With tax season approaching and the interest rate-cut cycle underway, Hong Kong's lenders, especially digital banks, are enticing cash-strapped residents with loans at annual rates of as low as 1.28 percent or by offering a low entry threshold of HK$200,000 to secure rates below 1.7 percent.
Tax loans, which are available until April, offer lower interest rates and shorter repayment terms than other personal loans. Banks often promote the annual percentage rate, which represents the total cost of borrowing - including interest and fees - expressed annually and is generally used for comparing different loans.
ADVERTISEMENT
SCROLL TO CONTINUE WITH CONTENT
DIGITAL OFFERS
Digital lender Mox Bank currently offers the city's lowest APR, at 1.28 percent for a six-month, HK$950,000 personal loan, which it promotes as a way that "makes tax season a breeze" though it does not explicitly label the loan as a tax loan.
Mox, however, notes that the maximum loan amount and repayment period depend on the borrower's Mox Credit usage, including their available credit limit.
Digital peer WeLab Bank is highlighting its low entry point, offering an APR of 1.68 percent on its loans during tax seasons starting at just HK$200,000, without requiring additional terms such as selective customer status or payroll account registration. Rival ZA Bank also joined the competition, offering a tax loan with a 1.3 percent APR for a 12-month, HK$1 million loan.
MAJORS AND MINORS
Among Hong Kong's major lenders, Hang Seng Bank (0011) provides the lowest APR, at 1.68 percent for a 12-month, HK$1.5 million tax loan. Both the Hongkong and Shanghai Banking Corporation and Bank of China (Hong Kong) (2388) offer their lowest APR at 1.75 percent for a 12-month HK$1.5 million loan. Notably, HSBC's 1.75 percent rate includes the cash rebates. Excluding those, the APR would come in at 2.25 percent. The lowest APR by Standard Chartered Hong Kong stood at 1.85 percent, which is also applied to a 12-month HK$1.5 million loan.
Of the four major banks, the one with the lowest salary requirement is Hang Seng Bank, which offers tax loans of up to 24 times one's monthly salary. So if an applicant plans to borrow HK$1.5 million, their salary should be at least HK$62,500.
For the same amount, BOCHK and StanChart have borrowing limits of 18 times the monthly salary, which means that one should earn at least HK$83,000 per month, while HSBC allows a tax loan to be 23 times the monthly salary, which translates into a salary of not less than HK$65,200 a month.
Among smaller traditional lenders, Dah Sing Bank (2356) offers an APR as low as 1.38 percent for a 12-month, HK$1.99 million loan after taking into account an HK$11,800 cash rebate. However, since the maximum loan amount is the lesser of HK$2 million or 14 times one's monthly salary, borrowing the full amount would imply a monthly salary of at least HK$142,000.
Meanwhile, China Citic Bank International has introduced a tax loan with a 1.65 percent APR on a 12-month, HK$2 million loan.
While these tax loans may look attractive, not all borrowers will qualify for the lowest rates. Factors such as loan amount, repayment period, job stability, income, credit rating, and customer status affect the final rates offered.
And if borrowers only need a small amount of money such as HK$200,000, the rate can go up to between 4 and 10.5 percent for a 12-month loan among traditional banks. So borrowers are urged to carefully read the terms and not be swayed solely by the advertised lowest rates.
INVESTMENT OPTIONS
Apart from paying taxes, borrowers could make use of tax loans to get more cash in hand and perhaps repay other outstanding debt, but analysts advise caution against using these loans to make investments as the markets remain volatile.
For a safer option, borrowers could apportion some funds into time deposits, which have higher rates of interest, and cash in on the difference in rates.
At least 10 banks are offering over 3.5 percent on three- or six-month Hong Kong dollar time deposits to attract year-end funds. China Citic Bank International offers 3.65 percent for three-month deposits for new funds from premium customers. Ping An OneConnect Bank, a digital bank, offers 3.5 percent on three-month deposits, with 3.4 percent for four-month and 3.3 percent for six-month ones. The minimum is as low as HK$100.
Despite the interest rate cut, longer-term interest rates are expected to remain at a higher level amid concerns that inflation in the US will remain elevated under president-elect Donald Trump, who favors lower taxes and huge tariffs.
To raise medium- and long-term funds, ZA Bank has introduced a 24-month Hong Kong dollar time deposit at 3.31 percent per annum, with a low deposit threshold of HK$1 and no new-funds requirement.
RISKY BUSINESS
Investors should be mindful of liquidity risks when using tax loans for time deposits, as they must make regular repayments on tax loans but won't receive the principal and interest from the time deposit until the end of the term.
This could mean tapping into their own savings for loan repayments.
And regardless of the product, investors are advised to ensure they secure the best rates available-whether on tax loans or time deposits- and assess their ability to meet the monthly repayments.
Chinese University associate professor of economics Terence Chong Tai-leung suggests borrowers could split their tax loans into several portions for shorter-term time deposits of varying durations such as three-, four- and six-month ones if they can secure the best rates, which allows borrowers to cash in rate difference while maintaining the ability to repay loans.
However, Chong advises against investing in bonds, which typically pay interest semi-annually and can pose liquidity risks.
Everbright Securities International strategist Kenny Ng Lai-yin advises investors to consider conservative equity investments such as high-dividend shares, if investors looking to put some loan funds in the stock market.
Among high-dividend shares, Ng believes Chinese telecom giants China Mobile (0941), China Unicom (0762), and China Telecom (0728) are expected to see more upward momentum in prices compared to local players, with China Mobile particularly showing an attractive dividend yield.
Based on Thursday's closing price, China Mobile posted a yield of 6.9 percent. Locally, he only recommends HKBN (1310), which recorded an 7.2 percent yield.
