Question

Hi, can you answer this question in more detail?

Subject: Hong Kong Personal Financial Planning Practice

Q6. B

In Hong Kong, there are four major types of loans related to personal financial planning, namely, “Personal loan”, “Revolving loan”, “Personal installment loan (Balance consolidation)” and “Secured loan”. Analyze the elements and characteristics of each of these loans.

(Words: 700 - Don't direct copy)

Answer 1

In Hong Kong, it’s perfectly legal for any person (whether an individual or corporate, a registered money lenders or not) to lend money to others provided that the terms of a loan complies with Money Lender Ordinance which is the major piece of legislation to regulate money lending activities and to curb loan-sharking activities:

Lending at “true annual percentage rate of interest” exceeding 60% is a criminal offense;
Lending at “true annual percentage rate of interest” over 48% may be presumed to be extortionate by court case.

The two popular unsecured personal loans offered by most lending institutes are Installment loans and Revolving loans.

Installment loans: The borrowers obtain a fixed amount of loan and repay over time to the lender. The lenders ask for a fixed amount money in return (i.e interest). The borrowers are bounded to an agreement of repayment plan which required them to repay regular and fixed amount of money plus interest over an agreed schedule (i.e. loan tenure) until the loan is settled.
Revolving loans: While installment loans which has all of the terms fixed, revolving loans add flexibility to the borrower to decide how often they need to withdraw from the loan. The lender establishes a facility for a borrower over a specific period time, and decide the maximum limit that a borrower can withdraw from (i.e. credit limit). When the facility is valid, the borrower can always borrow as many times as required using his revolving loan facility so long as the total amount borrowed is still within the credit limit. Repayment plan is always as flexible as drawdown: no fixed repayment schedule is needed because every repayment can offset the available credit. The borrower have to bear interest expense whenever drawdown takes place.
Comparison:

A revolving loan facility enables a flexible financing arrangement for borrowers, mostly for businesses, because of its ability for cycling fund by drawdown, repayment and re-drawdown. It is different from installment loan because a revolving loan allows borrowers to maximize their available credit at the cost of interests on the amount of drawdown.

Needless to say, if the SME can provide fixed assets e.g. property in Hong Kong, they should go for secure loan. However, SME does lack the assets or it does need the capital to acquire assets. Personal loan borrowed by the business owner is properly the most accessible source of finance.

It is often seen that an expats with stable employment and income failed to apply for personal loan. The eligibility criteria are listed as follows:

The holders of Hong Kong Permanent Identity Card is the prerequisite of personal loans.
Apply the loan from the banks that have prior banking relationships with you and you should have proven to be trustworthy.
At the last gasp, you could try applying for with private money lenders at the cost of more risky replayment plan and much higher cost.