loans


<p>In 2019, The Hong Kong Monetary Authority (“HKMA”) issued 8 virtual banking licenses. So far, 5 of the 8 license holders have launched their services in Hong Kong, marking a new era of digital banking.</p>



<p>As suggested by their name, virtual banks are neobanks that do not have physical retail presence. Their services are 100% digital and the services can range from deposit, personal loan, debit/credit card or even insurance. The virtual banks can be accessed primarily through their websites and mobile applications.</p>



<h2><strong>Comparison of the 5 virtual banks that have been launched</strong></h2>



<p>As of now, virtual banks offer fewer products when compared to traditional banks. Each of the virtual banks is focusing on different value proposition for example Mox Bank launched a numberless bank card that comes with various spending rebate, livi Bank launched a virtual credit card that supports UnionPay QR code.</p>



<p>On the lending sector Airstar Bank is providing a technology backed, fast approval loan with very attractive interest rate. In the meantime, Welab Bank’s parent company is a well-known lending platform so it is expected that Welab Bank will also join the competition with an attractive lending product.</p>



<p>ZA Bank was the first virtual bank to launch in Hong Kong, among other products, ZA is introducing low cost virtual insurance under the ZA Insure brand.</p>



<figure class="wp-block-table"><table><tbody><tr><td><strong>Virtual bank</strong></td><td><strong>Deposit</strong></td><td><strong>Personal  loan</strong></td><td><strong>Debit card</strong></td><td><strong>Payment/ Transfer</strong></td><td><strong>Insurance</strong></td></tr><tr><td><strong>Airstar Bank</strong></td><td>✅</td><td>✅ <br>👉<a href="https://www.planto.hk/en/airstar/">Limited time offer</a></td><td>❌</td><td>✅</td><td>❌</td></tr><tr><td><strong>livi Bank</strong></td><td>✅</td><td>❌</td><td>✅</td><td>✅</td><td>❌</td></tr><tr><td><strong>Mox Bank</strong></td><td>✅</td><td>❌</td><td>✅</td><td>✅</td><td>❌</td></tr><tr><td><strong>Welab Bank</strong></td><td>✅</td><td>❌</td><td>✅</td><td>✅</td><td>❌</td></tr><tr><td><strong>ZA Bank</strong></td><td>✅</td><td>✅</td><td>❌</td><td>✅</td><td>✅</td></tr></tbody></table></figure>



<h2><strong>Comparison of VBs&#8217; promotional offers</strong></h2>



<p>On top of existing traditional banks, Hong Kong is seeing an influx of new virtual banks launching in 2020. Hong Kong virtual banks are giving out attractive offers to attract customers and come out on top of competition.&nbsp;</p>



<figure class="wp-block-table"><table><tbody><tr><td><strong>Virtual bank</strong></td><td><strong>Promotional offers</strong></td></tr><tr><td><strong>Airstar Bank</strong></td><td>– 3.6% annual interest rate for the first HK$20,000 deposit for 1 year <br>– Apply for a personal loan through Planto to enjoy APR as low as 1.85% and receive HK$200 cash reward upon a successful application</td></tr><tr><td><strong>livi Bank</strong></td><td>– Receive HK$100 cash reward after opening an account<br>– Earn HK$100 for each successful referral of up to HK$1,000 0.5% interest rate on the first HK$500,000 deposit <br>– Shake your phone after using UnionPay QR code to receive reward up to 3 times per day</td></tr><tr><td><strong>Mox Bank</strong></td><td>– 1% interest p.a. daily interest on the first HK$1 million <br>– 1% unlimited cashback on eligible spending 5% cashback at Mox’s Founding Merchants (up to HK$1,000 of cash back) before 31 December 2020</td></tr><tr><td><strong>WeLab Bank</strong></td><td>– 8% cash rebate on WeLab Debit Card (up to HK$3,000) until 30 September 2020</td></tr><tr><td><strong>ZA Bank</strong></td><td>– 1% interest on the first HK$500,000 deposit</td></tr></tbody></table><figcaption>The offers are subject to banks’ terms and conditions which may be changing from time to time. Please visit banks’ websites for latest offers.</figcaption></figure>



