Why do you need a loan?

BUSINESS Why do you need a loan?

The need for a loan can arise for many reasons, ranging from meeting short-term unexpected expenses to making major large purchases and diluting costs over time. For example, you might use a loan to:

  • buy a car
  • pay tax bill
  • Pay for temporary expenses that may arise when moving house
  • vacation
  • marry
  • Pay for unexpected expenses
  • buy expensive household items such as large appliances

If you decide to take out a loan, it is important to choose the type of loan that is right for you and to ensure your ability to repay.

Are there any other repayment options besides the monthly fixed repayment?

Most loans require the lender to make monthly repayments, making it easier for you to plan your budget and anticipate spending. But if a fixed monthly payment option doesn’t work for you, you may want to choose some loan options with flexible repayments, such as a revolving loan or an overdraft.

How is the loan amount determined?

There are two main things you need to consider: the amount you need and your ability to repay.

The best way is to only borrow as much as you need and avoid over-borrowing. Keep in mind that your loan does not have to be the full amount, so you can borrow an amount sufficient to cover the purchase of a large project.

When making a repayment plan, review all your other spending expenses. Ideally, all repayments should be no more than 30% of your monthly income – the exception is if you have a mortgage loan yourself, as your repayments can be as high as 50% of your monthly income.

Make sure you can cover the extra cost of repaying the loan without affecting your other financially necessary expenses.

How long should my loan term be?

In general, the ideal rule is that the loan period should not exceed the life of the required payment item. For example, for some annual expenses such as paying taxes, a loan term of no more than 12 months may be a better option. Otherwise, when the next year’s tax bill comes, you’ll still be making your previous loan repayments.

With proper planning, you can balance the loan amount, repayment period, and monthly payment amount to determine the loan method that best suits your needs.

What’s the difference between installment “Wan Ying Money” and recurring “Wan Ying Money”?

Installment “Universal Repayment” allows you to repay the total amount of the entire loan in fixed monthly installments within a fixed repayment period, making your financial management more convenient.

The revolving “scaling money” provides you with a backup line of credit. You can draw on the Standby Line of Credit at any time; there is no set monthly repayment amount or repayment period. Interest will only be calculated on the amount already withdrawn.

What documents do I need to submit when applying for a loan?

Generally, banks require the following documents to process loan applications:

  • Hong Kong Identity Card (except for existing HSBC customers); or employment visa/appointment contract/appointment document specifying the term of employment (applicable only to applicants who are not holders of Hong Kong Permanent Identity Card)
  • One of the following income proof documents:

A. Bank statement or passbook for the past month (for applicants with non-fixed income 1, the past three months), clearly listing the monthly salary income; or

.B. Bank statement or passbook showing income deposits in the past month (for non-fixed income applicants 1, the past three months) and one of the following: payslips issued in the last three months or the most recent Valid employment documents issued within three months to determine the applicant’s job title/income information or the most recent year’s notice of assessment

Existing HSBC customers who have been paid by HSBC autopay in the most recent month (or the past three months for applicants with non-fixed income) when applying for the loan, do not need to submit proof of income when applying. However, the Bank reserves the right to request customers to provide relevant supporting documents at any time.

1Variable income applicants include clients with the part-time, commission, or profit-sharing income. 

What if I am unable to continue contributing?

If you find you can’t continue to pay your loan – for example, if you lose your job or need to meet new unexpected financial commitments – contact your bank as soon as possible. The bank may offer you a monthly repayment method that is more suitable for your financial situation at the time, such as extending the loan repayment period.

What is monthly flattening? 

A monthly flat rate is one of the methods used to calculate monthly loan repayments. Most banks and financial institutions use this method to provide customers with a fixed monthly repayment amount.

What is the Annual Effective Rate (APR)? 

The APR is an index of borrowing costs, calculated based on 365 or 366 days in a year, by the relevant guidelines set out in the Code of Banking Practice, including the interest rate and all related service charges. Customers can use the APR as a way to compare interest rates.

Why do different loans have different interest rates? 

The main reason is that lenders have different levels of risk in different loans. For example, a loan granted unsecured and the lender is exposed to a higher risk of monetary loss if the borrower is unable to repay, so the interest rate of an unsecured loan will usually be higher than that of a secured loan. higher.

Another factor is the loan amount. Lenders face lower processing costs when granting a single large loan to a single borrower as opposed to granting multiple small loans to different borrowers, so the interest rate for a large loan may be higher than that of a small loan. Interest rates are low. Please check the amount you will pay throughout the loan process.

What other costs are involved with the loan? 

The method of calculating the cost of a loan is called the annual effective interest rate or the Annualised Percentage Rate. This interest rate generally includes all the interest and other fees that need to be paid due to the loan and is converted into an annual rate for reference.

Common additional charges include:

  • Annual fee/service fee

Certain loans have a loan account servicing fee that is usually levied annually.

  • handling fee

Banks may charge a processing fee when processing an application for a loan, usually only once at the beginning of the repayment period.

  • Early repayment fee

In some cases, if you pay off a loan with a fixed repayment period before maturity, you will have to pay an additional fee to compensate the bank for any loss in interest.

  • late repayment fee

If you fail to repay on time, the bank will accrue daily interest on the overdue amount at a fixed or prevailing rate and may also charge additional fees. So it is wise to budget early and repay on time.

  • Unauthorized Overdraft Service Fee

If your overdraft exceeds the specified limit originally approved by the bank, the bank will charge you an additional fee.

How to choose a lender? 

APR isn’t your only consideration when choosing a bank to lend from. Other things to look out for include:

  • Bank’s reputation
  • Is the service provided convenient – can you process the loan through the branch, online, or over the phone? When are banks open for business?
  • Other services provided to customers

What is the difference between online applications and branch applications?

You can apply for the following HSBC loans online:

  • Mortgage
  • Installment “Universal Response Money”
  • Re-extract “Universal Response Money” in installments
  • Recycle “Universal Money”
  • “Universal Repayment Money” for tax payment (only available during the tax loan promotion period)

Overdraft services must be applied for in-person at a branch. Loans that can be applied online are processed in the same way as those who apply in person. 

Can I check my loan account balance online?  

You can check the balance of the following loans online: 

  • Mortgage
  • Installment “Universal Response Money”
  • Recycle “Universal Money”
  • Paying tax “universal money”

How will the “set-off” clause affect me?  

The “set-off” clause gives the Bank the right to combine any outstanding principal, interest or related charges/miscellaneous charges with any account opened by the Borrower with the Bank without notice, and to combine any monies held by the Borrower in other accounts To pay off the debts owed by the borrower as a result of the above-mentioned borrowings using set-off or transfer.

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By Michael Caine

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