Personal Loans for the Festive Season: Yes or No?

Whether you’re celebrating the festival of lights or looking forward to a visit from Santa Claus, the one thing common between all festivals is the stress and frustration that comes with festival shopping. Not only do you have to scramble to shop for everything that you need, which includes clothes, jewelry, and gifts (even air travel, if you’re flying down to celebrate it with your loved ones), but you also have to somehow get it on sale, so that you don’t end up spending a bomb in the end. But you needn’t despair just yet. To help you combat all of the craziness that comes with the festivities, banks and other financial institutions have started offering a new variant of their popular Personal Loan, called ‘Festive’ or ‘Festival Loans’. While this is great, what exactly are these new types of Personal Loans?

A Festival Loan is another variant of the popular unsecured Personal Loan, which is provided specifically to cover the various expenses that come with festivals, like shopping and gifting. However, the loan amount offered here is minimal, and it comes with low interest rates and almost zero processing and foreclosure charges. The loan amount offered, on average, is usually capped at ₹50,000. But the eligibility criteria on such loans are pretty flexible. For instance, such Personal Loans are also offered to senior citizens, as long as they have proof of a monthly income. The minimum net monthly income limit, in some cases, can be as low as ₹5,000.

However, is it always a good idea to avail such Personal Loans? It will do you good if you avail festive loans only in the following circumstances:

  1. If you weren’t able to budget for or plan your festival shopping in advance,
  2. If the expenses involved are too heavy and cannot be met through normal means, and
  3. If you have plans of investing in any assets, like getting your own home or car during a particular year.

Talking about the last option, which involves investing in a house or getting a new vehicle, it is important to note that it is neither possible nor sensible to let a Personal Loan bear the entire brunt of such an expense. Ideally, you should only take a Personal Loan to meet any cash shortfall that is preventing you from making the down payment on your home/advance payment on your new vehicle. Please remember that because Personal Loans are unsecured, they normally come with high rates of interest which are rivaled only by credit cards. So, be careful to spend the loan amount wisely.

It is important that you also keep the following points in mind when it comes to festival loans:

  1. Plan your festival expenses well, so as to reduce the need to take a Personal Loan and subsequently pay high EMIs in the first place.
  2. If you have to take a loan, look for cheaper alternatives to a Personal Loan first. Or, at least compare different Personal Loan options and select one which has the lowest overall loan cost, through reduced interest rates or zero processing charges, etc.
  3. If most of the items you are gifting this festive season are appliances or gadgetry, it wouldn’t be a bad idea to switch over to more specific products such as Consumer Durable Loans, because some banks have tie-ups with retailers or manufacturers, and can, therefore, offer loans with lower interest rates.
  4. It is always better to avail a festival loan only if the repayment tenure (along with your repayment capacity) is lesser than a year.

In conclusion, it is always better to select a loan after comparing rates and terms across various lenders, so as to find one that suits your requirements in the best possible manner.

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