Festive season shopping loans: How to save yourself from going wrong

Festivals are, no doubt, joyous occasions. During these times we not only open our hearts, we also loosen our purse strings. There is an increase in buying during festivals, which in India starts with Ganesh Chaturthi and goes on till New Year. People by new clothes, furniture, jewellery, electronic gadgets, etc.

Today, there are as many buying options as there are financing options - both offline and online. Credit cards, personal loans, EMI on cards, consumer loans, loans in a few minutes, etc, are some lending offers, available with discounts and offers being announced by retail and electronic chains. Let us see what are the various finance options available how not to go overboard.

Retail loans on the rise

According to the Reserve Bank of India’s September bulletin, as on July 20, 2018, consumer durable loans grew 18.9% to Rs 20,500 crore, from Rs 17,200 crore as on July 21, 2017. Similarly, credit card outstanding increased by 30.8% to Rs 74,300 crore from Rs 56,800 crore, while other personal loans increased by 21.3% to Rs 5,12,400 crore from Rs 4,22,400 crore.

Watch This Zee Business Video Here:

Gaurav Aggarwal, associate director and head of unsecured loans, Paisabazaar.com, said, “Over the last two to years, we have seen a spurt in the number of personal loan enquiries during the festival season. Since access to credit has become easier online and people are more confident of loans, there is a clear upward trend in the number of loan enquiries during September to November. Most of these loans are for festive spending, ranging from home renovation, travel, purchase of consumer durables, etc. Also, a large section of home loan customers opt for a top-up loan for their festive spending.”

Role of technology

Technology has enabled faster loan processing. Risk-assessment algorithms employed by lenders evaluate credit profiles of customers and generate approval almost instantly, said Aditya Kumar, founder & CEO Qbera.com. “Loans that used to take six to seven business days to reach beneficiary accounts, now take just two to three days. This has made the process more seamless, efficient and convenient for customers,’’ he said.

Which loan to take

Customers should choose the best lending option based on the amount they need and how urgently they need the money. Keep in mind interest rate, processing fees, etc.

For instance, for buying small-ticket consumer durables and electronic gadgets, customers can directly swipe their credit card with the merchants and convert transaction(s) into EMIs. The tenure of such loans can range anywhere from three to 12 months. This may cost up to 2% of the converted amount as processing fee and 13-22% per annum as the interest rate.

You can also look at loan against credit card for small-ticket purchases. These are available on similar interest rate, tenure and processing fee as EMI conversion. These are sanctioned within the same day, sometimes within a few hours, as they are pre-approved loans offered on the basis of the card’s spending pattern, credit limit and bill repayment history.

“However, the credit limit of your card will be blocked for the loan amount till it is repaid,” said Aggarwal. 

For big-ticket purchases,  one can either opt for a personal loan or consumer durable loans. The processing of consumer durable loans is faster and simpler, as they are secured loans sanctioned right at the merchant’s place. But personal loans offer bigger amounts, longer loan tenure and the option of making pre-payments.

“A consumer durable loan may not be available for all the goods and with all the merchants, whereas a personal loan can be used for making all types of purchases. Moreover, for those with higher credit scores and excellent job profile, interest rates of personal loans can be lower than that of consumer durable loans,’’ Aggarwal said.

“There are options for people without a credit card, as well. Some banks offer a product called debit card EMI, wherein the purchase can be done with a debit card, but the money is not deducted at once from the bank account. The purchase amount is converted into EMIs (more like a short-tenure personal loan). Debit card EMIs are generally at a higher cost than credit card EMIs,’’ said Kumar.

Another option to purchase consumer durables is through digital EMI cards or line of credit provided by fintech start-ups. These products are slightly higher priced in terms of interest rates and their turnaround time ranges from being instant to taking a few hours/days, he added.

Don’t go overboard

Since access to loans has become easy, there is a risk of excessive borrowing. Borrow only what you need and what you can repay without stretching your finances.

In fact, borrowers should plan for their loan repayment before taking the loan, said Anuj Kacker co-founder and COO, MoneyTap. “Avoid revolving your debt - both, for loans and for credit cards. We discourage people from taking a loan to repay previous loans. Also, should limit the number of new credit applications; too many credit inquiries can also hamper their credit profile. Over-borrowing negatively impacts the credit history and it becomes very difficult to get a loan in the future,’’ he said.

The first step to ensure that you don’t go overboard with spending is to make a budget and stick to it, said Navin Chandani, Chief Business Development Officer, BankBazaar. “Once you have zeroed in on an amount for your festival shopping, stick to it. For times that you overshoot your budget, have liquid funds at hand. start saving up well in time, so that you do not have to cut corners,’’ he said.

SOURCE: DNA Money