An amortisation is the regular monthly payment of debt in instalments over a period of time. In general, amortisation applies to both personal loans and mortgage, of which the monthly repayment is in fixed amounts. The repayment includes the principal and interest. The monthly repayment is firstly applied towards the interest, whereas the rest is repaid later towards the principal. In terms of personal loans, as the monthly-flat rate is used, the repayments for the interest and the principal are in fixed amounts. In terms of mortgage, the interest to be repaid each period is based on the mortgage interest rate for the unrepaid mortgage loan amount. Therefore, in the beginning of the loan tenors, a greater portion of repayments are applied towards the interests.
The amortisation period is the tenor or the total length of time it will take to repay a loan completely.
Annualised Percentage Rate (APR)
The Annualised Percentage Rate (APR) is a number that integrates and references interest rates, loan tenors, handling fees, and other related costs that come with personal loans, revolving loans, cash advances of credit cards and so on. The APR is a good metric for mainly comparing these banking products in Hong Kong. With the APRs, some of the banks can show the actual costs of applying for loans including the interest rebate. All the APRs for the financial institutions in Hong Kong have to be determined and calculated according to the relevant guidelines from the Code of Banking Practice issued by the Hong Kong Monetary Authority.
Annual fees are amounts charged on a yearly basis to credit cards, credit lines, and revolving loans. They are charged to a client's account each year for the banking product(s) used.
A borrower is a person who accepts a loan from a lender.
A credit line, which resembles a revolving loan, is an account that allows a borrower to withdraw loans anytime. Borrowers can withdraw cash only within the credit limit granted; whereas the interest they have to pay is determined according to the cash amounts withdrawn on a daily basis. The credit balance of the account is restored as soon as the outstanding balance is paid.
A credit report is a document prepared by a credit bureau. It contains a client' personal data and details about his or her credit history, including accounts that are in good standing or past due. Banks and other lenders can use this as a reference when they process applications and use it to decide whether to approve or deny the loan application and the corresponding interest rates.
A debt consolidation is a single loan used for borrowers to repay various debts, thereby facilitating reduction of their costs of repayment. In comparison with personal loans, debt consolidation often has higher interest rates but larger loan amounts.
Default happens when a borrower fails to meet the legal obligations of repaying a loan, either by being unable to meet the payment schedule or being unwilling to honour the loan. Defaulting on a loan places a borrower into financial trouble. It tells the lender that future payments are not likely to be paid. And this, in turn, gives the lender an opportunity to claim the borrower's collateral as a form of repayment.
A drawdown occurs when the bank transfers the money to a borrower's account upon the approval of a loan.
Early Redemption Charge
An early redemption charge is a fee applied to loans when one pays off the loan earlier than the agreed tenor. Some lending institutions would have this charge exempted.
Fixed Rate Loan
A fixed rate loan is a personal loan type where a borrower pays a fixed interest rate throughout the duration of the loan. The fixed interest rate remains unchanged even if market conditions change. In Hong Kong, most of the personal loans offered belong to fixed rate loans.
Floating Rate Loan
A floating rate loan is a personal loan type where interest rates change according to market conditions. For example, the HKD Prime Rate is used as the standard; also a particular interest rate serves as the interest rate for the monthly repayment. Therefore, the interest rate changes with the floating HKD Prime Rate. In general, revolving loans and mortgage loans are in form of floating rate loans.
A guarantor is a person who guarantees that the loan will be repaid in full. A guarantor is legally responsible for repaying the loan and covering all interest, fees, and charges that come with it if the borrower is unable to make the payments. However, guarantors do not have the legal right to own the items purchased by the loans. In general, if the applicant for the mortgage loan does not have a stable income, the banks would usually request him or her to apply the loans with a guarantor.
A handling fee is an administration fee regularly charged to credit cards, personal instalment loans, and other bank products for the services and convenience enjoyed by the users. In general, the yearly handling fee for personal loans is 1.2% of the loan amount.
The interest is an amount charged to borrowers by the bank or lender for the privilege of receiving a loan. In general, the interest of a personal instalment comes in form of a monthly-flat rate. In other words, the monthly interest to be repaid can be calculated with the total loan amount timing the monthly-flat rate. The lending institutions would finalize the interest rates to be charged according to the credit history held by the borrowers. Besides, generally, a lower interest rate follows a greater loan amount; whereas a higher interest rate follows a longer loan tenor.
Late Payment Fees
Late payment fees are charged by the lender when a payment date is missed.
A lender is any individual or financial institution that makes funds available to a borrower; under an agreement, the loaned amount will be repaid within a certain period of time, together with interest and other fees.
Lending Companies in Hong Kong are financial institutions that makes funds available to borrowers, by which these institutions have to obtain beforehand the Money Lenders Licenses for running their businesses. In general, Lending Companies offer higher interest rates than banks in loaning. Also, the application procedures for loans in these Lending Companies are simpler with more looser vetting criteria.
Liabilities are the amount an individual or an institution owes to other institution(s). They usually include financial obligations like necessary payments made to other institutions(s), expenditure in issuing salary to employees of the institutions and repaying the debts owed by other financial institution(s).
Maximum Loan Amount
The maximum loan amount is the limit to the amount a borrower can receive from a lender. This amount is based on several factors like the borrower's occupation, salary and credit history.
Monthly Flat Rate
Monthly flat rate is to calculate the monthly repayment amount for an instalment loan
Monthly repayments are a fixed payment given by a borrower to the lender every month. In general, the monthly repayments for personal loans are in fixed amounts to fulfil the principal and interest. Then, the loan is fully repaid step by step over a specified period of time.
An overdraft occurs when a person withdraws an amount that exceeds the upper limit of the loan amount allowed in his or her current account. An overdraft facility or credit line is a pre-arranged agreement with the bank that allows a person to overdraw from the account without paying overdraft fees. Instead, the person has to pay an interest for the relevant amount overdrawn beyond the limit from the account.
A personal instalment is an usual form for personal loans. Arrangements about issues like loan amounts and loan tenors are predetermined within agreements between borrowers and lending institutions.
The principal is the amount borrowed from a lender, or the amount still unpaid on a loan. This amount excludes the interest rate and any other fees.
A security is an asset pledged to back the loan. Borrowers can forfeit ownership of the security in favour of the bank if the loan is unpaid.
The tenor is the arranged time length for the repayment of a loan. In general, a personal loan comes with a tenor ranging from 3 months to 7 years.
An unsecured loan is a loan that does not require a collateral with personal loans as the most popular type. Besides, unsecured loans also include credit cards. Unsecured loans are awarded based on factors such as the borrower's credit rating and repayment ability . Because unsecured loans pose greater risks for lenders if the borrower defaults. For this reason, unsecured loans often have higher interest rates than the secured loans.