<h2><strong>Who are the 8 virtual banking license holders?</strong></h2>



<figure class="wp-block-table"><table><tbody><tr><td><strong>Virtual bank</strong></td><td><strong>Shareholders</strong></td></tr><tr><td>Airstar Bank</td><td>Xiaomi Corporation, AMTD Group</td></tr><tr><td>livi Bank</td><td>Bank of China, Jardine Matheson Group, Jingdong Digits Technology</td></tr><tr><td>Mox Bank</td><td>Standard Chartered, HKT, PCCW, Ctrip</td></tr><tr><td>WeLab Bank</td><td>WeLab</td></tr><tr><td>ZA Bank</td><td>Zhong An Insurance</td></tr><tr><td>Fusion Bank</td><td>Tencent, ICBC, Hillhouse Capital</td></tr><tr><td>Ping An OneConnect Bank</td><td>Ping An Insurance</td></tr><tr><td>Ant Bank</td><td>Ant Financial</td></tr></tbody></table></figure>



<h2><strong>Virtual banks vs. traditional banks</strong>: Pros &amp; Cons</h2>



<p>Digital banking service has moved banking online and does not require any physical branches, this helps to reduce rent and manpower costs. The service can also be accessed anywhere and almost anytime making it very suitable for new generation of consumers.</p>



<h4>Virtual bank advantages:</h4>



<ol><li><strong>24-hour mobile banking:</strong> banking service can be accessed anytime and from anywhere without queuing. New customers can swiftly open their accounts by scanning HKID or upload selfie photo</li><li><strong>Lower fees:</strong> virtual banks generally do not impose minimum balance requirement, and they also charge less or no fees across various product lines for example low account balance fee, handling fee or loan early repayment fee</li><li><strong>Increase market competition:</strong> market competition is often good for the consumer. In order to attract/retain customers, both virtual and traditional banks are expected reduce fees and provide attractive offers such as increasing deposit interest and credit card cash rebate</li><li><strong>Promote digital banking:</strong> virtual banks are expected to set the pace of innovation in financial services across areas like mobile banking, virtual credit card, cross-border payment and virtual insurance</li><li><strong>Connection with traditional banks:</strong> virtual banking accounts can send or receive money from traditional banks seamlessly through FPS and real-time transfer which make the 2 ecosystems complementary to each other</li></ol>



<p>While virtual banks have their own strength, they are most likely not going to replace traditional banks entirely as virtual banks also have some shortfalls which include:</p>



<ol><li><strong>No physical branch:</strong> while all virtual banks offer great mobile banking experience, many consumers still prefer to bank offline (for example money withdrawal at a branch) or speak face to face with a banking professional. Furthermore, older generation of consumers would need to learn about new technology in order to enjoy virtual banking service</li><li><strong>Fewer service offering:</strong> traditional banks still have advantage when it comes to the breath and variety of financial products. This is particularly true on some product categories like investment and mortgage which are not being offered by any virtual bank today</li><li><strong>Standardized service:</strong> in general, virtual banks have designed their services for majority of the consumers. However with traditional banks, consumers who require personalization or high-touch service can engage directly with their account manager for direct communication </li></ol>



<p>Ultimately, it is expected that traditional banks will transform themselves in order to keep up with innovation brought on by virtual banks. For example both Payme by HSBC and inMotion by CITIC Bank are both digital products developed by long standing traditional banks. Additionally, many existing banks like HSBC, Bank of China, Standard Chartered and Dah Sing have announced that they will stop charging certain fees in order to stay competitive.</p>



<p>The investment landscape has seen rapid adoption of many new digital platforms such as Futu, SoFi HK and Flexinvest by HSBC. Unless virtual banks are coming up with new investment innovation, there may not be a lot of impact on the market.</p>



<p>Still, Hong Kong consumers should be excited about virtual banking as there are many successful virtual banks around the world. One of the most famous case would be Monzo, a U.K. digital bank which was established in 2015. Monzo’s key selling points include automated saving/accounting as well as free withdrawal from Monzo account around the world. By 2020, Monzo has accumulated approximately 4.5 million users, most of which are under 40 years old (a great indicator that virtual banking service is extremely suitable to young consumers).</p>



<h2><strong>What consumer protection is in place for virtual banking service in Hong Kong?</strong></h2>



<p>Like all banks, virtual banks in Hong Kong are supervised by the HKMA, and they are also participants of the Deposit Protection Scheme. This means up to HK$500,000 of deposit is protected per customer.</p>



<p>Additionally, although virtual banks’ services are online, the banks are still established and have physical office in Hong Kong. Customers can still get in touch with virtual banks physically for matters which cannot be resolved online.</p>



