6 Detail Points You Should Know Before Applying for a Loan

"The loan amount is as high as $1,000,000 or 20 times the monthly salary!", "Monthly flat rate is as low as 0.1%!", "The actual annual interest rate is as low as 1.9%!" These loan slogans, I believe you will not be unfamiliar. However, do you know what is behind these slogans? Before applying for a loan, you must understand clearly!

How much can I borrow at most?

The upper limit of the loan amount for each loan plan is different, and it can exceed one million yuan or more than ten times the monthly salary. However, borrowing does not mean you have to borrow the most. Before applying, you should consider your actual needs and repayment ability. If you apply for more than the actual required amount, the interest will be paid in vain. Even if you can repay the loan earlier in the future, the lending institution usually imposes a fine. Make up for the loss caused by the decrease in interest income. Therefore, loans should be based on actual needs and not be attracted by large loans and low interest rates.

How to calculate the interest on installment loans?

Assuming a loan of $100,000, a monthly flat rate of 0.3%, and a repayment period of 24 months:

Monthly interest: $100,000 x 0.3% = $300

Full term interest: $300 x 24 months = $7,200

If a handling fee is required, assuming 1% per year:

Annual handling fee: $100,000 x 1% = $1,000

Handling fee for the whole period: $1,000 x 2 = $2,000

Total repayment amount: $100,000 + $7,200 + $2,000 = $109,200

Monthly repayment amount: $109,200 / 24 = $4,550

The above simplified calculation method is for reference only. The calculation method of individual financial institutions may be different.

Even if the monthly flat rate is low?

Many people think that by directly referring to the monthly flat rate, they can judge whether the loan product is affordable. In fact, the monthly flat rate can only allow the lender to easily calculate the monthly interest expense, but it does not include other loan costs, such as handling fees, annual fees, etc. Certain loan plans with interest/cash rebates will also have an impact.

What is the actual annual interest rate?

To compare the total cost of different loan plans, you can refer to the Annualized Percentage Rate (APR). In order to make it easier for borrowers to understand the cost of borrowing, the HKMA requires lending companies to calculate APR in the same way in accordance with the Banking Code of Practice , Showing loan interest and all other expenses including handling fees and annual fees. Therefore, you only need to refer to the APR to know the borrowing cost clearly. Simply put, the lower the APR, the lower the borrowing cost!

How to approve the best interest rate?

When applying, I certainly hope that financial institutions will approve the best interest rate. Generally speaking, in addition to the loan amount and repayment period, the interest rate given by financial institutions will also be based on the applicant’s financial status, debt repayment record, personal credit score, occupation and other factors as a reference. For example, the applicant is a doctor , Lawyers, civil servants, etc., financial status and personal credit ratings are all good, there is a chance to get a more favorable interest rate. In fact, in addition to interest rates, banks will also offer various discounts from time to time, such as cash rebates and waivers of handling fees. Therefore, it is advisable to shop around when choosing loans instead of being attracted by low interest rates alone.

Does credit score have an impact?

The term "credit score" is often heard in recent years. In fact, it is calculated by the applicant's loan and credit card usage status, repayment history, debts, and even bankruptcy. Whether the repayment is on time and whether there is a record of overdue payment will affect the credit score. Generally speaking, when a bank approves a loan application, the higher the credit score of the applicant, the more favorable the interest rate. On the contrary, the lower the credit score, in addition to the interest rate, it will also affect the loan amount, and even the application will not be accepted.