ADVICE! Everything you need to know about taking out a loan

Help for migrant domestic workers from the Team at Enrich HK!

Photos Courtesy of Unsplash

This time last year, many of us thought the pandemic would be over by now but that’s far from the case; it continues to take its toll, not least on domestic workers and their families. If your finances aren’t doing well – maybe due to emergency costs or higher remittances sent home – you might find yourself tempted to take out a loan to ease that burden.

Although we always advise planning ahead to avoid borrowing, taking out a loan can sometimes be necessary. If you find yourself in this position, there are some important things you need to consider in order to protect yourself. It can be easy to end up in a cycle of debt and we definitely don’t want that! Know that if you are already in chronic debt, the advice that follows will be useful for you too – and we’re also going to talk about an exciting new programme at Enrich HK which can help you become debt free!

BEFORE TAKING OUT A LOAN
First step: Ask yourself, is the loan for something my family actually needs, like medical expenses, or is it for something inessential that my family simply wants? Before signing a loan contract, there are some very important things that you need to check. Is the lender licensed? (Remember that unlicensed money lenders can give you illegal loan terms.) Will you receive certified documents (e.g. contracts, receipts, statements) for your records? Do you understand the loan terms? Can you afford the monthly repayment and any late payment fees?

Remember that no matter which moneylender you choose, it is illegal for them to take your Hong Kong ID card, passport, national ID card, or bank savings/ account book as security for your loan. Neither should the moneylender request photos of you, your guarantor or your family. If you have already given any of these items as security/ collateral, ask the moneylender to return them immediately. If they refuse, contact your consulate and the Hong Kong Police (999) straight away.

AFTER TAKING OUT A LOAN
If you do decide to go ahead with the loan, you will of course sign a contract with certain terms. This means that you have both responsibilities and rights according to Hong Kong law (Money Lenders Ordinance).

Let’s start with your responsibilities because these are straightforward. Firstly, you are responsible for paying your monthly loan payments on time. Secondly, you must not provide misleading information in applying for a loan – this is very important as doing so can be a criminal offence. Know that you also have rights when you take out a loan. You are entitled to receive a full copy of the contract, repay the loan in instalments, understand the terms of repayment, and understand if any asset has been pledged as security for the loan. Importantly too, you are entitled to repay your entire loan early at any time at the same effective interest rate as if the loan was not repaid early.

BECOMING DEBT-FREE
Taking out a loan doesn’t mean you will definitely be in a debt cycle, but it can make it easier to slip into one. Once you’re in a debt cycle, it takes dedication and commitment to get out of it. We recommend you to start by assessing the problem and listing all your loans/ debts. Next, set financial goals – work your loan repayments into your monthly budget and stick to it. Negotiate with your creditors to see if you can explore alternative repayment schedules.

We also advise controlling unnecessary spending by you and your family until your loans are paid off. And if possible, increase your income – perhaps a family member could support the household by finding work.

However, the best way to break a cycle of debt forever is to learn how to manage your finances and that brings us to that exciting announcement we promised you!

Enrich HK is introducing a new programme called DebtFree Helper – a free eight-week debt-management course for domestic workers, that will give you the tools and knowledge you need to finally leave your debts behind. This is the first programme of its kind in Hong Kong, and it provides the opportunity to join workshops, attend activities and receive confidential, individual advice from an impartial financial counsellor. Applications are open this month and places are limited. Are you ready to become debt-free?

Enrich HK is an award-winning Hong Kong charity providing financial and empowerment education to migrant domestic workers.
To learn about the courses on offer, WhatsApp 5981 3754, email [email protected] or visit www.enrichhk.org.