<hr class="wp-block-separator"/>



<p><single-action-item title="Apply for a Personal Loan and Redeem Exclusive $200 Cash Reward!" subtitle=" APR as low as 1.85%. $0 handling fee. 5 minutes to disbursement. To borrow or not to borrow? Borrow only if you can repay!
" link="https://www.planto.hk/en/airstar" button_text="Learn More" lang="zh" type="content"></single-action-item></p>



<h4>Recommended Readings</h4>



<ul><li><a href="https://www.planto.hk/en/blog/overseas-mortgage-interest-expense/">Can personal loan in Hong Kong reduce your mortgage interest expense?</a></li><li><a href="https://www.planto.hk/en/blog/living-cost-hongkong-bangkok/">Hong Kong vs. Bangkok, from a Thai person living in Hong Kong</a></li><li><a href="https://www.planto.hk/en/blog/consolidation-loan-explained/">What is consolidation loan and how it can be useful to you?</a></li><li><a href="https://www.planto.hk/en/blog/personal-loan-APR-comparison/">Do Big Financial Institutions Offer the Lowest Interest Rates?</a></li></ul>



<p></p>


 Virtual banks are neobanks that do not have physical retail presence. Their services are 100% digital and the services can range from deposit, personal loan, debit/credit card or even insurance. Learn more about the welcome offers of Hong Kong virtual banks. 

What is a virtual bank? Comparison of services, promotional offers and key selling points of Hong Kong VBs


<p><strong>Personal loans</strong> offered by banks and financial institutions in Hong Kong are often categorized as “unsecured loan”, that means borrowers do not have to provide any collateral to the financial institutions. A loan application typically only requires an application form, HKID, proof of income and an address. Most recently, some financial institutions start to offer loans without requiring any proof of income or address which helps to greatly simplify the personal loan borrowing process.</p>



<p>One of the most important factors to consider before borrowing money is the Annual Percentage Rate (APR) which is an indicator of interest rate commonly used by HKMA authorized lenders (<a href="https://www.planto.hk/en/blog/personal-loan-interest-rate-factors/">Read more about the impact of interest rate on interest expense</a>). APR indicates total yearly interest expense (without taking into consideration the effect of compounding), so it is important to understand APR offers in the market and consider other key components such as maximum loan amount and the repayment period.</p>



<h2><strong>Personal Loans APR &amp; packages comparison:</strong></h2>



<figure class="wp-block-table"><table><tbody><tr><td><strong>Financial institutions</strong></td><td><strong>Loan package</strong></td><td><strong>Minimum Annual Percentage Rate</strong> (<strong>APR)</strong></td><td><strong>Loan amount (whichever is lower)</strong></td><td><strong>Features / remarks</strong></td></tr><tr><td>Airstar Bank</td><td>Airstar personal loan 👉 <a href="https://www.planto.hk/en/airstar">Learn more</a></td><td>1.85%</td><td>12 times of monthly salary or 1 million</td><td>0$ handling fee,&nbsp; 5 minutes to disbursement, No income / address proof</td></tr><tr><td>Citibank</td><td>Card debt consolidation loan</td><td>4.26%</td><td>21 times of monthly salary or 1.2 million</td><td>The loan is used to clear credit card debt</td></tr><tr><td>AEON</td><td>Flexi personal loan</td><td>4.49%</td><td>8 times of monthly salary or 0.8 million</td><td>No handling fee</td></tr><tr><td>Promise</td><td>Personal loan</td><td>4.49%</td><td>0.6 million</td><td>Get up to 100,000 loan without any income or address proof</td></tr><tr><td>Hang Seng Bank</td><td>Debt consolidation loan</td><td>2.91%</td><td>21 times of monthly salary</td><td>Repayment period can be as long as 72 months</td></tr></tbody></table><figcaption>All loan applications are subjected to financial institutions’ assessment and not all borrowers will be able to get the lowest Annual Percentage Rate (APR) possible.</figcaption></figure>



