The season of festivals is here. And you will have banks and lenders wooing you with special loan offers or festival loans.

There is a reason why banks offer special loans at this time of the year. Many Indian companies give out annual incentives around this time to their employees who use it to make large ticket purchases.

So what essentially are festival loans?

“Festival loans are a form of personal loans offered by the banks on festival season with cheaper and discounted interest rates. In addition to the low interest rates, the chief attractions of festival loans are the lower processing fees and faster processing times,” says Adhil Shetty, CEO, BankBazaar.com.

Though same as personal loans, festival loans have some points of difference too. “The amount that can be borrowed under festival loans is generally limited and much lower than personal loans. Usually, it is four times the net monthly income, with a maximum of Rs 50,000. Also, the repayment periods are not very long, with most festival loans offered for a period of one year. Unlike personal loans, most lenders don't charge any prepayment penalty if you decide to foreclose the loan. However, it is essential that you check all these details before signing the dotted lines.” says Shetty.

The idea of festival loans is thus to give incentives to customers for purchases like gadgets, furniture and home appliances.

Sometimes festival loans on gadgets and appliances may also come with a zero per cent interest rate catch. In such a circumstance, the purchasing decision needs to be made after considering the discount the store offers for upfront payments.

An alternate option is to use credit card EMIs for purchases. While some may offer zero per cent interest rates on EMIs, some may offer additional discounts and offers too by partnering with certain cards. A credit card EMI is also easier to get. However when using credit card EMIs, one must keep in mind the payment cycles, limits and existing EMIs on the credit card.

While festival loans may seem attractive, one needs to be cautious. “Festivals are a time for celebration. However, it is essential that you do not go overboard with your expenses. No matter how inexpensive, a loan will ultimately need to be repaid. So do not borrow more than what you can repay,” says Shetty.

anagh@outlookindia.com