Should You Opt for a Personal Loan to Celebrate Upcoming Festivals?

Oct 04, 2022

Listen to Should You Opt for a Personal Loan to Celebrate Upcoming Festivals?

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The festive season has already begun in India, and the markets are ready with a variety of products and services along with attractive offers to lure consumers. The Indian celebrations are usually marked by exchanging sweets and gifts with friends and relatives. It is considered auspicious to buy new clothes, gold, property, household products, etc., on the occasion of any festival. However, people often tend to splurge beyond their means during the festive season by opting for personal loans, consumer durable loans, and recklessly using their credit cards. As the Covid-19 threat has reduced, individuals are excited to celebrate festivals with family and friends, and the number of individuals opting for loans to celebrate the festivals has increased tremendously compared to previous years. But is it a good idea to opt for a personal loan to celebrate festivals? This article will answer your question.

Personal loans can be very helpful in an emergency or during a financial crunch because these can be availed of with minimum documentation and do not require any collateral. Many banks are now offering instant personal loans that can be availed online within a few minutes to specific customers.

While a personal loan can be used for any purpose, most people tend to avail it for luxuries that could be otherwise postponed. Repayment of personal loan EMIs can put a dent in your budget and other financial goals due to its high rate of interest and charges.

Let us see the advantages and disadvantages of availing of a personal loan to celebrate festivals so that you can make an informed decision.

Here are the benefits of a personal loan during the festive season:

1. Lower Interest Rate:

Many banks and NBFCs offer special discounts on interest rates during the festive season to attract more customers. However, the rate of interest on the personal loan is very high and generally ranges from 10% to 24% p.a. If your credit history is strong and your credit score is good, you can negotiate the interest rate with the lender. Bear in mind that the discount in interest rate will benefit you only when the loan amount is high and loan tenure is long, as most lenders only offer 0.25% to 0.50% lower interest rates than the regular one.

2. Discount on the Processing Fee:

Lenders usually charge a 1% to 3% processing fee on the total loan amount. However, in order to attract more customers, they come up with different offers on the processing fee. For example, some lenders offer personal loans at flat Rs 500 processing fee or some others offer a 50% discount on the processing fee.

3. No Collateral:

The biggest advantage of a personal loan is that it does not require any collateral. This means you do not have to pledge any assets as you would for any other type of loan that requires collateral. Most personal loans are unsecured; therefore, not having collateral ultimately increases the rate of interest.

Should You Opt for a Personal Loan to Celebrate Upcoming Festivals?
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4. Can Be Availed Instantly:

As personal loans do not require collateral and can be availed with minimum documentation, the processing time of these loans is considerably less. You can avail of a personal loan in 2 to 7 working days. Apart from this, instant personal loans that are offered to specific customers (who have a long banking relationship and good track record with the lender) can be availed in a matter of a few minutes.

5. Helps Improve Credit Score:

If you want to build a credit history and improve your credit score, opting for an unsecured loan and remaking timely repayments can help you. However, availing of a loan is advisable only if you are financially disciplined and expect inflow that can help you pay off your debt. It is recommended to keep your credit utilisation ratio below 30%, i.e., if you are eligible for a loan amount of Rs 1 crore, you should borrow only up to Rs 30 lakhs. Besides, it is also necessary to maintain the right mix of secured and unsecured loans. Having only unsecured loans in the portfolio can negatively impact your credit score.

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Here are the downsides of availing of a personal loan during the festive season:

1. Unnecessary Splurging:

A personal loan is the best choice in an emergency, particularly when you do not have any other financial support and need funds urgently. Sadly, people often apply for personal loans for instant gratification and put themselves under stress, paying hefty EMIs. So, if you want to buy that gadget, jewellery or luxury item that can easily be postponed, it is crucial to analyse your needs and wants so that you can resist the temptation to splurge if it is not absolutely necessary.

2. Monthly Burden:

This will be an extra fixed monthly expense that you cannot avoid until it is all paid off. That can become very stressful if you are on a tight budget. If you fail to make timely repayments, it can attract late payment charges and/or damage your credit score.

 

3. Value of the Product Decreases:

While buying anything on loan, it is important to calculate the expected life of the product. Consumer durable items, especially smartphones, depreciate rapidly over time. It does not make sense if your product loses its value before the loan repayment. Furthermore, most brands launch new models periodically, which makes the previous models obsolete, and ultimately their prices drop.

4. High-cost Loan:

While the banks and NBFCs come up with several offers during festivals, a personal loan is still one of the costliest. The 0.25% to 0.50% discount offered on the rate of interest is negligible if the loan amount and/or loan tenure is lower.

To conclude:

Taking a loan is not a 'bad thing' as long as you are taking it after analysing your needs and having the ability to repay it on time. Availing of a personal loan to buy something you actually need during the festival could make sense if you are financially sound to comfortably repay the loan and are confident about your financial discipline. A personal loan taken to buy a laptop might be a good investment for someone who bought it for their studies and may turn out to be a financial burden for someone who bought it just to have the newest model on the desk. Hence, it is crucial to assess your needs and wants before opting for a personal loan this festive season.

 

Warm Regards,
Ketki Jadhav
Content Writer



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