If you are considering a loan to meet festive expenses, ensure you really need it and can comfortably afford the EMI before you apply.
Banks often advertise their loan offerings with the lowest interest rates. However, the total cost of a loan is determined by factors such as processing fees, tenure, foreclosure charges etc.
Credit score assessment, comparing lenders offering loans and selecting an EMI that won’t break the bank will ensure your festive expenses don’t turn into financial debt.
Key Factors To Consider Before Taking A Personal Loan This Festive Season
From interest rates and processing fees to EMIs, tenure, and credit score, borrowers should assess the full cost of a loan before taking on debt for festive spending
Summary
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Every festive season brings a rise in planned expenses, whether it's renovating a home, purchasing a vehicle, upgrading appliances, travelling, or buying gifts for family and friends.
A personal or vehicle loan can help cover these expenses without disrupting long-term savings. Still, the decision to borrow should be backed by careful financial planning rather than the excitement of festive offers.
A loan should always be taken to meet a defined financial need, not simply because one is eligible for a certain amount of loan. The loan amount and equated monthly instalment (EMI) should be well within your financial commitments so that repayments are manageable throughout the loan tenure.
Says Vivek Chopra, COO-retail finance, Tata Capital: “When consumers look at personal loans, they usually just consider the rate of interest, but that’s hardly the whole story. The total cost of borrowing also depends on things like processing fees, pre-closure or foreclosure charges, and the terms and conditions of the loan. By spending a few minutes learning about these features, along with the key facts statement, borrowers can choose a loan that will best meet their financial needs.”
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The choice of the loan tenure is as important as the loan amount itself. Longer tenure makes EMIs affordable, but the overall interest payment will be higher. Alternatively, a shorter tenure can help cut the total cost of borrowing, provided the repayments are manageable for the borrower. The sweet spot lies between balancing short-term cost effectiveness with long-term financial comfort.
One of the most valuable financial assets of a borrower is a good credit profile. Timely repayment of existing loans and credit card dues, maintaining a good credit score, and not applying for multiple loans in a short period can go a long way in improving loan eligibility and may also help borrowers access more favourable lending terms.
Says Chopra: “Consumers should also ensure that they borrow from financial institutions regulated by the Reserve Bank of India (RBI) that follow transparent lending practices. It is very useful to take the time to understand the terms, charges and repayment obligations of the loan before signing the agreement to avoid unpleasant surprises later.”
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Ultimately, a vehicle or personal loan should support one’s financial goals, and not become a financial burden. Borrowing within one’s means, understanding the complete cost of the loan, along with planning repayments in advance can help consumers make the most of the festive season while staying financially secure.
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