<h2><strong>Frequently asked questions about Personal Loan</strong>s</h2>



<div class="schema-faq wp-block-yoast-faq-block"><div class="schema-faq-section"><strong class="schema-faq-question">Why is the actual interest rate offered by financial institutions different from the ones advertised?</strong> <p class="schema-faq-answer">The actual interest rate offered to borrowers depends on multiple factors such as borrower’s credit profile, loan amount, and repayment period – as such not all borrowers will be able to get the lowest Annual Percentage Rate (APR) possible as advertised by financial institutions.</p> </div> <div class="schema-faq-section"><strong class="schema-faq-question">What are the key types of personal loan?</strong> <p class="schema-faq-answer">Some of the most common types include installment, revolving and consolidation loans. An <strong>installment loan</strong> is the most common personal loan in Hong Kong, it is characterized by fixed monthly repayment schedule. A <strong>Revolving loan</strong> on the other hand offers more flexibility as the borrowers can decide when to drawdown then payback at their own pace. Lastly, a <strong>consolidation loan</strong> is a type of borrowing to payback one or more other loans – ideally higher interest one(s). <a href="https://www.planto.hk/en/blog/consolidation-loan-explained/">Read more about consolidation loan here</a>.</p> </div> <div class="schema-faq-section"><strong class="schema-faq-question">How long does it usually take to apply for and get a personal loan?</strong> <p class="schema-faq-answer">Traditionally, financial institutions typically take about one week to approve a personal loan application. However, with the aid of online application, application and approval can now be as fast as one day.</p> </div> <div class="schema-faq-section"><strong class="schema-faq-question">What factors should be considered when applying for a personal loan?</strong> <p class="schema-faq-answer">While APR plays an important role, borrowers should also consider other important factors such as repayment ability, handling fee, overdue penalty, early repayment fee and repayment methods.</p> </div> <div class="schema-faq-section"><strong class="schema-faq-question">How to decide on repayment period for your personal loan?</strong> <p class="schema-faq-answer">The repayment period of any personal loan in Hong Kong can range between 3 to 72 months. The repayment period directly impacts the monthly repayment amount and overall interest expense. Longer repayment period means lower monthly repayment, but at the same time it will also increase overall interest expense due to compounding. <a href="https://www.planto.hk/en/blog/personal-loan-interest-rate-factors/">Read more about the relationship between the repayment period and total interest expense here</a>.</p> </div> <div class="schema-faq-section"><strong class="schema-faq-question">What documents are required during a personal loan application?</strong> <p class="schema-faq-answer">Financial institutions generally require documents such as identification documents (HKID/password), proof of address and proof of income. Some institutions allow the borrower to skip some document provision, however maximum loan amount will be lower as well.</p> </div> <div class="schema-faq-section"><strong class="schema-faq-question">What are the consequences of late repayment?</strong> <p class="schema-faq-answer">Failing to repay the loan on time typically results in additional finance charges. Another important consequence is the impact of late repayment on credit score &#8211; having a bad credit score could result in loan disapproval or getting a loan offer but at a higher interest rate.</p> </div> <div class="schema-faq-section"><strong class="schema-faq-question">Can early repayment save money?</strong> <p class="schema-faq-answer">Financial institutions typically request handling fees or interest payback if borrowers want to repay their personal loans earlier. This means early repayment of personal loans may not always result in saving on interest expense so borrowers should discuss this option with their lenders before making any decision.</p> </div> <div class="schema-faq-section"><strong class="schema-faq-question">What is the difference between secured and unsecured loan?</strong> <p class="schema-faq-answer">A secured loan uses collateral as a guarantee for repayment (mortgage is one example of a secured loan). On another hand, unsecured loan like personal loan, tax loan or even credit card do not have any guarantee for repayment, so their interest rate tends to be higher when compared to secured loan.</p> </div> <div class="schema-faq-section"><strong class="schema-faq-question">What is a loan guarantor?</strong> <p class="schema-faq-answer">A loan guarantor’s role is to cover for outstanding loan amount if the original borrower failed to repay the loan. Having a guarantor can help to improve borrower’s chance of getting approval as this helps to reduce risk for financial institutions.</p> </div> <div class="schema-faq-section"><strong class="schema-faq-question">What is a credit report?</strong> <p class="schema-faq-answer">TransUnion (“TU”) is currently the only provider of personal credit report in Hong Kong. A credit report takes into considerations of past credit card, loan and mortgage application / payment information to compute a credit score which ranges from AA to JJ (AA being the best and JJ being the worst). Borrowers who manage number of credit card / loan applications well, while at the same time have good repayment habit tend to have better credit score and should not have any issue when applying for any type of loan.</p> </div> </div>



<p><single-action-item title="Apply for a Personal Loan and Redeem Exclusive $200 Cash Reward!" subtitle=" APR as low as 1.85%. $0 handling fee. 5 minutes to disbursement. To borrow or not to borrow? Borrow only if you can repay!
" link="https://www.planto.hk/en/airstar" button_text="Learn More" lang="zh" type="content"></single-action-item></p>



<h4>Recommended Readings</h4>



<ul><li><a href="https://www.planto.hk/en/blog/overseas-mortgage-interest-expense/">Can personal loan in Hong Kong reduce your mortgage interest expense?</a></li><li><a href="https://www.planto.hk/en/blog/living-cost-hongkong-bangkok/">Hong Kong vs. Bangkok, from a Thai person living in Hong Kong</a></li><li><a href="https://www.planto.hk/en/blog/consolidation-loan-explained/">What is consolidation loan and how it can be useful to you?</a></li></ul>



<p></p>


The most important factor to consider before borrowing money is the Annual Percentage Rate (APR). APR indicates total yearly interest expense so it is important to understand APR offers in the market and consider other key components such as maximum loan amount and the repayment period.

