How Personal Loan Interest Rates are Calculated

7 August 2015

Look at the interest rates before choosing a personal loan. Read on to learn how interest rates are calculated and how to get the lowest rate possible.

“How much is the interest on this personal loan?” This is one of the first questions you should ask yourself when doing research on a personal loan.  Interest is the amount lenders charge you for the privilege of borrowing money from them. When looking at personal loans, you want to choose one with the lowest interest rate possible. This is why comparing different loan options across Hong Kong banks is a critical first step before making a decision.

What is interest rate?

In the simplest form, interest rate is the amount charged to a borrower by a lender. It is presented in a percentage of the principal/ loan amount. The Code of Banking Practice states that lenders must indicate the APR (Annual Percentage Rate) together with the interest rate during the lending process.

APR is a reference rate that consists of base interest and other charges like handling fee. It is a handy point of reference when comparing loan plans because it includes all the extra charges and interest expenses.

Is APR final?

No, it is not. It is only a reference point. The final interest rate varies due to several reasons. Before banks decide the final quote for each customer, they will first examine their past credit records and current cash flow.

If the customer has a good credit record, they may qualify for a lower rate. At the same time, banks can charge a higher interest rate to the customers with tarnished credit records. Since these customers are perceived as

a higher risk investment, they are charged comparatively higher. Therefore, a healthy credit record puts you at a great advantage and makes you more likely to get a lower interest rate on a loan.

How should I compute Total Interest Amount?

The formula for total interest amount:

Principal x Monthly Flat Rate x Tenor (months)

In Hong Kong, the monthly flat rate is the common method used by constitutes in computing the total interest expenses for an installment loan.

Is there a cap on personal loan interest rates?

Yes, there is. The Money Lenders Ordinance prohibits anyone from lending money with an effective interest rate of 60% per year. Undoubtedly, a 60% annual interest is already a very high amount. By taking the time to compare loans, you can find one with far more affordable interest rates and repayment options that suit your financial situation.

How do I compare personal loan interest rates on provides the most convenient service to compare APRs and monthly interest rates of different personal loans. In addition, total repayment amount and monthly repayment amount for each loan offer are also displayed on the same page. With APRs and monthly interest rates, the comparing process is more accessible and easy.

You can adjust the loan amount and tenors before getting a better idea of the total loan cost. You can also use this tool to view the special promotions that come with each loan.

Learn more about personal loans with our guides

We hope this guide can answer some common inquiries customers may possess towards personal loan interest rates in Hong Kong. Check out our remaining personal loan guides to learn more!


Category: Credit

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