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Choosing Personal Loans: A Comparison of Digital Banks, Traditional Banks, and Financial Companies │ WeLab Bank

Loan4 Aug 2023
"I need some quick cash! Which bank should I borrow money from?" No matter how pressing the matter, it's crucial to first grasp the fundamental concept of personal loans. Today, WeLab Bank will walk you through the key considerations for personal loans and provide a comparison of loan plans among digital banks, traditional banks, and financial companies.A personal loan refers to individuals applying for loans from banks or other financial companies for personal use, investments, or other non-business purposes. Personal loans fall under the category of unsecured loans, meaning no collateral is required. Repayment is structured with fixed monthly amounts over a set period. Early repayment may incur an additional fee known as a penalty interest. Various loan product categories exist in the market, including mortgages, cash-out refinancing, car loans, revolving loans, tax loans, and more.Calculating Loan InterestWhile loans serve different purposes, most common loan in the market is installment loan. Although the monthly repayment amount remains consistent, the proportion of principal and interest within each installment can vary. The proportion of interest and principal in each monthly repayment is calculated according to the Straight-line method or Rules of 78. Let me tell you what the Straight-line method is. In this method, the interest is calculated based on the outstanding principal and allocated to the repayment period. The amount of monthly repayment apportioned to interest is the highest at the beginning and gradually decreases across the repayment periods.Illustration of showing the proportion of interest and principal in each monthly repayment using straight-line method, and the monthly interest decreases as the principal decreases:A customer borrows HK$120,000 (i.e. the loan principal) for 12 months, at a monthly flat rate of 0.14% and handling fee is waived. Annual Interest rate is 3.09% and APR is 3.13%.Monthly interest = HK$120,000 x 0.14% = HK$168Total interest for the full term = HK$168 x 12 months = HK$2,016Monthly repayment = HK$(120,000 + 2,016) ÷ 12 = HK$10,168First Term interest= HK$120,000 x 3.09% ÷ 12 = HK$308.7First Term principal= HK$ (10,168-308.7) = HK$9,859.3Second term interest = HK$ (120,000-9,859.3) x 3.09% ÷ 12 = HK$283.6If mathematics isn't your strong suit, this may seem a bit perplexing. Simply put, during the initial stages of repayment, the interest portion outweighs the principal portion. As the repayment progresses, the principal portion increases while the interest portion decreases.Understanding Effective Annual Interest Rate and Monthly Flat RateBefore selecting a suitable loan institution, as an astute borrower, it's essential to acquaint yourself with key terms such as "Monthly Flat Rate" and "Annual Percentage Rate (APR)." So, what exactly is the Monthly Flat Rate? Let's assume you borrow HKD 10,000 for 12 months with a Monthly Flat Rate of 1%. This implies that you'll pay HKD 100 in interest each month, resulting in an annual interest of HKD 1,200. Many financial companies entice customers with exceptionally low Monthly Flat Rates, sometimes even below 0.1%. However, the Monthly Flat Rate alone doesn't provide a comprehensive picture of the borrowing cost. Conversely, the "Annual Percentage Rate" combines loan interest with various fees, converting them into a reference annual interest rate. This helps consumers compare the borrowing costs of different loan products. When comparing, it's crucial to consider the APR.Important Considerations before Applying for a LoanNow that you’ve done comparing the borrowing costs, are you good to proceed with the application? Hold on! Before applying for a loan, there are other factors to be mindful of.
  • Evaluate your personal repayment ability and loan amount: Each loan plan has a different maximum borrowing limit. However, being eligible for a loan does not mean you should borrow to the maximum. Before applying, consider your actual needs and repayment capability.
  • Pay attention to hidden details and additional charges: There's no such thing as a free lunch. When choosing a loan, be cautious when you see "0% interest" or extremely high cashback offers. Be aware that besides interest, there may be additional fees such as processing fees, annual fees, and penalty interest. Therefore, when calculating the borrowing cost, remember to take other related fees into account.
Comparison of Digital Banks, Banks, and Financial Companies for LoansAfter understanding the important considerations, many people might wonder which bank is the best for borrowing money and what advantages financial companies offer. Let's dive into a loan comparison and analyze the differences between digital banks, traditional banks, and financial companies! In Hong Kong, institutions that provide personal loans can be broadly classified into two main categories: traditional banks and financial companies. Traditional banks offer better interest rates to customers with good credit records, but the approval process is lengthy and the application procedures are complex. On the other hand, financial companies provide some quick approval options and online personal loans, and they tend to be more lenient towards customers with lower credit scores. However, the trade-off is higher interest rates. In comparison, digital banks combine the best of both worlds:
  • Competitive loan interest rates: Loan interest rates depend on various factors such as the individual's debt situation, past repayment records, and TU credit ratings. However, digital banks generally offer competitive interest rates, and in some cases, the lowest actual annual interest rates can even be lower than those offered by traditional banks.
  • Simplified application process: Digital banks leverage financial technology, making the loan application process simpler. Loan applicants are often not required to submit income proof, and the banks can utilize advanced systems and big data analysis for faster approval. However, it's worth noting that some digital banks may request additional supporting documents based on individual circumstances.
  • Fast approval time: While some traditional banks and financial companies claim to offer fast approval for loans, digital banks can further expedite the process through their technological capabilities. For instance, WeLab Bank can achieve same-day fund transfers1 in the fastest cases.
WeLab Bank Loan ProductsBefore borrowing, it is crucial to carefully consider various factors and conduct a comprehensive loan comparison to select the most suitable personal loan solution based on individual financial circumstances. Are you in need of financial assistance? WeLab Bank offers a wide range of loan products tailored to different needs.
  • Personal Installment Loan: Whether it's for significant or minor expenses, you can make use of the personal installment loan to fulfill your dreams, such as purchasing a car, renovating your home, funding education, traveling etc. WeLab Bank's personal installment loan offers loan amounts of up to HKD 1,500,000 or 18 times your monthly salary (whichever is lower) and boasts actual annual interest rates as low as 1.27%2. The repayment period can range from as short as 6 months to as long as 60 months, granting you greater flexibility.
  • Debt Consolidation Loan: When faced with difficulties managing multiple credit card balances or personal loan balances, paying only the minimum amount does not provide much relief. WeLab Bank's debt consolidation loan allows you to consolidate the balances from multiple credit cards or loan into a single low-interest loan with a fixed term, facilitating more effective debt management.
In addition, WeLab Bank also offers the Tesla Unsecured Loan and the Subscribe+ for Apple Products feature. Whether you want your dream car or sought-after electronic products, we can help you acquire them more easily! Still undecided on which bank to borrow money from? WeLab Bank might just be the perfect answer!To borrow or not to borrow? Borrow only if you can repay!1 The estimated period is calculated from the day the loan agreement is signed. The actual approval period and the actual time the loan is disbursed may vary upon information provided by the applicants.2 Assume the loan amount as HKD700,000 with tenor of 24 months, the APR will be 1.27% (inclusive of HKD3,000 cash rebate) or 1.68% (excluding cash rebate). The APR is calculated according to the guidelines issued in respect of the Code of Banking Practice and rounded to the nearest 2 decimal places and may vary for individual customers. Customers should refer to their loan confirmation letters for the relevant information and such information shall prevail. The APR only applicable to designated loan amount and tenor and for reference only. The final approved interest will be subjected to the bank’s approval.
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