Should You Opt For Small Loans During The Festive Season

The festive season is here. With it you will receive a lot of offers on loans that advertise low interest rates, exciting offers, and so on. Since our expenses increase during the festive season, these loans are tempting. Getting the latest iPhone on an equated monthly installment (EMI) may seem an exciting prospect. 

“Festive shopping can be time-sensitive, as most shopping platforms offer a lot of discounts and attractive deals during this period, and it’s helpful to have a financing option that provides funds quickly and offers flexibility in terms of repayment,” says Chintamani Kalburge, vice president, LoanTap, an online personal loan platform. 

This is why at this time you will receive a plethora of loan offers.

These small loans will range from Rs 10,000 to over Rs 10 lakh. It depends mainly on the purpose of the loan. “This could vary from a very small matter, like buying a new phone, to a much bigger commitment, to getting a home completely remodelled,” says Gaurav Goel, a Sebi-registered investment advisor, Lamoksh Investment, a wealth management firm. 

“These borrowings are usually personal loans in nature. It's best to avoid them because they are usually very expensive,” adds Goel. This is because personal loans are unsecured loans ( require no collateral) and hence they have very high interest rates. However, these loans are easily available and are processed fast, so they are always tempting. 

Taking a loan is ok, as long as you are sure that you can repay it on time. If you can manage your expenditure without a loan, please don't take a loan. “If you have immediate expenses in the festive season and are confident that you will have the funds to repay the loan in the future, taking a small loan during the festive season is okay. However, if you have doubts about your ability to repay the loan, please look to reduce your expenses rather than take a loan,” says Chintamani Kalburge, vice president, LoanTap, an online personal loan platform. 

What To Ask Yourself 

The most important questions are (i) Do I need a loan? and (ii) Can I afford to repay the loan? Taking a loan is not something that should be done casually. Any loan is a serious matter. It should be taken only if you need it, and can afford it.

Also,  if one is considering a small-ticket loan, it’s important to do proper research and choose a lender that’s credible and RBI-registered. “Furthermore, they must be aware of all the costs involved, including interest rate, processing fee, prepayment fee, and so on. And most importantly, look out for any other hidden fees,” says Kalburge. 

To sum up, do not borrow more than you need. You will wind up paying interest on the full amount, including the part of the loan you don't use. And not repaying the loan on time can land you in a debt trap.