Why take out a loan?
There are many possible reasons to take out a loan, from covering unexpected short-term expenses to spreading the cost of a large purchase over time. For example, you could use a loan for:
- buying a car
- paying your tax bill
- covering temporary costs while moving home
- going on holiday
- getting married
- covering emergency costs
- buying expensive household items such as appliances
If you decide to take out a loan, it's important to choose the right kind for your needs and to make sure you can afford the repayments.
Apart from fixed monthly loan repayments, are there other repayment methods?
Most loans ask you to repay a set amount each month, which makes it easy to plan your budget and predict your spending. But if fixed monthly payments don't suit your circumstances, you may choose a loan with flexible repayment options, such as a revolving loan or an overdraft facility.
How much should I borrow?
There are two main things to consider: how much you need to borrow, and how much you can afford to repay.
It is best to borrow only what you actually need and to resist the temptation to add extra borrowing. Remember that your loan does not have to be for a round figure, so you can usually borrow exactly the amount of any large purchase.
When working out your repayments, look at all your other spending. It is unwise to spend more than 30% of your gross monthly income on all your loan repayments put together - with the possible exception of mortgage repayments, which may be up to 50% of your income.
Make sure that you can afford the extra cost of loan repayments without leaving you unable to meet other financial commitments.
How long should I borrow for?
A good general rule is not to borrow for longer than the life of the thing you are paying for. For example, if you have an annual expense such as a tax bill then a loan of 12 months or less would be the best choice - otherwise you will still be paying off your first loan when the next year's tax demand arrives.
With careful budgeting, you can balance the amount you borrow with the period of the loan and the amount you can afford to repay each month.
What is the difference between a Personal Instalment Loan and a Revolving Credit Facility?
A Personal Instalment Loan allows you to repay the whole loan amount in a regular monthly amount within a fixed repayment period, enabling you to better manage their finances.
A Revolving Credit Facility provides you with a standby revolving credit limit. You can withdraw the loan from the standby credit limit anytime you wish; there is no fixed monthly repayment amount or repayment period. Interest will only be charged on the withdrawal amount.
What documents do I need when I apply for a loan?
Generally the bank needs the following to process a loan application:
- Hong Kong Identity Card (HKID) (Not required for existing HSBC customers) ; OR working visa / employment contract / employment letter with details on employment period (for applicants who are not holders of HK Permanent ID Card).
- Either one of the following proof of income documents:
- Bank account statements/passbook explicitly showing the credit of monthly salary in the past one month (or three months for irregular income earners1); OR
- Bank account statements/passbook showing monthly deposits for the past one month (three months for irregular income earners1) plus recent salary payroll advice dated within three months of application or valid employment letter confirming job title / income details dated within three months of application or valid Tax Demand Note issued by Inland Revenue Department for the last tax year.
HSBC payroll customers with at least one month payroll record (three months for irregular income earners1) immediately prior to the loan application are not required to submit income proof. The Bank, however, reserves the right to request for the same at any time.
1Irregular income earners include customers working on a part-time, commission or profit-sharing basis.
What if I can't keep up the repayments?
If you find you are unable to keep up the repayments on your loan - for example, if you lose your job or have unexpected new financial commitments - the first step should always be to talk to your bank. There may be a way to make your monthly repayments more manageable, for example, by extending the term of your loan.
What is a monthly flat rate?
A monthly flat rate is one of the methods used to calculate the monthly repayment amount for a loan. Most banks and financial institutions adopt this method to provide a fixed monthly repayment.
What is an annualised percentage rate (APR)?
The annualised percentage rate is an index of borrowing cost and is calculated on the basis of 365 days or 366 days a year, including interest and all related fees/charges, in accordance with the relevant guidelines of the Code of Banking Practice. APR is used as a way for customers to compare interest rates
Why do different loans have different interest rates?
The main reason is that different loans carry different amounts of risk for the lender. For example, a loan granted without any security carries a higher risk of the lender losing its money if you are unable to meet the repayments and so will usually carry a higher rate of interest than a secured loan.
Another factor is the amount you borrow. A lender's administrative costs are lower for a single large loan than for several small loans to different borrowers, so a large loan may have a lower interest rate than a small one. Remember to check the amount that you'll pay over the course of the whole loan.
What other costs are involved in borrowing money?
The cost of a loan is calculated by means of an annualised percentage rate (APR), which takes into account the interest rate plus any extra fees or charges to be paid.
Common extra costs include:
- Service fee
This is a fee (usually annual) charged by a bank for handling the loan.
Exceeding your overdraft limit costs you money and the bank will charge you directly.
- Special administration fee
For some loans, if you need the money urgently, the bank will make it available within a short period and will charge the relevant fee for doing so.
- Interest on overdue repayments
If you fall behind on your loan repayments, you will be charged interest on the amount overdue, either at a fixed rate or at the prevailing rate. This is charged on a daily basis, so it is wise to keep up the repayments.
- Application fees
Some loans require a fee for the application, which is a one-time payment at the beginning of the repayment period.
- Early repayment fees
In some cases, if you wish to repay a fixed loan earlier than the agreed term, you will have to pay an extra fee to compensate for the interest lost by the bank.
How should I choose a lender?
