Every tax season, banks and finance companies take the golden opportunity to promote time-limited tax loan offers to customers intensively. As a wise borrower, how should you compare the tax loans in the market and pick up the best offer?
This article will explain the difference between a tax loan and an instalment loan, and introduce how to make a tax loans comparison comprehensively.
Tax Loans Comparison: What is a tax loan? How is it different from a personal instalment loan?
A tax loan is a type of personal instalment loan. Its target customers are working adults who need to pay taxes. While some banks or finance companies may not use the name “tax loans” to market their loan products, they may still provide taxpayers with special offers during the tax season to attract borrowers.
Compared with the regular personal loans, the main features of tax loans include:
- Launched in tax seasons annually: Banks and finance companies usually promote tax loans during Hong Kong’s tax season from October to April. By contrast, personal loans are available throughout the year.
- Low APR: The annual percentage rates (APR) of tax loans are significantly lower than most other types of personal loans. An APR of lower than 2% is not uncommon for banks’ tax loans, while the interest rates of finance companies’ tax loans could be as low as 4-5%.
Due to the massive cut down in interest rates, some taxpayers may borrow tax loans to pay off their existing credit card balance or instalment loans. The interest saving effect could even be better than using a balance transfer or a debt consolidation loan.
- No restrictions on loan usage: Despite being named “tax loans”, banks usually do not impose restrictions on how taxpayers use them. In addition to paying taxes, many people also use tax loans for investment since the interest rate is way more affordable than borrowing margin loans.
Borrowers can also use tax loans for any purpose such as marriage, home renovation and decoration, tourism or entrepreneurship, with almost no restriction.
- Lower loan amount: Despite the flexibility on loan purposes, tax loans are designed initially for paying taxes. Therefore, tax loans’ amount usually would not be very high compared to regular personal loans. The loan amount of tax loans typically ranges from 6 to 12 times of borrowers’ monthly salaries, while that of personal instalment loans can reach 20 times or more.
- Shorter repayment period: Tax loans are typically considered short-term loans in which the repayment period is around 6 to 24 months. In contrast, regular personal loans’ tenure can be as long as 60 months or even 72 months.
- Painless application procedures: During tax seasons, banks actively compete with each other to attract new customers. Therefore, they always intend to make loan application journeys more straightforward and faster. Nowadays, many banks provide online tax loan application platforms.
Borrowers have to fill in the necessary finance and personal information, and upload copies of their ID cards, salary receipts and tax return filing. Then they will be informed of the loan approval results within a few days. However, banks may set minimum annual or monthly salary requirements for tax loan applicants to ensure borrowers’ sufficient loan repayment ability.
- More promotional offers: Tax loans are one of the focused loan products for many banks and finance companies. Due to the extraordinarily fierce market competition, loan providers often give away generous records, welcome offers, gifts and coupons to borrowers, in addition to low interest rates. When making tax loans comparison, you must never miss out on all these attractive promotional offers.
Tax Loans Comparison: Who are the leading tax loan providers?
In Hong Kong, tax loans are mostly offered by traditional banks, virtual banks and finance companies. Each type of lending institutions’ tax loan products have their characteristics, and the main differences are as follows:
- Tax loan from traditional banks: Traditional or physical banks have introduced tax loans every year. As long as a taxpayer has an averaged or above TU score and is financially able to repay, the tax loan application can be approved.
One of the perks of borrowing tax loans from a traditional bank is that they are giving away cash rebates, supermarket cash coupons and other welcome offers very generously. Sometimes, the cash rebates or coupons received can be as high as $10,000. Besides, traditional banks can often offer better interest rates to selected customers to maintain their customer loyalty.
- Tax loan from virtual banks: There are currently eight virtual banks in Hong Kong, but only a few of them have launched tax loan products. Virtual banks accept and proceed with tax loan applications through mobile, serving customers 24/7 and are informing customers of their preliminary results faster than traditional banks. Due to the faster processing, customers can receive the loan within a couple of days.
In terms of interest rates, virtual banks are similar to traditional banks, in which the APR can be lower than 2%. However, virtual banks’ additional gifts and offers do not seem as attractive as some traditional banks. For instance, in 2021, one leading virtual bank in Hong Kong is lending money to customers at 1.88% APR, but the cash rebate is only $150 for each successful applicant.
Of course, virtual banks are a new form of retail banking service in Hong Kong. How virtual banks will eventually develop their tax loans products is still liable to change. But we can foresee that virtual banks will be one of the most active players that will attract lenders’ attention in their tax loans comparison and application journey.
- Tax loan from finance companies: Like personal instalment loans, finance companies’ tax loans generally have higher interest rates than traditional and virtual banks. An APR of 4% is an above-average offer from finance companies. Therefore, you will find that finance companies’ borrowing cost is slightly higher than banks, when making tax loans comparison.
Despite the higher APR, the pros of finance companies are that they can approve and release loan quickly and easily. Those with relatively low TU scores may still be eligible for a tax loan from finance companies. Some more prominent finance companies also set up online platforms to service the customers 24 hours a day.
More Tips on Tax Loans Comparison
While you are on the journey of tax loans comparison, you must pay extra attention to the following details:
Understand your borrowing cost
There are often two interest calculation methods in tax loan advertisements: Monthly flat rate and annual percentage rate (APR).
The APR is the final borrowing cost calculating all the interest rates, handling fees, administrative fees and rebates, and other terms, reflecting the borrowing cost more accurately.
Another popular interest calculation method is the monthly flat rate, which only reflects the monthly interest that the borrower has to pay, but does not include various fees. Therefore, the monthly flat rate does not genuinely reflect all costs a borrower has to pay. It would be best to look at the APR when comparing the loan offers among banks and finance companies.
Understand the terms and conditions, especially the handling fees and early repayment fees
Like the personal instalment loans, tax loans may have handling fees, administrative fees, and early repayment fees. Some banks will require borrowers who repay early to return part or all of the cash coupons or other rewards they have received. It is best to have read and understand the terms and conditions detailedly before applying for a tax loan to avoid unexpected financial expenses.
How to apply for a tax loan?
The easiest way of making a tax loans comparison in Hong Kong, is to apply for a tax loan for free and without obligations, with Lendela. The process of applying for a tax loan with Lendela is very straightforward. The application is 100% online and to be eligible, you have to be 18 years old or above, and have a monthly salary of $5,000 / $10,000 (depending on the lending institutions’ requirement).
Once your online application is submitted, you might also be asked to submit copies of tax bills, identification documents, income certificates, and proof of address – this can also all be done in your Lendela account.
Eligible applicants can apply for tax loans through the simple steps below:
- Submit your application and provide the documents required by the banks or finance companies based on your application and situation, at lendela.com.
- Wait for offers from banks and lenders to be presented in your Lendela account; most of the time, it takes no more than a few hours to receive pre-approved offers from multiple banks and lenders.
- Compare your loan options and choose the offer that suits you the best. Lendela will help you book an appointment at the selected bank or lender’s branch for you to receive your tax loan on the spot. The whole process, from online application to disbursement, can be completed within 24 hours.
While the selected lender is proceeding with your application, they may require you to submit additional proofing documents. Lendela allows borrowers to apply fully without any documents and asks them to present the necessary documents after accepting the pre-approved loan offer.
Remember: Actual requirements may vary according to the conditions of the lending institution and the borrower. Pay attention when you are applying for a tax loan.