Personal Loans Annual Percentage Rate (APR) Comparison: Do Big Financial Institutions Offer the Lowest Interest Rates?


<p>According to a <a href="https://www.transunion.com/blog/financial-hardship-study/Hong-Kong">recent consumer financial hardship study</a> published by TransUnion, between 30% to 40% of Hong Kong consumers are concerned about their ability to pay back personal loan and <a href="https://www.planto.hk/en/blog/credit-card-compare-recommend">credit card</a>. The repayment of such financial products include both principal and interest (personal loan interest, credit card overdraft etc.).</p>



<p>In this article, we will examine the impact on overall interest expense from key factors such as interest rate and payment term.</p>



<h4>Highlights: </h4>



<ul><li><a href="#What-factors-determine-your-personal-loan-interest-rate">What factors determine your personal loan interest rate?</a></li><li><a href="#Longer-payment-term-generally-results-in-higher-interest-expense">Longer payment term generally results in higher interest expense</a></li><li><a href="#3-scenarios-showing-interest-expense-impact-from-interest-rate-and-payment-term">3 scenarios showing interest expense impact from interest rate and payment term</a></li><li><a href="#personal-loan-offer">Learn about the personal loan offer from a Hong Kong virtual bank</a></li></ul>



<h2 id="What-factors-determine-your-personal-loan-interest-rate">What factors determine your personal loan interest rate?</h2>



<pre class="wp-block-preformatted"><strong>Interest rate varies depending on your credit score, loan type and the lender</strong>.</pre>



<p>There are a wide range of lending products available in Hong Kong including personal loan, tax loan, overdraft, credit card advance and others. Depending on your credit profile, loan type and the lender, your interest rate can vary between 2% to 30%+</p>



<ul><li><strong>Credit score</strong>: In Hong Kong, your credit score is typically measured by TransUnion credit score which range from AA (super prime) to JJ (Subprime) in alphabetical order. In general, consumers with better credit score (closer to AA) will get lower interest rate<br></li><li><strong>Loan type</strong>: Personal loan and tax loan tend to have much lower interest rate than overdraft and credit card advance&nbsp;<br></li><li><strong>The lender</strong>: Risk assessment tends to vary from one lender to another, this means same consumer is likely to get offer with different interest rates from different lenders</li></ul>



<h2 id="Longer-payment-term-generally-results-in-higher-interest-expense"><strong>Longer payment term generally results in higher interest expense</strong></h2>



<p>Interest is generally measured and offered in Annualised Percentage Rate (APR) which indicates actual yearly interest expense without taking into consideration the effect of compounding. Personal loan tends to compound on a monthly basis which is inline with monthly payment schedule.</p>



<p>In general, loan with longer payment term will have higher interest expense due to longer exposure to compounding effect.</p>



<h2 id="3-scenarios-showing-interest-expense-impact-from-interest-rate-and-payment-term">3 scenarios showing <strong>interest expense impact from interest rate and payment term</strong></h2>



<p>To visualize the impact in numbers, we have prepared 3 calculations below:</p>



<h3><strong>Scenario 1: HK$150k personal loan with the same payment term but different interest rate</strong></h3>



<figure class="wp-block-table"><table><tbody><tr><td><strong>Mortgage &#8211; Overseas package</strong><br>&#8211; Interest rate: 3%<br>&#8211; Term: 3 years</td><td><strong>Personal loan &#8211; Hong Kong package</strong><br>&#8211; Interest rate: 9%<br>&#8211; Term: 3 years</td></tr><tr><td>Monthly repayment: HK$4,362</td><td>Monthly repayment: HK$4,770</td></tr><tr><td><strong>Total interest expense: HK$7,039</strong></td><td><strong>Total interest expense: HK$21,719</strong></td></tr><tr><td>Total repayment: HK$157,039 <br>&#8211; Principal 96%<br>&#8211; Interest 4%</td><td>Total repayment: HK$171,719<br>&#8211; Principal 87%<br>&#8211; Interest 13%</td></tr></tbody></table></figure>



