Taking a bank loan for Diwali shopping? These 5 key things will keep you, and your money, safe

We are just a few days away for Diwali festival and the time of whistling rockets, exploding 'atom' bombs, and 'chakris' trying to catch their own tails while free-spirited butterfly bombs continue to dance around is very much here. Interestingly, it is expected there will be massive demand in banks' credit growth. Notably, the lenders have geared up fully to lure their customers, in various ways. Generally, festivals are taken as positive moments to do big things in life. These can be anything, like purchasing houses, going for vacation, or buying vehicles. Even jewelry is in massive demand. However, not everyone has the funds to fulfill their financial needs, interestingly, looks like banks have heard your praise. 

Prithvi Chandrasekhar, Head of Risk & Analytics, InCred, said, "As marvelous as the festival is, it also goes hand-in-hand with the financial burden that comes along with its preparation."

So, if you’re planning to avail a festive loan to cope up with the up and coming financial need, here are a few things that you must strictly follow, as per Chandrasekhar. 

1. Check Your Credit Score

Before you go out and apply for a loan, you ‘must’ check your credit score. If you’re have a good credit score, you can negotiate a better loan agreement with your lender. Banks and NBFCs are willing to extend lower interest rates and more flexible loan terms to people that have a good credit score (above 750). The best part is that you can avail a free credit report online once every quarter via any of the four credit bureaus including CIBIL, Equifax, Experian, and High Mark.

2. Don’t Burn It All Up

Though it’s Diwali, you don’t need to burn all of your credit limit up just for celebrations. There’s a reason why credit limits and credit scores are devised. With them, the chances of delinquencies are decreased to as much extent as possible. Consuming your whole credit limit takes you to the very edge of your financial bandwidth. In such situations, even the slightest of financial shock later is going to have wide-ranging repercussions. So, be financially prudent and don’t expose yourself to an unfeasible credit.

3. Be Thorough

Before applying for a loan, be as thorough as you can be before ultimately applying for it. You need to check the eligibility criteria of the loan as well as the loan conditions that are going to prevail later. If you’re not eligible for the loan that you’re applying for, it will directly affect your credit score and decrease the scope for other prospects available at your disposal. Banks, on the other hand, can also have hidden costs and charges in their loan conditions.

4. Salient Features

Analyze all of the features of a loan and compare their relevance with your specific requirement and financial plan. For instance, say if Lender A is providing you an interest rate of 16% and Lender B is extending a rate of 18% (with an additional prepayment facility) on a Rs. 4 lakh loan having a tenure of 24 months, Lender A might naturally seem to be a better option. 

However, if you will be able to make quarterly prepayments of Rs. 20,000 starting from 6th month (because of salary hike or maturing investments), you will be saving approximately Rs. 14,000 in interests via Lender B. Technically, you will be paying even lower net interest via Lender B (that has an 18% interest rate) as compared to Lender A (with an interest rate of 16%). Look for features such as these and evaluate them considering your own finances.

5. Know Your Alternatives

Finally, personal loans via banks can have their annual interest rates ranging from 16% to 22%, with the chances of latter more likely. But banks aren’t the only lenders that you can avail your personal loan through. You can also go for a personal loan via online lending platforms at a flat interest rate of 18% (or less). Also, you will get to enjoy a completely digital and paperless experience with the comfort of your home. 

As an added benefit, the loan is also disbursed within 2-3 days from its application, whereas, banks can take anywhere from one to two weeks to disburse your loan amount. This can make a sizeable difference when there’s a festive offer going on at a store nearby.

Chandrasekhar lastly said, "As just a handful of days remain for Diwali, make sure that you keep these tips in mind before applying for a loan. They will ensure that it’s only the ‘whistling rocket’ that goes up this festive season, and not your credit risk. Having said that, it’s now time for festivities!"