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5 Things You Must Consider Before Borrowing This Festive Season Research Team | Posted On Thursday, October 04,2018, 05:11 PM

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5 Things You Must Consider Before Borrowing This Festive Season



In India, festivals come to pass throughout the year. Our culture is synonymous with the cultural events that mainly start with the onset of monsoons. Rains encourage the festive spirit. These festivals come with elaborate traditions and are magnificent and bring in a lot of zeal and excitement. During festivals people indulge themselves by going on shopping sprees. This seems just the right time to purchase something really big.

On festival days like Diwali and Akshaya Tritiya, people make big purchases as these festivals are considered auspicious. It is the time when families bind together over meals, celebrating the festivities of oneness. Festivities end generally with gifting family members. Traditionally you save enough before festivals, to meet the expenses of gifting. But, what if you want to buy assets or appliances that require more investment? Will you postpone the purchase?

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5 Things You Must Consider Before Borrowing This Festive Season

One way of meeting expenses during festivals is through borrowing. There are various credit facilities available in the market to help finance festive expenses. These services include personal loans, zero percent loans, and easy EMI services. Here is a list of few things that you should keep in mind, before opting for festive loans:

1. Checking eligibility criteria:

One of the primary tasks before availing a loan is to check the eligibility criteria. Before applying for any kind of loans, make sure to find out if you are eligible or not. To check eligibility on loans, you can go through the online eligibility calculators on aggregating sites. Do take a look at personal loan EMI Calculator.  These online portals assist and redirect you to their criteria page. You may apply for loans through these portals as they lead to soft enquiries by credit bureaus like CIBIL.

2. Borrowing within your budget:

The festive loans can be availed at a lower rate of interest. If you are falling short of funds to meet gifting expenses, consider festive loans as they provide a means to meet urgent expenses. But, these deals can be very tricky as they might attract spending more than intended. Do not get enticed by zero processing fees on loans. Borrowing more than repaying capacity can lead to the debt trap. Always choose your loan carefully after evaluating current finances. Always check the amount to be repaid before finalizing the loan. Applying for a loan higher than repaying capacity, increases chances of rejection. Before applying for a loan, always determine the loan amount that you can repay easily.

3. Compare with banks:

There are various kinds of loans available for both salaried as well as self employed to meet festive expenses. The festive loans are unsecured loans that can be availed quickly in the midst of a financial crisis without any collateral/security.  The rates of interest are higher on these loans vis-a-vis secured loans.

Banks are known to lure customers to borrowing. But, before applying for a loan, always compare interest rates among banks. There are several online platforms that will provide you with complete information on loans and the interest rate offered by banks. There are multiple banks providing loans at cheaper rates. Also, check for other parameters like pre-closure fees, loan disbursal time, processing fees, terms and conditions before deciding to apply for any particular loan.

4. Do not apply with multiple banks:

Do not apply for many loans all at once. It may affect CIBIL score very badly in case loan pleas get rejected. Loan applications get recorded in your credit information report (CIR) called hard enquiries. You should carefully evaluate and choose the right bank as different banks offer different interest rates and eligibility criteria. Applying for several loans at once, increases the probability of the loan pleas getting rejected, as queries often revolve around credit reports. Multiple queries may adversely affect CIBIL score. Wait for 6 months before borrowing again, if you have already availed an unsecured loan.

5. Maintain a good credit utilization ratio

Credit utilization ratio is the percentage of the borrower’s total available credit vis-à-vis credit currently utilized. It is a calculation that represents the total debt a borrower is utilizing, in comparison to total revolving credit that has been approved by credit issuers. A borrower’s credit utilization ratio varies from time to time as borrowers make purchases and payments.

While using credit cards, make sure to maintain credit utilization ratio of 40-50%. If you breach this mark, it may affect credit score. It is important to use credit card wisely, to make the most of credit card rewards, discounts and cash backs. If you are about to make a special purchase this festive season like a motorbike or a television set, you must consider converting these purchases into EMIs. Remember to repay credit card dues on time to maintain a good credit score.

While festivals loans may seem appealing, you must be careful when availing them. Banks and money lenders always try to lure customers with special offers on festival loans. This is the reason why special loans are offered during festivals.

Many companies give annual incentives to employees around this time. People use these incentives to make big ticket purchases. The idea of festive loans is to give incentives to customers for purchases like gold, electronic gadgets, furniture and home appliances. While festival loans may seem an easy option to sail through expenses, do exercise caution. Do not go overboard with expenses. However small an amount you borrow; a loan must ultimately be repaid. So, do not borrow more than you can repay.

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