Go shopping this festive season with easy loans

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 of the offers that one can see along with discounts and offers being announced by retail and electronic chains. Let use see what are the various finance options available and the risks of going overboard.

Retail loans on the rise

According to the Reserve Bank of India's September bulletin, retail loans, especially personal loans and credit card outstanding have seen huge growth, on a year-on-year basis. As on July 20, 2018, consumer durable loans have grown 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 to Rs 56,800 crore, while other personal loans increased by 21.3% to Rs 5,12400 crore to Rs 42,2400 crore.

Gaurav Aggarwal, associate director & 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 too are more confident of loans, there is a clear upward trend in the number of loan enquiries during September to November year on year. 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 during this time for their festive spending."

Role of technology

Technology has certainly enabled faster loan processing. Risk-assessment algorithms employed by lenders evaluate credit profiles of customers in super-quick time and generate approval almost instantly, said Aditya Kumar, founder & CEO Qbera.com. "This way, many lenders, particularly lending start-ups, are able to disburse loans way more quickly. 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 can 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 the repayment of the loan amount. Thus, reduced credit limit will reduce your ability to make card spends or deal with financial exigencies," said Aggarwal.

For big-ticket purchases, like a television, air-conditioner, etc, one can either opt for a personal loan or consumer durable loans. While the processing of consumer durable loans would be faster and simpler, 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 well be lower than that of consumer durable loans,'' Aggarwal said.

But consumer durable loans are sanctioned faster than a personal loan, as they are secured loans sanctioned right at the merchant's place.

"There are options for people without a credit card, as well. Some banks today also 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 said.

Don't go overboard

Since access to loans has become easy, there is 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 added.

The first step to ensure that you dont 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 that you can spare for your festival shopping, stick to that budget. For times that you overshoot your budget for whatever reasons, have liquid funds at hand. So start saving up well in time so that you do not have to cut corners,'' he said.

The next important thing is planning. Make a list of everything you would like to spend on. Start purchasing only the items mentioned in the list and refrain from impulsive buying. "If you stick to your shopping list, the chances of overshooting your shopping budget will be smaller. Also, keep your eyes open for all the deals, discounts and offers on items on your shopping list," Chandani added.

KNOW THE COST

13-22%
Interest rate on credit card EMIs

2%
Processing fee

3-12 months
Tenure for EMI