Here’s what experts say about the advantages and risks of festive loans.
Pros of festive loans
Instant financial relief: Small loans offer quick funds for those needing an extra financial boost to celebrate festivals without dipping into savings.
“The festive season often comes with numerous time-sensitive offers on small-ticket loans, which makes them look attractive,” says Ameet Venkeshwar, CBO of LoanTap.
Flexibility for purchases: Many consumers use small loans to fund specific goals, from festival shopping to essential household upgrades.
Gold loans, in particular, are seeing a surge.
According to George Alexander Muthoot, MD of Muthoot Finance, “We’ve started witnessing a 10% rise in gold loan demand, especially from those looking to make big-ticket purchases during Dhanteras and Diwali.”
Lower interest rates on gold loans: Gold loans offer competitive interest rates and require minimal documentation, making them a quick, hassle-free option for those in need of immediate liquidity.
Muthoot added, “Gold loans are predominantly availed by business communities, SMEs, and even millennials who view them as a financial tool for achieving lifestyle aspirations.”
Cons of festive loans
Potential financial strain: While small loans can help manage immediate costs, borrowers should ensure they aren’t overstretching themselves.
Venkeshwar cautions that loans should “help manage expenses rather than add to financial strain.”
Borrowing impulsively, just to take advantage of a deal, can lead to unmanageable debt.
Risk of misleading offers: During festivals, some lenders might promote too-good-to-be-true offers. Venkeshwar advises borrowers to carefully review terms to avoid “misleading or fake claims.”
Confirming that a lender is RBI-registered is essential to avoid scams and unethical practices.
Repayment pressure post-festival: Many borrowers find themselves under pressure once the celebrations are over. This can be especially challenging if they’ve taken loans without a concrete repayment plan.
Opting for a loan should be a well-thought-out decision rather than an impulsive one.
Final word
While festive loans can enhance the celebration experience, borrowers should weigh the benefits against potential risks.
Experts stress the importance of assessing your financial situation, focusing on necessities rather than indulgences, and verifying the credibility of the lender.