<p>As illustrated in the calculation above, higher interest rate will result in higher interest expense which generally come back in a form of higher monthly repayment. In this case, 3x higher interest rate will mean 3.1x higher in total interest expense due to compounding effect.</p>



<h3><strong>Scenario 2: HK$150k personal loan with the same interest rate but different payment term</strong></h3>



<figure class="wp-block-table"><table><tbody><tr><td><strong>Mortgage &#8211; Overseas package</strong><br><br>&#8211; Interest rate: 3%<br>&#8211; Term: 2 year</td><td><strong>Personal loan &#8211; Hong Kong package</strong><br><br>&#8211; Interest rate: 3%<br>&#8211; Term: 4 years</td></tr><tr><td>Monthly repayment: HK$6,447</td><td>Monthly repayment: HK$3,320</td></tr><tr><td><strong>Total interest expense: HK$4,732</strong></td><td><strong>Total interest expense: HK$9,367</strong></td></tr><tr><td>Total repayment: HK$154,732<br>&#8211; Principal 97%<br>&#8211; Interest 3%</td><td>Total repayment: HK$159,367<br>&#8211; Principal 94%<br>&#8211; Interest 6%</td></tr></tbody></table></figure>



<p>Longer payment term will generally lower monthly repayment requirement, however the total interest expense will be higher as the interest gets compounded over a longer period of time. In this case, while the payment term is 2x longer, total interest expense only increase by 1.9x as the principal reduces over time due to monthly repayment.</p>



<h3><strong>Scenario 3: HK$150k personal loan with different interest rate and payment term</strong></h3>



<figure class="wp-block-table"><table><tbody><tr><td><strong>Mortgage &#8211; Overseas package</strong><br><br>&#8211; Interest rate: 3%<br>&#8211; Term: 2 year</td><td><strong>Personal loan &#8211; Hong Kong package</strong><br><br>&#8211; Interest rate: 9%<br>&#8211; Term: 4 years</td></tr><tr><td>Monthly repayment: HK$6,447</td><td>Monthly repayment: HK$3,733</td></tr><tr><td><strong>Total interest expense: HK$4,732</strong></td><td><strong>Total interest expense: HK$29,172</strong></td></tr><tr><td>Total repayment: HK$154,732<br><br>&#8211; Principal 97%<br>&#8211; Interest 3%</td><td>Total repayment: HK$179,172<br><br>&#8211; Principal 84%<br>&#8211; Interest 16%</td></tr></tbody></table></figure>



<p>When higher interest rate is combined with longer payment term, the increase in total interest expense will naturally be more prominent. In scenario 3 above, while the principal remains the same at HK$150k, the difference in total interest expense is as high as ~HK$25k.</p>



<h3><strong>Key takeaways</strong></h3>



<p>While an ideal scenario for every consumer would be to take loan at lower interest rate and shortest payment term possible – in reality, there are many restrictions such as your credit score or monthly income/saving which may prevent you from paying back your loan quickly. It is advisable that you:</p>



<ul><li><strong>Understand your credit score</strong>: Consumers with better credit score tends to get lower interest rate. You can check your credit score by getting a TransUnion report or apply for loan with a digital lender like <a href="https://www.planto.hk/en/airstar">Airstar</a> who shows your credit score as part of the journey (note that every loan application will impact your credit score)<br></li><li><strong>Understand your monthly cashflow</strong>: Having a good understanding of your monthly cashflow and saving will allow you to clearly calculate payment term. It is advisable that personal loan should only be considered if A) you have emergency saving and B) you are still able to save money after regular expenses and repayment on a monthly basis. If you do not have a clear understanding of your monthly cashflow, mobile app like <a href="https://www.planto.hk/en/">Planto</a> can help you to automatically calculate and keep track of your income and spending on a monthly basis</li></ul>



<hr class="wp-block-separator" id="personal-loan-offer"/>



<p><single-action-item title="Apply for a Personal Loan and Redeem Exclusive $200 Cash Reward!" subtitle=" APR as low as 1.85%. $0 handling fee. 5 minutes to disbursement. To borrow or not to borrow? Borrow only if you can repay!
" link="https://www.planto.hk/en/airstar" button_text="Learn More" lang="zh" type="content"></single-action-item></p>



<h4>Recommended Readings</h4>



<ul><li><a href="https://www.planto.hk/en/blog/property-ownership-internal-transfer/">HK Homeowners Gain Tax Advantages by Transferring Property Ownership. Here’s How it Works and the Risks</a></li><li><a href="https://www.planto.hk/en/airstar">Airstar Bank Personal Loan〡 Instant Approval Online〡Exclusive Cash Rebate</a></li></ul>



<p>To borrow or not to borrow? Borrow only if you can repay!</p>


What factors determine your personal loan interest rate? In this article, we will examine the impact on overall interest expense from key factors such as interest rate and payment term.

