Hong Kong Personal Loans Comparison: APR, Cash Rebate and Welcome Offer
Which bank or financial institution should I choose to borrow a personal loan in Hong Kong? Which bank makes it faster to borrow money? Does the interest rate for loans have any impact in 2023 when Hong Kong and the United States are still in the interest rate hike cycle?
Among the banks and financial institutions in Hong Kong that offer personal loans (also known as “P loans”), installment loans are the most popular type, along with revolving loans and balance transfer loans. Most of these loans are unsecured, meaning borrowers do not need to provide collateral. Borrowers only need to submit their HKID card, income statement, and address proof to apply. Some institutions even offer loan plans that do not require income documents and can be applied online, greatly simplifying the borrowing process.
The most crucial factor to consider before borrowing money is, of course, the borrowing cost. The Hong Kong Bankers Association uses the “Annual Percentage Rate” (APR) as the indicator of borrowing cost, which calculates the final interest rate after factoring in the interest, handling fees, and all other loan expenses.
Comparison between Traditional and Virtual Banks’ Personal Loans
Personal loan is one of the primary battlegrounds banks in Hong Kong are fighting for new customers. Since virtual banks do not have physical branches, their operating costs are low, and they can offer attractive APRs and rebates, challenging traditional banks. The main differences between the loan services of these two types of banks include:
| Traditional Bank | Virtual Banks | |
| Application | Traditional Banks Offer both physical and online application methods, but not all borrowers may be able to complete all procedures online | Applications and all procedures can be completed on the mobile app |
| Approval | loan applications can take up to 7 days or more for approval, with a few banks offering online fast-approval loans that can be approved in one day | Application to loan disbursement can be completed on the same day |
| Service Hours | Some institutions offer 24-hour online loan application acceptance, but generally only process applications during office hours, usually from 9am to 5pm | 24/7 online service |
In addition, virtual banks occasionally launch new loan products to attract customers. For example, WeLab Bank once offered loan customers a deposit rate-linked account, allowing them to earn interest on their deposits during the repayment period to offset the interest expense. Airstar Bank’s personal loans provide a 60-day interest-free and installment-free grace period.
Application Documents and Process for Personal Loans in Hong Kong
When applying for a personal loan from a bank in Hong Kong, in most cases, borrowers must submit proof of income, address, and identification. Some banks have special loan approval modes online, which may waive the requirement for some documents. However, the approved loan amount may be lower, and the borrower may not be able to obtain the most favorable loan terms.
| Traditional bank | Online Application / Virtual Bank | |
| Income Proof | Required | Exemptible |
| Address Proof | Required | Exemptible |
| Identity Proof | Required | Required |
Online Application Steps for Personal Loans in Hong Kong
Applying for a personal loan online is extremely simple. Borrowers don’t even need to be present in person. It can be completed in just a few minutes and includes the following steps:
- Submit the application online
- Receive instant notification of the preliminary results, annual interest rates, and other terms
- Accept the loan offer
- Draw down the loan
If the loan application is submitted through a physical form at a traditional bank, the borrower may need to schedule an appointment with a customer manager and wait for the bank’s written notification of the results, which can take seven days or more for approval. Unless special circumstances require an in-person meeting with the customer manager, applying for a loan online is a better option for most borrowers.
Typical types of Personal Loans in Hong Kong
Several types of personal loans are particularly popular in Hong Kong, including installment loans, tax loans, balance transfer loans, revolving credit loans, and auto loans.
| Personal Loan | Description |
| Installment Loans | This is the most common type of personal loan, where the borrower receives the loan and makes regular payments of a fixed amount on a monthly basis. |
| Tax Loans | This is a type of installment loan typically offered between October and April with a lower interest rate than regular personal loans. The loan is nominally intended for tax payments, but there are no restrictions on how the money is used. |
| Debt Consolidation Loan | This loan aims to pay off other loans at a lower interest rate. However, banks also allow borrowers to cash out when refinancing. |
| Revolving Loans | Borrowers are given a credit limit and can draw on this line of credit as needed. Interest is charged only on the amount borrowed, and the repayment amount and term depend on the borrower’s actual credit usage. |
| Auto loans | An auto loan is secured by the borrower’s vehicle and is used to purchase a car. Like an installment loan, the borrower makes regular payments over a fixed period until the loan is paid off. |
What is the Relationship Between Credit Scores and Loan Interest Rates?
TransUnion (TU) credit scores range from grade A to J grades. Borrowers with good credit ratings are more likely to receive better APR and other benefits when applying for personal loans. On the other hand, the lower the credit scores, the higher the borrower’s loan interest expenses may be, and they may even be denied a loan.
According to TransUnion data as of April 2021, borrowers with A-grade credit ratings who borrow from banks have an average annual interest rate of 3%, while those with I-grade credit ratings have an average actual annual interest rate of 20%. If the credit rating drops to J-grade, obtaining a loan from a bank is almost impossible.
