India is a country synonymous with culture; we celebrate several festivals all-year round.

Being an agrarian economy, our festivities begin with the onset of monsoon. The start of ‘Shravana’, i.e. on the 5th month according to the Hindu calendar, marks the beginning of the festival season. We love the community bond, elaborate traditions, and grandeur the festive season brings. Each of these have their significance in the various state-communities of India and is celebrated with zeal and excitement.

Festivals are often marked as auspicious dates to buy assets as a sign of progress and growth. Festivals such as Akshaya Tritya and Dhanteras, in particular, are considered auspicious days to buy long-term assets like gold, silver, diamond and other precious stones; and real estate.

Similarly, Rajeev, hoped to buy a home theater system during the festival of Ganesh Chaturthi. He is a marketing professional and works at one of the top travel companies. He receives hefty incentives as he meets his sales target. But, he was unsuccessful in achieving his sales target this month. What he received was below his expectations.

For Rajeev, buying that home-theatre system has become a dilemma.

In your opinion, what should he do?


But, considering the various credit facilities available, another thought might be to opt for a loan to make the purchase.

Well, now Rajeev has many options such as credit card, easy EMI service, zero-percent loan, personal loan,etc.

Festival Loans are another facility that banks and non-banking financial institutes usually launch during the festive season. If a temporary cash crunch is about to hamper your festive celebration, opt for a festival loan. Almost all the lenders have their own set eligibility criteria.

Here is a list of features of a festival loan:
 

• The minimum loan amount is Rs 5,000 and maximum Rs 50,000; only if it is four times your net monthly salary.
• The tenure of this loan is 12 months and the loan can be repaid in the equal installments monthly.
• You can close the loan account and pre-pay it without paying any penalty.
• The loan processing fee is as low as Rs 100 or 1% of the loan amount + 18% GST.
• Interest rate charge is the range of 13% – 15%, but you can always bargain for a lower rate of interest.

Why opt for a festival loan?

Here are some reasons...  

Festival loans tend to be economical and are offered at discounted interest rates as compared to a regular personal loan and other alternatives. Also, there aren’t any hidden or administrative costs involved. The documentation is minimal and doesn’t require security such as mortgage or any other asset. Above all, there are no prepayment penalties. 
 
Let us take a close look at the two alternatives you have to a festival loan – Credit card EMI and Personal Loan.

1. Festival loan vs Credit card EMI
   
   Your credit limit reduces when you opt for credit card EMI facility. If you opt for credit card EMI, then the amount of your card limit reduces to that extent until you repay the credit.
   
   Let’s suppose, you have an existing EMI active on your credit card and you opt for a second one. If you default on paying one installment out of the two, you will be charged a penalty for both EMIs. And the default penalties are high in the range of 30% - 40% on your outstanding credit. Fesitval loan does not levy any penalty.
   
   Hence, it is better to opt for a festival loan over a credit card swipe.
   
   Many non-banking financial institutes offer zero-percent loans and EMI facility. They usually have tie-ups with the retailers and entice buyers to opt for their services. This is a good option if available, but it is crucial to check if there are any hidden costs.
    
2. Festival loan vs Personal loan
   
   A marginal amount is required to be paid upfront while applying for personal loan. Whereas, in festival loans no marginal amount of money is required to be paid you can avail for a loan for your entire purchase.
   
   similarly, the processing fee for a festival loan is lower as compared to personal loan.
    
3. Festival Loan vs Advance salary loan
   
   Also, you can compare the interest rate for advance salary loan offered by some non-banking financial companies. Advance salary loan carries a variable interest rate which changes every month. But on an average its annual interest charge would be 15 - 18%. Again, higher than what you would pay via festival loan. The advance salary loan is available only if in selective cities of India.
   
   Hence, consider all your options and opt for the one that works best for you.

So, what should you do in these existing credit market scenarios and as the festive season is approaching?

Ample liquidity present in the banking system and the lower credit off-take leaves room for further reduction in the lending rates of banks. Meaning, you can expect home loans, auto loans, and business loans to become more affordable. At the 3rd bi-monthly monetary policy review for the Financial Year (FY) 2017-18 held on August 02, 2017, the RBI cut policy rates from 6.25% to 6.0%. Similarly, it reduced the reverse repo rate to 5.75%. Reduction in policy rates is a precursor of fall in the interest rates in the economy.

So, bankers will leave no stone unturned to lure you with attractive festival offers.

In fact, these offers may entice you to shop more than your means. It may give you an instant gratification, which retail therapy guarantees, but don’t forget to take into account your priorities. For the short-term joy, it is best not to sabotage your long-term financial wellbeing. Hence, contemplate all the options while making any financial decisions.

Like Rajeev, if you are falling short of funds and wish to purchase something, check out a festival loan. You might find a good deal; one that suits your requirement.

But before making any impulsive purchases, evaluate whether your current finances permit such purchases. Splurging with the credit facilities can eventually land you in a debt-trap. Living within one’s means, safeguards one’s long-term financial wellbeing. Focus on the larger goals in life, such as buying a dream home, your children’s future (their education and marriage), and your own retirement, apart from a host of other ones.

You can seek the assistance of a unbiased financial planner to help you achieve your financial goals. Avail of PersonalFN’s Financial Planning Service to streamline your personal finances prudently. Apart from assessing your profile and reviewing existing mutual fund portfolio, our registered investment advisers will define the right asset allocation to meet your financial goals. Read more about the holistic financial planning process here.  

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