In India, the festive season has begun with Ganesh Chaturthi and it's time to kick off the celebrations by exchanging gifts and sweets. Interestingly, festive season is also a time when you see amazing offers provided by both banks and many companies in order to lure customers. During festive season demand for clothes, jewelry, sweets, flowers and even loans is upbeat. Hence, banks do not misses out on such opportunities which is why they rain loan offers to bring in potential borrowers. To excite customers for loans, banks give offers like discounts, cashback, EMI waiver, zero processing fees and more. This would entice the loan seekers to quickly apply without giving a second thought. But will it be worth it for the borrower?

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Here's an explainer by Ranjit Punja- Co-founder and CEO, CreditMantri. 

Decoding Discounts on Festive Loans

A loan is usually taken when you do not have enough money for an immediate need. The service however does not come for free, and a certain fee in the form of interest rate, processing fee and documentation charges are inevitable. When it is festival time, you would require a huge sum to meet all the expenses. In a competition to outdo each other, banks lavish a host of offers at this time around. 

Zero Processing Fee: This may sound so attractive especially on a personal loan or a car loan where the processing fee tends to be higher. However, processing fee alone should not be the deciding factor to take the loan. 

Cashback: With online shopping gaining momentum, cashback is the buzzword that is widely used by all the e-commerce companies, banks and NBFCs. A 10% cashback on a smartphone you have been wanting to buy will seem to be a nice offer but keep a check on what is essential and prioritize your spending. It is perfectly alright to seal the deal when the offer coincides with your purchasing needs. 

EMI Waiver: Some banks waive off a certain number of EMIs on big ticket loans. For example, 10 EMIs waived off on a home loan of 50 Lakhs which is to be repaid over a period of 20 years will save you over Rs. 5 Lakhs. Seems to be a good offer? But you may not get the entire benefit if you do not stay till the loan maturity. The EMIs are waived off at different time of the repayment period and you may not be able to pre-close the loan before completing the first 4 years. When the benefit is huge, there are always strings attached. 

Zero Interest Rate: You may wonder how the lenders will benefit when the loan is offered at zero interest rate. This may not be applicable to traditional loans offered by banks, but for products purchased online. Partnering with major banks, various e-commerce companies let you make big purchases at zero interest rate. However, you will be repaying more than the amount you have borrowed in the form of higher processing fee and other hidden charges. 

 

Keeping Tabs on Your Credit Health

Before making any impulsive purchases or applying for a festive loan, it is vital you check your credit health. Any lender will check your credit score before approving the loan application. Hence applying for a festive loan without knowing your credit health can have an adverse impact in case your application gets rejected due to poor credit score. Multiple applications at the same time also can affect your credit health. 

Credit cards issuers come up innovative offers and discounts especially during festivals. With the EMI option and cashback offers, you may tend to overspend your budget. Diligent maintenance of your good credit utilisation ratio will go for a toss when you take a plunge at the festival offers. Hence, make informed credit decisions based on your credit health. 

Should you take a festive loan?

According to Punja, the idea of festive loans is to encourage people to spend more during the festival season. The perks offered on the loans alone should not be the deciding factor. This is of course the ideal time for purchasing gadgets, furniture, appliances and various other lifestyle products at low prices, which no doubt spread cheer to all near and dear. No wonder it is the preferred season to make purchases. 

But remember, festivals come and go! Depending entirely on such offers to save money will not be a good thing to do. The best deal comes to those with the best credit health.