The festive season is around the corner with the banks and financial institutions gearing up with offers to attract customers for loans. Many prominent banks have waived off the processing fee on Home, Vehicle, Gold and Personal loans to tap on the festive season.
Festival loan is a variant of personal loan offered at lower interest rates and processing fee. The processing time is also faster during the festive season. The amount that can be availed as festive loan is generally limited and much lower than personal loans with a maximum of Rs 50,000. The festive loans repayment periods are very long, with most festival loans offered for a period of one year.
Festival Loan Eligibility
You must fulfil the normal loan eligibility criteria for getting the loan, such as adequate income, work experience, age, etc. Festival loan can be availed jointly with your spouse as wel. The eligibility norms to get the personal loan is quite stringent as you must fulfil the high-income criteria, whereas under the festive loan the income level required is comparatively very low, so people looking for a loan up to Rs 50,000 can easily get this loan.
Festive Loan Vs Credit Card EMI
Festive loan comes with an amount restriction. The extent of offers may vary from product to product as it depends on the tie up of banks with the particular merchant/retailer.
Missing a credit card EMI may cost you high penalty that could be based on the total principal amount, however, under festive loan the penalty could be very low or in some cases no penalty is levied.
You must be very selective and careful while opting for a festive loan as there could be hidden charges that you may detect by reading the fine prints. Also, the benefits available on festive loan may vary for each bank and financial institution. So, due diligence and correct evaluation of a loan product is very important before you take a festival loan.
The interest rate on personal loan may cost you around 16% to 24%p.a., while credit card EMI may cost around 18% to 24% p.a., but the interest on festival loan is much lower.
Processing fees on personal loan may cost you higherrate, i.e. ranging from up to 3% of the loan amount. Similarly, credit card EMI also levies processing charge up to 2%. In festive loan, you need to pay a processing charge up to 1% only.
While personal loan or credit card loan charges prepayment penalty and foreclosure charge if you pay advance EMI, or close the loan early, but under the festive loan there is not foreclosure/ prepayment charges. Under personal loan or credit card loan the prepayment charge can go as high as around 2% to 4% of the outstanding principal amount.
Should You Go For A Festival Loan?
You can consider a festive loan if you are looking to buy high value products like home or car as several banks offer zero processing charges, and discount on the interest rate for applications submitted within festive period.
Your choice of loan should depend on the tenure for which you are seeking the loan and amount. Festival loan is currently available up to Rs 50,000 and the tenure allowed is up to 12 months. So, if your loan requirement is higher or if you are looking for higher repayment period, then a personal loan could be the best choice, else festival loan is a lucrative borrowing option.
It would be however wise not to go overboard with your shopping as a loan is a loan and it needs to be repaid. Borrow according to your repayment capacity to avoid any kind of debt trap.
The author is CEO of Bank Bazaar