Assuming borrowing HK$100,000 from a bank and repaying it over 24 months, the total interest expense for borrowers with A-grade credit rating and I-grade credit rating differs by more than six times:
Monthly payment (principal plus interest) Total repayment amount Total interest expense Actual annual interest rate
| Grades of Credit Scores | Monthly Repayment (principal and interest) | Total Repayment | Total interest expense | APR |
| A | HK$4,296 | HK$103,112 | HK$3,111 | 3% |
| I | HK$5,010 | HK$120,249 | HK$20,249 | 20% |
The APR of loans from finance companies usually is much higher than those from banks, and the impact of credit scores on the actual annual interest rate and interest expenses is even more significant.
| Grades of Credit Scores | The APR for borrowing from finance companies |
| A Grade | 18% |
| B Grade | 21% |
| C Grade | 24% |
| D Grade | 30% |
| E Grade | 31% |
| F Grade | 32% |
| G Grade | 35% |
| H Grade | 39% |
| I Grade | 43% |
How to Borrow Money in Hong Kong
There are a variety of methods for borrowing money, with Hong Kong people primarily relying on the following approaches:
| Borrowing Sources | Pros | Cons |
| Family and Friends | ．No need to prepare documents or go through approval procedures ．Usually only require exceptionally low-interest rates or even interest-free | ．Whether or not one can successfully borrow money depends on the financial situation and relationship with the lender, and there are no objective standards. ．In the event of late repayment or other disputes, it can damage relationships and reputations with family and friends. |
| Banks and Financial Company Branches | ．Some specialists explain loan terms, actual interest rates, and promotional offers to facilitate inquiries. | ．Preparation of documents is required in advance, and if there are omissions, they may need back-and-forth running. ．Physical loan applications take processing longer, and banks generally have slower approval times than financial companies. |
| Online Loans from Banks and Finance Companies | ．No need to meet in person, which can avoid awkwardness ．Application procedures can be completed online and are relatively simple ．Approval speed is generally faster, and virtual banks can complete the approval and disbursement process in a matter of minutes ．Virtual banks and some financial institutions offer 24/7 service, allowing you to apply for loans at any time | ．If you have questions, you can only inquire through a hotline or online chat, which may not be as detailed as face-to-face explanations |
Understanding Personal Loans in Hong Kong: Key Concepts and Considerations
If you’re considering borrowing money in Hong Kong, it’s important to have a basic understanding of the different types of personal loans available, as well as the factors that can impact your loan costs and repayment. Here are some key concepts and considerations to remember when exploring your personal loan options.
Secured Loans vs. Unsecured Loans
Most of the products named “personal loans” are unsecured, meaning they don’t require collateral. However, it’s essential to understand the differences between secured and unsecured loans before borrowing.
Secured loans use collateral, such as residential properties or deposits, as repayment security. If the borrower cannot repay the loan, the bank or lending institution can repossess the collateral to offset the debt.
Unsecured loans, on the other hand, don’t involve any collateral. Personal installment loans, tax loans, and credit card transactions all fall under this category. Since there’s no collateral, banks or financial institutions consider the borrower’s credit rating, repayment ability, and other factors when approving loans. The interest rates for unsecured loans are usually higher than those for secured loans.
Total Loan Cost
The loan cost refers to the additional expenses borrowers pay to obtain the loan, with interest being the primary cost. In addition to interest, borrowers may be charged various fees, such as handling, administrative, or early repayment fees.
Considering the total loan cost, not just the interest rate, is essential when comparing loan options. In Hong Kong, the most common way to calculate loan interest and fees is through the annual percentage rate (APR), the final rate obtained by calculating the interest plus all other costs. All recognized institutions by the Hong Kong Monetary Authority use the same criteria to evaluate the APR, making it a practical data point for understanding and comparing loan costs.
However, not all borrowers may be eligible for the best APR in loan advertisements. The APR can vary based on factors such as the loan amount, borrower’s credit history and repayment period, etc.
Preparation of Required Documents
When applying for a personal loan, there are three main methods: online, hotlines, and visiting branches. In recent years, many banks and financial institutions have launched online loan approval services, which allow applicants to fill out the necessary information online or on a mobile app, upload their identity documents, and complete the loan application.
Most lending institutions require borrowers to provide proof of address and income and may request an additional proof when necessary. It’s crucial to ensure that the documents and information submitted to the bank are truthful and accurate, as submitting false or fraudulent statements can result in criminal charges.
Repayment Period and Interest Expenses
The repayment period for personal loans in Hong Kong typically ranges from 12 to 60 months, with mortgage loans lasting up to 30 years. A more extended repayment period means a lower monthly repayment amount, allowing borrowers to get approved for larger loans. However, the repayment period affects the loan interest rate and total interest paid. Borrowers should carefully consider the impact of the repayment period on their loan costs and budget accordingly.
Credit Score and Loan Interest Rate
A key factor affecting a borrower’s loan application is their credit score. In Hong Kong, TransUnion is the only institution providing personal credit reports. Financial institutions will typically check a borrower’s credit report when they apply for services such as credit cards and personal loans.
The credit score is divided into 10 levels, with A being the highest and J being the lowest. The report includes a record of the borrower’s credit history, such as their repayment record for previous loans, credit card bills, and other financial information.
Borrowers with a high credit score are considered low-risk borrowers and have a higher chance of getting approved for a loan with a lower interest rate. On the other hand, borrowers with a low credit score may find it challenging to obtain a loan, and if they are approved, they may have to pay a higher interest rate to compensate for the higher risk.
Frequently asked questions about Personal Loans
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.
Some of the most common types include installment, revolving and consolidation loans. An installment loan is the most common personal loan in Hong Kong, it is characterized by fixed monthly repayment schedule. A Revolving loan on the other hand offers more flexibility as the borrowers can decide when to drawdown then payback at their own pace. Lastly, a consolidation loan is a type of borrowing to payback one or more other loans – ideally higher interest one(s). Read more about consolidation loan here.
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.
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.
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. Read more about the relationship between the repayment period and total interest expense here.
Financial institutions generally require documents such as identification documents (HKID), 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.
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 – having a bad credit score could result in loan disapproval or getting a loan offer but at a higher interest rate.
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.
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.
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.
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.
