whichever is lower.
The highest loan upper limit available in market is the “HSBC Personal Tax Loan”. Its upper limit is set at HK$3,000,000 or 10 times your monthly salary, whichever is lower. The problem is, that a majority of people in Hong Kong would hardly reach the upper limit, and the loan amount would be capped at the salary multiple.
This is however not the end of the story. Wing Hang’s “Associate Personal Loan Under Tax Loan Program” provides a 20-times monthly income tax loan without maximum loan limit. Sounds amazing? Everything comes at a cost, of course. The interest rate offered by the Bank is not fixed and is determined entirely on an individual basis. As for the repayment period, Wing Hang’s tax loan can be repaid over a period of 72 months, the longest among all tax loan products.
Some Last Words on Tax Loans
Every tax loan product has its own unique benefits and characteristics. Customers should pay special attention to the terms and conditions in the promotional materials. Most of the time, tax loans with low interest rates are only available for a large loan amount and short or fixed repayment periods. Sometimes, low interest rates are also advertised but reserved for selected customers of the banks. When comparing different loans, enquiring about whether your financial condition can support the proposed loan package can save you a lot of time too. “Standard” tax products are rarely offered. Most banks will adjust interest rates according to your credit condition and borrowing needs. MoneyHero.com.hk offers a great overview of all the products and allows you to compare them adjusted for your specific requirements.
Finally, whichever bank you decide to take your business to, being sensible about taking out a loan you can afford to pay back should be at the center of attention. Don’t expect your banker to make this decision for you. Most will want to sell you the largest possible loan amount. Know your limits and comfort in repayment.