Hong Kong personal loan: how interest rate and payment term impact overall interest expense


<p>Overseas property investment is a popular topic among many Hong Kong consumers who are attracted to their (relative) affordability, rental yield, or the potential prospect of future emigration.&nbsp;</p>



<p>There are many things to consider when it comes to a large decision like property investment. For those of you who have decided on a city/country and have found your ideal overseas property, one of the last steps is to think about cost and mortgage options, in which the mortgage interest expense is a vital factor in your decision-making process. </p>



<p>In this article, we will be exploring a potential role that personal loans in Hong Kong can play in overseas property investment.</p>



<h2>Overseas <strong>mortgage interest rates can be </strong>much higher than those in Hong Kong</h2>



<p>Mortgage interest rate varies from one country to another. In general, fast growing countries (also typically countries with higher rental yield) tend to have a higher mortgage interest rate when compared to Hong Kong.</p>



<figure class="wp-block-table"><table><tbody><tr><td><strong>Countries</strong>/<strong>Regions</strong> <strong>with</strong> <strong>High / Low interest rate</strong></td><td><strong>Rental yield</strong></td><td><strong>Mortgage interest rate</strong></td></tr><tr><td><strong>Low interest rate: <br></strong>Taiwan, Japan, Malaysia, Canada</td><td>2% to 4%</td><td>2% to 4%</td></tr><tr><td><strong>High interest rate: <br></strong>Thailand, Vietnam, Indonesia</td><td>4% to 7%</td><td>Up to 8%</td></tr></tbody></table><figcaption>Rental yield data from <a href="https://www.globalpropertyguide.com/">GlobalPropertyGuide</a></figcaption></figure>



<p>Mortgage interest rates in certain countries like Thailand, Vietnam and Indonesia can be as high as 8% – this is more than double of Hong Kong’s typical fixed-rate mortgage of 2% to 3%.</p>



<h2><strong>Potential role of Hong Kong personal loan in overseas property investment</strong></h2>



<p>Depending on your credit profile, interest on banks’ and <a href="https://www.planto.hk/en/airstar">virtual banks’ personal loans</a> in Hong Kong can be as low as 1.8%. This opens up the possibility of taking a cheaper loan to free up your savings for property investment. For example, you could increase your down payment in order to reduce overseas mortgage amount OR simply replace overseas mortgage all together if the property value is low enough / you have enough savings.</p>



<p><strong>Impact of mortgage interest rate difference on your overall expense</strong></p>



<p>While it is logical that lower interest rate will result in lower interest payment, but by how much?</p>



<p>There are multiple factors that impact total interest expense, the 2 major factors are interest rate and payment period. <a href="https://www.planto.hk/en/blog/personal-loan-interest-rate-factors/">Check out another article that talks about these 2 factors in more detail.</a></p>



<p>To illustrate the potential impact of Hong Kong personal loan in overseas property investment, 2 calculations are provided below:</p>



<h3><strong>Scenario 1: property investment in high interest rate country that requires HK$750,000 of personal loan or mortgage</strong></h3>



<figure class="wp-block-table"><table><tbody><tr><td><strong>Mortgage &#8211; Overseas package</strong><br><br>&#8211; Interest rate: 6%<br>&#8211; Term: 20 years</td><td><strong>Personal loan &#8211; Hong Kong package</strong><br><br>&#8211; Interest rate: 2%<br>&#8211; Term: 3 years</td></tr><tr><td>Monthly repayment: HK$5,373</td><td>Monthly repayment: HK$21,482</td></tr><tr><td><strong>Total interest expense: HK$539,576</strong></td><td><strong>Total interest expense: HK$23,350</strong></td></tr><tr><td>Total repayment: HK$1,289,576<br>&#8211; Principal 58%<br>&#8211; Interest 42%</td><td>Total repayment: HK$773,350<br>Principal 97%<br>Interest 3%</td></tr></tbody></table></figure>



<p>In this scenario where the overseas mortgage package has a high interest rate, potential saving from personal loan in Hong Kong can be staggering as the difference could be as high as HK$500,000. As an example, an investment of HK$1m million in Vietnam could end up being HK$1.5 million when factoring in interest expense from mortgage (of course this would likely come with higher value appreciation and rental yield of a fast growing economy).&nbsp;</p>