The APR should not be your only consideration when choosing a bank for your loan. Other things to consider include:
- the reputation of the bank
- convenience - are you able to manage your loan in a branch, online, or on the phone? What are the bank's opening hours?
- other services available to customers
What is the difference between applying online and in a branch?
You can apply online for the following HSBC loans:
- Personal Instalment Loan
- Personal Instalment Loan Redraw
- Revolving Credit Facility
- Personal Tax Loan (only available during the tax loan promotional period)
Overdrafts must be applied for in a branch. For loans where you can apply online, online applications will be processed in the same way as those received at a branch.
Can I check my loan account balance online?
You can check your balance online for these loans:
How would the Terms and Conditions of "Set-off" affect me?
The Terms and Conditions of set off gives us the right to, without notice, combine or consolidate any outstanding principal or interest on the Loan, as well as any other amounts payable by the Borrower hereunder or in connection with the Loan, with any other accounts which the Borrower maintains with the Bank and set-off or transfer any money standing to the credit of the Borrower’s other accounts in or towards satisfaction of the Borrower’s liability to the Bank in respect of the Loan and such other amounts.
You can retry later or you can redraw from your Personal Instalment Loan account in several ways:
By phone on (852) 2748 80802
At any HSBC branch in Hong Kong
By completing the online application form
2Lines are open Mon–Fri 9am-–8pm
What should I do when receiving SMS / email notification asking me to submit documents for loan application?
Kindly note that we need some supporting document(s) relating to your personal loan application to facilitate the evaluation and approval of your loan application and we would send you SMS / email notification listing the documents you require to submit for your quick reference. Please submit the copies of requested documents via HSBC website, HSBC Branch or fax to 22693051 within 7 working days. For enquiries regarding your loan application, you may contact us at 22882191.
Why do I receive SMS / email asking me to call back for my loan application?
In order to facilitate the evaluation and approval of your loan application, we may need to further clarify some details with you and we would send you SMS / email notification to ask for your call back to our loan application designated hotline 22882191. Please contact us at your convenience within 3 working days upon receiving the notification to expedite your application approval.
HSBC uses the Rule of 78 to calculate the proportion of interest and principal in each monthly repayment. It is a method to breakdown the principal and interest in the monthly repayment of Personal Instalment Loan. Rule of 78 puts a decreasing weight on interest and an increasing weight on principal across the repayment periods.
The number 78 comes from adding up the number of months of a 12-month-loan:
1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 + 9 + 10 + 11 + 12 = 78
The interest is allocated to the repayment period in a reverse portion, such that 12/78 (first interest portion) of the total interest will be applied to the first month, 11/78 (second interest portion) of the total interest will be applied to the second month, etc. The interest in each instalment can be calculated by below formula:
Interest in each instalment = Total interest x Interest portion
Illustration of how to use rule of 78 to determine the proportion of interest and principal in each monthly repayment :
Example: A customer borrows HK$100,000 for 36 months, at a monthly flat rate of 0.14% and handling fee is waived. As such, the total loan principal is HK$100,000
Sum of the number of monthly instalment in the loan (i.e. 1 to 36 for this case) = 1 + 2 + …. + 35 + 36 = 666
Monthly interest = HK$100,000 x 0.14%= HK$140
Total interest for the full term = HK$140 x 36 months= HK$5,040
Monthly repayment = HK$(100,000 + 5,040) ÷ 36 = HK$2,917.78
Calculation of the interest and principal allocation in each monthly repayment:
|No. of repayments||Interest in each instalment
(=Total interest x Interest portion)
|Principal repaid in each instalment
(= Monthly repayment – Interest in each instalment)
|1||HK$5,040 x 36/666 = HK$272.43||HK$2,917.78– HK$272.43 = HK$2,645.35|
|2||HK$5,040 x 35/666 = HK$264.86||HK$2,917.78– HK$264.86 = HK$2,652.92|
|35||HK$5,040 x 2/666 = HK$15.14||HK$2,917.78– HK$15.14 = HK$2,902.64|
|36||HK$5,040 x 1/666 = HK$7.56||HK$2,917.78– HK$7.56= HK$2,910.22|
The above example shows that a larger proportion of the repayment made in the early stages is allocated to settle the interest expense, with a smaller proportion to repay the principal. Such allocation of the repayment will reverse after more instalments have been made while the total interest expenses will remain unchanged.
The example is for illustration purpose only. All the figures are rounded up to 2 decimal places.
Generally speaking, the earlier you make loan repayment, the more outstanding interest payments are likely to be saved. Nevertheless, you should consider the early repayment charges involved before deciding whether to pay off yours loans early or not. HSBC uses the Rule of 78 to calculate the proportion of interest and principal in each monthly repayment. Even though the monthly repayment amount is the same throughout the loan tenor, more interest will, in general, be included in earlier repayments, and less on principal. In other words, where you have been making repayments as scheduled for some time, the amount of outstanding interest is likely to be small. If you choose to pay off the loan early at this point of time, the loss may outweigh the gain as the amount of interest saved may not be enough to cover the relevant charges for early repayment. You may contact us to check about the total amount involved in early repayment (including outstanding loan balance, early repayment charges and other fees, etc.) and the amount of outstanding interest. You should then compare different scenarios and consider carefully before making a decision of repaying early or not.