Choosing the right loan

Credit cards let you pay for items in stores, restaurants and online, you can also use credit cards to withdraw cash from ATMs. They're accepted at many outlets worldwide which make them a convenient form of payment, but they are not considered to be long-term credit facilities.

Your credit card comes with a spending limit or credit limit - which is the maximum amount the issuer will lend to you through the credit card. Every month, the issuer will send you a statement detailing your balance and the minimum repayment amount. Paying your credit card balance in full every month allows you to avoid interest charges. Use credit cards wisely, as they tend to have higher interest rates than consumer loans or other lines of credit. If you're having difficulty making payments, speak to your bank about your options.

If you are carrying debt on a number of credit cards, you might want to consolidate some of your credit card debt. By transferring your unpaid balances into a single consolidated loan or credit card account, it will be easier to keep track of your debts - and you may be able to take advantage of lower interest payments. When consolidating your card loans, consider the following:

• Cancel some of your credit cards. After you've transferred all your card debts into one account, it might be wise to cancel some of your paid-off cards. Having fewer lines of credit available may help you manage your spending patterns.
• Stay on track with new payments. While the interest on your consolidated loans might be lower, any new purchases you make with your card will be charged at the normal credit card interest rate. Keep up with your payments to avoid penalty fees.

Tips for managing your credit card

• Understand terms, conditions, grace period and fees for late payment and cash advance facility
• Keep track on statements
• Review your credit limit and adjust your spending accordingly. If you think you'll have trouble paying it back, lower your limit.
• Be wary of using another credit card to settle unpaid balance, this will only increase the risk paying more interests.

Personal loans can give you access to funds for a variety of things such as family emergencies, buying home furnishings and consolidating other debts. Typical personal loans require you to repay regular instalments over a set period of time.

When you take out a personal loan to consolidate other debts such as credit card debt, you are refinancing your loans. Try not to borrow more to refinance your debt, you can talk to your bank or other lender on ways to reduce the interest on your existing loans.

A tax loan is a specific type of personal loan, usually offered around the time Inland Revenue taxes are due. Designed to help consumers ease the burden of paying their tax bills, these types of loans may offer lower interest rates compared to normal personal loans.

Watch out for

• Handling fees charged for processing a loan.
• Early repayment charge if you pay off a loan earlier than the agreed term.
• Late repayment charge if your monthly repayment is overdue.
• Cancellation fee if you change your mind and cancel the loan after you've signed the contract.

If you withdraw more funds than you have in your account (for example, writing a cheque with insufficient funds in your current account), your account is considered overdrawn. You may be charged an overdraft fee, and also have to pay interest for the amount overdrawn.

Watch out for

• Annual fees for overdraft facilities.
• Overdraft handling charges if your account becomes overdrawn.
• Interest is calculated daily on most overdraft facilities.
• Extra fees for overdrafts beyond your agreed credit limit.

For most people, buying a home means taking out a mortgage. When you take out a mortgage, you are borrowing money to pay for a home by using it as collateral. So if you fail to keep up the repayments on the mortgage, you risk your home being repossessed.

Mortgages come with fixed or variable interest rates. A fixed-rate mortgage means your payments will be the same for the life of the loan. If you have a variable-rate mortgage, the rate you pay rises and falls in line with market interest rates. You can use a mortgage repayment calculator to work out how much you can afford to borrow.
In Hong Kong, you can apply for mortgage loans covering up to 90% of the home's appraised value. Some banks offer pre-approved mortgages, which give you an idea of what you can afford- and allow you to negotiate with an approved mortgage in hand. When choosing a financial institution for a mortgage, consider the following:

• Length of approval process
• Loan period
• Repayment terms
• Fixed vs. floating interest rates
• Early repayment penalties
• Handling fees, cancellation fees and valuation fees