Chinatrust Bash Your Balance Loan
You've probably seen Chinatrust's promo on newspapers called "
Bash Your Balance Loan". It's an interesting and relevant twist on the usual personal loan.
The concept is to sell this loan to employees burdened with huge credit card debt. The idea is Chinatrust will lend from P30,000 to as much as P1 million, which will be paid off in 24 months for a much lower rate. The bank will even pay half of the first month's amortization. The promo is only until June 30, 2005.
It sounds like a good idea. Except: isn't there such a thing as a balance transfer? Most credit card companies offer this. If you're burdened with huge credit card debt with Card Company A, you can transfer the balance to transfer to Card Company B, which will lend you the money to pay off the debt. In turn, you will have to pay off your transferred balance at a fixed period for a much lower rate. Sounds familiar?
The thing is, Chinatrust's add-on rate is 1.59% a month. Sure, it is lower than the regular add-on rate of 2.75% to 3.25% that credit card companies charge. But the same credit card companies have balance transfer offers of as little as 0.99% for an 12-month period, as in the case of
HSBC. Some even offer 0% interest (but with a 5%-7.5% processing fee) for a 3- to 6-month period, like
Equitable Card.
Okay, we're not exactly comparing apples to apples. Chinatrust's fixed period is 24 months, which means, of course, a higher rate. But HSBC's 12 months, at 0.99%, is still a lot lower. Its 18-month option takes the rate to 1.25%. If it has a 24-month option (which it doesn't), then they're probably on equal footing.
In the case of Equitable, at 24 months, the rate goes up to 1.7%, making it more expensive than Chinatrust's 1.59%. But, check out
Citibank's 24-month balance transfer add-on rate (click on the Statement of Certain Credit Card Fees and Charges link), which is just 1.5%. Not bad, eh?
I'm not saying Chinatrust's promo is no good. It could be, particularly if you're carrying a huge debt and you need a much longer period (like Chinatrust's 24 months) to be able to afford the monthly amortization. Otherwise, it makes more sense to pay it off quickly and just get charged a much lower rate.
But look also at alternatives, like balance transfer promos of credit card companies that charge even lower for a 24-month period. Consider also other possible hidden charges like processing fees. Make sure as well that you're comparing similarly-defined interest rates (add-on versus effective).
Lastly, remember: shop around for rates and always ask, ask, ask!
