Cost of a tax loan, with the true APR.
Monthly repayment
—
Total interest
—
Effective APR
—
Total repaid
—
Your breakdown
Updates live as you type| Step | Figure |
|---|
Why a flat rate flatters the headline
Every January, around the salaries tax deadline, Hong Kong banks advertise tax loans at strikingly low flat rates. The catch is the word flat. A flat rate charges interest on the whole original balance for the entire term, even though you are steadily repaying that balance month by month. Because you do not have the full sum for the full period, the true cost, expressed as an annual percentage rate, is close to double the flat number. This tool exists to expose that gap, converting the advertised flat rate into the effective APR you are really paying.
It is worth saying clearly that this is consumer-lending arithmetic, not a tax computation. The Inland Revenue Department does not lend money or set these rates; the loan is a personal loan from a bank, and the only tax involved is the bill you are borrowing to pay. Keep that distinction in mind, because the better question is often not which loan is cheapest but whether you need a loan at all.
Borrowing $80,000 at a 1.8 percent flat rate
Take the defaults: an $80,000 tax bill, a 1.8 percent flat annual rate, a 12-month term, and no handling fee. The interest is charged on the full $80,000 across the year, but the effective rate reflects that your average outstanding balance is far lower.
The interest in dollars looks small, just $1,440, but the effective APR is 3.36 percent, nearly twice the 1.8 percent on the poster. That is not a trick by the bank so much as a feature of how flat rates work, and it is the single most useful number to compare loans on. The chart sets the advertised flat rate against the true APR.
Handling fees, and the alternative the IRD offers
Watch the handling fee. A loan with a 0 percent or near-zero flat rate but a one-off fee can still be expensive, because the fee is real money paid up front. The tool folds any fee into both the cash you actually receive and the effective APR, so a fee-laden zero-rate offer shows its true colours. The honest rule is to compare offers on APR after fees, never on the flat headline or the dollar interest alone, since a longer term lowers the monthly payment while quietly raising the total cost.
Before borrowing at all, weigh the option the Inland Revenue Department itself provides. Taxpayers who genuinely cannot pay on time can apply to settle the bill by instalments, and while a surcharge may apply if you are late, that cost can be lower than a loan's interest plus fees for a short delay. A tax loan makes sense mainly when the effective APR is below what your cash is earning elsewhere, or when you need to smooth a large bill over many months and the IRD instalment route is not available to you. Borrowing at 3 to 4 percent APR to keep money invested at a higher return can be rational; borrowing simply to avoid the mild inconvenience of paying usually is not.
Can I just pay the IRD in instalments instead of taking a loan?
Often yes. The IRD can allow payment by instalments where there is genuine financial hardship, though it may add a surcharge on the overdue portion. For a short delay that surcharge can work out cheaper than a loan's interest and fees, so always price the instalment route before signing for credit.
Why is the monthly payment not just the bill divided by the months?
Because interest is added on top. The tool takes the bill plus the flat interest plus any fee, then divides by the number of months, so each payment covers a share of both principal and interest. That is why $80,000 over 12 months repays $6,787 a month rather than $6,667.