If you need cash for a business start-up, renovation or medical emergency, applying an online loan is always a sought-after option to help you get cash conveniently at your fingertips. However, whether you can secure a better loan deal indeed mainly depends on 4 key factors, including credit score, repayment ability, lending institutions and how wise you are as a borrower.
Credit score is a vital factor to determine your loan approval and interest rate. It is a measurement performed by credit reference agencies of a person's credit record. Your credit score is determined by payment history, total credit balance and length of credit history and so on, in which payment history is the first priority. As long as you have ever applied for any credit products such as a credit card or loan, you have had a credit report created by Credit Reference Agency (CRA) that shows your credit score and other credit records.
When you borrow, lenders would check your credit report and assess your credit risk through the credit reference agencies. The higher your credit score is, the healthier your credit history and thereby the higher the chance to get approved for a loan at a better rate. In contrast, low credit score may result in lower loan amounts, higher interest rates, or even loan rejection.
Credit score also affects your chance to get approved for other credit products, such as credit cards and mortgages. It might even impact job applications, especially in financial industry, employer might take credit score as an indicator of the trustworthiness of candidates.
To maintain a good credit score, you first need to build credit record by applying credit products like credit cards. An empty credit record does not mean you can yield a good credit score, it may result in a higher interest rate instead as your credit risk level is unknown to lenders. Here are a few tips to help maintain a good credit score:
You can check and purchase your personal credit report from the credit reference agency (CRA).
Besides credit rating, borrower's repayment capacity plays a role in determining whether the loan will be approved and the interest rate. One of the determinants is your monthly salary. Generally, borrowers with a proof of steady income have a higher chance of getting a better loan deal.
In addition to monthly income, financial status such as existing liabilities and regular expenses will also be considered by lenders when assessing the loan repayment ability.
If your loan application is rejected due to repayment capacity, you may consider lowering the loan amount and extending the repayment period for an affordable repayment amount, which may increase the chance of loan approval. However, you might as well bear more overall interest expenses.
To secure a personal loan at a better interest rate, be mindful on where you borrow money from. Banks and money lenders are always popular options for applying personal loan. Banks, regulated by HKMA, usually have a higher chance to offer lower interest rates on loan applications, as they face a comparatively lower risk of default due to stricter risk management and lending standards. On the contrary, money lenders, which are less stringent in loan approval, usually charge much higher interest rates to offset the higher default risk.
Banks might be a more suitable choice for loan with lower interest rate, while lending from the banking institution that you are having an existing relationship with might help increase the chance of approval of your loan application.
Apart from interest rates, you should also take relevant additional fees into account when calculating the actual borrowing cost.
Annualised Percentage Rate (APR) is a useful reference of annual percentage that reflects the actual borrowing costs. It covers all the charges including interest, handling charges and service charges, etc.
APR is calculated based on a unified formula governed by The Hong Kong Association of Banks. You can easily compare the actual borrowing costs of various loans plans via APR.
Personal loans could be used for a wide range of purposes, such as starting a business, renovation, education or wedding. Yet, specific-purpose loans might offer potentially lower interest rates. Here are some common loan products for specific purposes:
Before you borrow online, do consider your actual needs and ability to repay the loan. Failure to repay a loan on time would result in late payment charges and additional overdue interest, as well as affecting your credit score. Make sure you can afford the monthly repayments without leaving yourself short of money and affecting your daily life.
Loan can be utilised in many ways as a useful tool, and provide you with greater financial flexibility. These 4 key factors can help increase your chance of getting a lower interest loan if you borrow and budget wisely.
To borrow or not to borrow? Borrow only if you can repay!
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