With banks advertising a baffling array of "low", "free" and "personalised" interest rates for tax loan, are you able to get the best deal possible on offer?
A Consumer Council survey on 15 banks offering 22 tax loan schemes has indicated that in all probabilities, it is a goal that may be beyond the reach of ordinary consumers because of the difficulty in product comparison.
A relatively new feature of tax loan service this year is the inclusion of "personalised" interest rate which varies individually and is determined by an individual's financial status and credit rating. Out of the 15 banks surveyed, three advertised such an offer.
Consumers should realise that even with the best of credit standing, they may not necessarily clinch the deal with the lowest "personalised" interest rate on the first bank they approach.
The survey has made enquiries at these three banks using the same set of personal data, and found the Annualized Percentage Rates (APR) subsequently approved to vary from 3.86% to 5.40%, a difference of 1.54%. So, do shop around, even if you have good credit rating.
The survey notes that in general, tax loan advertisements tend to focus on the most favourable interest rates in the best case scenario at the expense of drawing attention to vital details that could entail serious financial implications to the borrowers.
Consumers are urged to compare the credit cost by Annualized Percentage Rate (which takes into account all fees and charges, and terms and conditions of payment) which therefore varies according to, among others, the handling fee and the repayment tenor.
In one case, for example, an advertised 4.10% APR based on a 1% annual handling charge over a 12-month repayment tenor would rise to 6.49% over 6 months (annual handling charge of 1.25%), 5.24% over 9 months (also 1.25% handling charge), and 7.63% over 18 months (2.05% handling charge), the difference could be substantial.
APRs are also at variance in accordance with the amount of the tax loan. For instance, the APRs of a $50,001 loan ranged from 3.79% to 10.38% while a $500,001 loan from 3.00% to 8.18%. This bears out again the importance of credit cost comparison.
So, do be wary of specially attractive interest rates advertised and enquire into all relevant details.
"Interest-free" tax loans are almost always exaggerated. Read carefully the terms and conditions which need to be complied in order to receive the purported "interest-free" benefit, and also if it involves any extra cost.
Think carefully of the risk involved before entering into a tax loan with a joint applicant, to take advantage of a lower interest rate. The risk is that one party may be held liable for the debt of the other party.
Interest-free instalment plan by credit card may levy a handling fee and more importantly, consumers should assess realistically their own repayment ability to avoid having to pay exorbitant interest rates of credit card loans should they fail to keep up with their repayment on time.
And as with revolving tax loan, the preferential interest rate will usually cease at the end of the first 12 months of the tax loan, followed by considerably higher interest rates after the first year.
Some banks advertise "lowest interest rate guarantee". Find out precisely what the terms and conditions are to be eligible for the guarantee and how the guarantee will be delivered - through immediate reduction of the interest rate or rebate of the amount in excess only after the loan is fully settled.
A useful and practical 10-point guide is included in the survey report in CHOICE. Consumers contemplating a tax loan will do well to consult the report for guidance.