Festive Season Set To Begin: Things To Keep In Mind Before Taking A Personal Loan

The festive season is almost approaching, and as many Indians like to make large purchases at this time, we usually see a spike in deals and freebies across a variety of industries. In addition to being auspicious, this is also a period when many companies give employees their yearly bonuses and other rewards, which encourages spending.

Lenders take advantage of the festive mood by offering a range of exclusive incentives and discounts on a variety of loans, including personal, vehicle, and consumer durable loans. These offers include gifts; limited-period low rates, waivers of processing fees, and more. 

Even while these deals could seem alluring, you need to weigh several critical elements to make sure you make a wise financial decision and not be swayed just by offers and freebies.

Assess Your Needs

The first thing to keep in mind is assessing your needs. Make sure that the loan is necessary and avoid taking loans for discretionary spending. Take the loan only up to the required amount; don’t borrow more than you need just because the lender is offering a higher sum. 

“Taking a higher amount of loan than necessary can lead to unnecessary financial burdens. After all, you have to repay it as per schedule along with interest, so keep that in mind,” says Raoul Kapoor, co-CEO, Andromeda Sales and Distribution, a distributor of loans, mortgages, financing, and financial instruments. 

“You may also consider taking a loan against MF, Fixed Deposit, Gold, or LIC policy if you have one. Loans against these assets are collateralized and are less costly than an uncollateralized personal loan,” says Madhupam Krishna, Securities and Exchange Board of India (Sebi) registered investment advisor (RIA) and chief planner, WealthWisher Financial Planner and Advisors. 

Assess Repayment Capacity

Before taking out a loan, evaluate your ability to repay it comfortably. “Calculate your monthly income and expenses to see how much you can afford to pay back each month without straining your finances. Borrow only what you can realistically repay to avoid falling into a debt trap,” says Sidharth Vishwanathan, Chief Risk Officer (CRO), KreditBee, a personal loan and online credit platform. 

Look at borrowing an amount you can comfortably repay. Consider your income, existing debts, and monthly expenses. “A good rule of thumb is to keep your total debt payments (including this new loan) below 30 per cent of your net income,” says Krishna. 

Compare Lenders And Loan Offers

Don’t settle for the first loan offer you receive. “Research multiple lenders and compare their interest rates, terms, and fees. Use online comparison tools to evaluate different options side by side. This diligence can save you money by finding a loan with the most favourable terms, ultimately reducing the cost of borrowing,” says  Vishwanathan. 

Understand The Loan Terms

Carefully read the fine print of any loan agreement. Pay attention to the interest rate, repayment schedule, and any hidden fees. “Understanding these details helps you avoid unpleasant surprises and ensures you are fully aware of your obligations. Don’t hesitate to ask the lender for clarification on any unclear terms,” says Vishwanathan. 

“Give more weight to financial offers like low interest rates, waiver of processing fees, etc., rather than freebies and gifts like silver coins, shopping coupons, and so on,” says Kapoor. 

Check Your Credit Score

Also, before applying for a loan, check your credit score. A good credit score can help you get and negotiate better interest rates and terms. Review your credit report and address any discrepancies.

While personal loans can be a helpful tool for managing festive expenses, they must be used responsibly to enjoy the festive season without compromising your financial health.