Beginner’s Guide to Borrowing Unsecured Loans In Hong Kong
What are unsecured loans?
The best way to define this type of debt is to compare it with a secured loan. It is the opposite because it allows you to borrow money even without a collateral. Secured loans are those that you need to borrow with a collateral.
With unsecured debts, you can borrow money just by proving that you are a responsible borrower and you have the means to pay it back.
Most of the time, the interest rate of this type of loan is higher compared to secured loans because of the lack of security that a collateral can bring. That means the lender does not have a fall-back in the event you fail to meet your payments.
Another feature of unsecured loans is the amount that you can borrow. You can borrow a huge amount of money on your secured loan as long as it can be covered by the value of the asset you will put up as collateral. For unsecured debts, it is much smaller and will depend on how much your income can accommodate in terms of monthly payments.
Secured loans are also paid over a longer period because of the amount that you can borrow. Unsecured debts are shorter in the term.
Unsecured loans you can borrow in Hong Kong
There are different types of unsecured loans that you can borrow in Hong Kong. Here are some of them:
Personal loans
This is probably the most common unsecured loan that borrowers apply for. There is no specific definition of how this loan can be used. It can be used for a multiple of reasons. It can be used to finance a holiday, act as an emergency fund, pay for a medical expense, fund an investment, etc. According to the website of the Hong Kong Monetary Authority, there are two types of personal loans.
- The first are instalment loans.
These are the type of loans that you only apply for once and you pay off in instalments. The terms are predetermined during the application process while the interest rate is usually a fixed rate that is based on the current rate when the loan was applied.
- The other type is revolving loans.
This is a type of debt that you apply for once but you can continue to pay as long as you do not reach the credit limit. The most common example is credit cards.
You can borrow below the credit limit, pay it off, and then borrow again without having to make a new application. The interest rate can change – depending on the specific rules of the creditor.
This is a type of loan that you can borrow to finance your education. The government offers an extensive financial assistance programme for qualified students. There are loans that can be availed to help pay for both school-related fees and living expenses.
These loans are paid back with interest that is lower than those offered by private lenders. This is student borrowers are encouraged to explore their options with the government before borrowing from private lenders.
Renovation loans
This is a specific loan that you can borrow to help you repair or renovate your house. The cost of home repair or renovation is often times too costly to be able to pay for it in cash or by dipping into your savings.
This is why it is a common practice to borrow this money from the bank. Often times this will require you to submit contractor plans and property documents together with your proof of income to determine how much you can borrow.
Marriage loans
This is a type of loan that you can borrow to specifically use on your wedding. Some people may find this to be unnecessary and opt to wait until they have saved enough money to get married. But with the average cost to get married at HK$300,000, some couples just cannot wait to save up for that amount.
SCMP.com published an article that discussed a survey done by ESDlife – which revealed the average cost to get married at HK$313,933. Apparently, this is 1% higher than the previous year. For some lovers, they would opt to borrow this money and just pay for it as a married couple.
Tax loans
This is a type of loan that can specifically help you pay off your tax obligations in Hong Kong. It is offered with competitive interest rates and easier approval – at least, it is easier compared to the regular personal loans that you can borrow.
There are general rules that you need to follow to borrow unsecured loans.
You need to be 18 years old and above and you have to show proof of your ability to pay back the loan. You also have to show proof of your identity and residency in Hong Kong.
How to borrow unsecured loans wisely
Regardless of your reason for borrowing, you need to make smart decisions about it to ensure that you will not compromise your financial position. Here are some tips that you can use:
- Have a good credit score.
Since this is an unsecured loan, you do not have the benefit of having a collateral to make you a low-risk borrower. The benefit of being a low-risk borrower is getting a low interest on the loan. However, you can get the lowest rate if you have a good credit score. So make sure your credit history is in good shape before you borrow money.
- Compare rates.
Always inquire with more than one creditor or lender. There are sites that compare different financial institutions and rates. Choose the one with the lowest rates and the best terms to help you save money on your monthly payments.
- Do not forget to look at the fees.
Sometimes, the interest rate is low but the fees are quite substantial and the penalties high. Do not ignore these charges because they can add up as you make payments towards your loans.
- Read the fine print.
As hard as it may be to understand or read, this is an important part of the lending process. Reading the terms and conditions will help you avoid incurring penalty charges and fees. If there is anything that you do not understand, feel free to ask the lender.
- Have a payment plan in place before you borrow.
Although the lender will not approve your loan if they know you cannot pay it back, you need to make your own assessment. Make sure you know where the money will come from so you are sure that all loan payments can be met.
Being responsible for borrowing unsecured loans can help you avoid a lot of financial setbacks in the future.