<h3><strong>Scenario 2: property investment in low interest rate country that requires HK$750,000 of personal loan or mortgage</strong></h3>



<figure class="wp-block-table"><table><tbody><tr><td><strong>Mortgage – Overseas package</strong><br>&#8211; Interest rate: 2%<br>&#8211; Term: 20 years</td><td><strong>Personal loan – Hong Kong package</strong><br>&#8211; Interest rate: 2%<br>&#8211; Term: 3 years</td></tr><tr><td>Monthly repayment: HK$3,794</td><td>Monthly repayment: HK$21,482</td></tr><tr><td><strong>Total interest expense: HK$160,590</strong></td><td><strong>Total interest expense: HK$23,350</strong></td></tr><tr><td>Total repayment: HK$910,590<br>&#8211; Principal 82%<br>&#8211; Interest 18%</td><td>Total repayment: HK$773,350<br>&#8211; Principal 97%<br>&#8211; Interest 3%</td></tr></tbody></table></figure>



<p>On another hand, if the overseas mortgage package has a low interest rate, potential saving from personal loan in Hong Kong will not be significant.</p>



<p>One very important point to note is about monthly repayment. Long term borrowing like a mortgage will have a much lower monthly repayment when compared to short term personal loan. In the scenario above, a personal loan option may not be worth considering due to the limited saving potential that comes with a high monthly repayment requirement.</p>



<p><strong>Other key personal finance considerations</strong></p>



<ul><li><strong>Monthly repayment:</strong> taking a large personal loan means high monthly repayment which will place a heavy burden on your monthly cashflow. Personal loan should only be considered if A) you have emergency saving and B) you are still able to save money after regular expenses and repayment on a monthly basis&nbsp;<br></li><li><strong>FX rate: </strong>taking a loan in Hong Kong dollar while the property value and rental return are denominated in foreign currency means any currency movement against Hong Kong dollar will lower your investment return<br></li><li><strong>Tax: </strong>Every country has a different taxation system and it may increase the cost of your investment or reduce eventual investment return<br></li><li><strong>Local mortgage offer: </strong>local banks may have mortgage offers that help to reduce overall interest costs. This could come in many forms such as deposit of excess saving or step-up repayment plan</li></ul>



<p>Property investment, no matter in what country is a big decision. It is advisable to do research well ahead of time. If you are looking for more information, feel free to check out the <a href="https://www.ifec.org.hk/">Investor and Financial Education Council</a> or the Chin family for more resources.</p>



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<h4>Recommended Readings</h4>



<ul><li><a href="https://www.planto.hk/en/blog/property-ownership-internal-transfer/">HK Homeowners Gain Tax Advantages by Transferring Property Ownership. Here’s How it Works and the Risks</a></li><li><a href="https://www.planto.hk/en/airstar">Airstar Bank Personal Loan〡 Instant Approval Online〡Exclusive Cash Rebate</a></li><li><a href="https://www.planto.hk/en/blog/invest-in-gold/">Investing in gold, gold ETF and paper gold: Pro, con and low barrier to entry alternatives</a></li></ul>



<p style="font-size:16px"><strong>Important information:</strong></p>



<p style="font-size:16px">Investment involves risks. This information is intended to be educational and is not tailored to the investment needs of any specific investor. This information does not constitute investment advice and should not be used as the basis for any investment decision nor should it be treated as a recommendation for any investment or action. Past performance is no guarantee of future results. The value of investments and the income from them can go down as well as up, so you may not get back what you invest.</p>



<p>To borrow or not to borrow? Borrow only if you can repay!</p>


In this article, we will be exploring a potential role that personal loans in Hong Kong can play in overseas property investment. Learn how to reduce mortgage interest expense of buying an overseas property through a personal loan in Hong kong.

Personal Loan

Compare personal loans offers of banks and financial institutions in Hong Kong. Understand APR and borrowing costs and manage your debt wisely.

Personal Loan

Compare personal loans offers of banks and financial institutions in Hong Kong. Understand APR and borrowing costs and manage your debt wisely.

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Personal Loans Annual Percentage Rate (APR) Comparison: Do Big Financial Institutions Offer the Lowest Interest Rates?

Hong Kong personal loan: how interest rate and payment term impact overall interest expense

Overseas property investment: Can personal loan in Hong Kong reduce your mortgage interest expense?

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