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Personal Loans Guide

A loan is a financial transaction between two parties - the lender and the borrower - in which the lender gives the borrower an amount of money that must be paid back in full. The terms of the transaction are usually governed by a loan agreement which specifies, amongst others, the loan amount (also known as the principal amount), interest rate, loan tenure, drawdown terms, repayment dates (i.e. periodic instalment dates for amortizing loans) and any other fees e.g. administrative fees, prepayment fees or late charges.

There are generally two types of loans that consumers can access: secured and unsecured loans. Personal loans are a form of unsecured loans.

Secured loans are loans that require some form of collateral or security to be pledged against the amount borrowed. Home mortgages are the most common example of a secured loan. The lender usually has legal recourse by foreclosing on the collateral in the event that the borrower defaults on payment. Secured lending is often view as less risky by the lender and borrowers are typically able to borrow a larger amount, longer tenure and usually at more competitive interest rates. The collateral value of the assets is usually closely linked to the loan amount.

Unsecured loans are given without any collateral and lending decisions are made based on your monthly income and previous credit history. The lender usually views unsecured loans as riskier and generally charge higher rates of interest. The lender also gives out a personal loan for a shorter tenure (typically between 12 to 60 months) and caps the loan amount at a multiple of your income; so, for example, a personal loan provider might only be willing to lend you a total of 2 months of your monthly income and no more than that.

Instalment loans and Revolving loans are the two popular unsecured personal loans offered by most banks. With instalment loans, you are bound to a fixed instalment schedule and are required to make regular fixed payments over an agreed timeframe (i.e. loan tenure) to settle your loan amount.

Revolving loans are more flexible than instalment loans and are similar to owning a credit card. Typically, the bank establishes a revolving loan facility and decides on the maximum amount you can borrow using your facility (also known as your credit limit). You can always borrow as many times as required using the revolving loan facility as long as the total amount borrowed does not exceed the credit limit. Revolving loan facilities have no fixed repayment schedule and as you settle the loan amount, the available credit is adjusted back to original credit limit.

Personal Loans are usually used for a wide variety good reasons including:

  • Taking advantage of sales.
  • Paying tax bills (tax loans) - this is fairly common in Hong Kong.
  • Children's education tuition.
  • Consolidating credit card debt to enjoy lower interest charges.
  • Going on a holiday
  • .

Please check if you meet the lender's eligibility criteria. It varies by lenders but in general you be a Hong Kong permanent resident aged 18 or above with a minimum monthly income of around HK$5,000.

Make sure all your application documentation is in order. A typical personal loan application in Hong Kong would require the following documents:

  • Proof of Identity: Generally your Hong Kong Identification (HKID) Card should suffice.
  • Proof of Address: Bring along documentary evidence of your residential address (e.g. latest utilities bill, bank statements, tenancy agreement).
  • Proof of Income: Bring evidence of your income. Wage earners might want to provide their latest salary slips and mandatory provident fund statements. Freelancers and self-employed individuals might want to produce their personal or company bank passbooks showing regular income over the last 3 to 6 months. The latest Tax Demand Notes are strong support documents for both wage earners and self-employed individuals
.

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