It is tax season again, and as regular as the menacing green envelopes slipping into mail slots is banks reaching for a slice of the HK$5 billion tax loan market, offering everything from early-bird specials to deferred payments and even free travel.
But in the end, say financial planners, it is not about how far you can fly free that should matter but how much you are going to pay. And there is good news: because interest rates have reached a plateau since summer, banks have not boosted their tax loan rates from last year, when a jump in charges hit many borrowers like a rejected housing allowance deduction.
Of course, the best advice is not to borrow at all. After all, for most people who are short when the tax man comes knocking, it is not because of a one-off crisis like a lost job, but simply a matter of poor fiscal management. Setting aside 12 per cent of your salary every month should ensure you are not left at the whim of money lenders or the Mark 6. But that is for next year.
For this year, you face rates ranging from 4 to 11 per cent for tax loans that tend to have terms of one year - or up until the next tax season - but can range from six months to as much as 36 months. A 12-month, HK$20,000 loan charging as little as 0.193 per cent per month, or 6.28 per cent annualised, from Wing Hang, the cheapest lender across the board, will cost about HK$500 less than a comparable loan charging 11 per cent annualised. Generally, the higher the loan amount the lower the rates. For a 12 month, HK$300,000 loan, Wing Hang demands as little as 0.114 per cent, or 4.46 per cent annualised. That would save you about HK$3,350 compared with an annualised rate of 6.6 per cent.
As lenders increasingly rely on their wealth management business to boost income, they often will also offer a better rate or other incentives to lawyers, executives or other professionals in the hope of cross-selling other products, such as unit trusts.
Taking a page out of the mobile- phone-service playbook, many lenders are offering better rates for joint tax loans for couples, or two family members or even friends. For example, a couple taking a combined tax loan of HK$20,000 from Dah Sing Bank pay an annualised interest rate of 8.33 per cent, compared with as much as 11.14 per cent if each person sought HK$10,000 independently.