Top Credit Options For Financing Your Festival Spends
Purchasing household appliances, cars or carrying out repairs at home during the festive season is considered auspicious. As a result, the demand for car loans, home loans, personal loans, consumer durable loans etc. witnesses a significant spike during the run up to the festive season. Banks and NBFCs too come out with attractive festive offers to pocket as much of the increased demand as possible. However, with multiple credit options to from, choosing the best credit option may not be an easy task for all.
Here, I will discuss features of the most commonly used credit types before delving into the optimum credit option under different circumstances.
Consumer durable loan: This is one of the most popular options used for purchasing household appliances, electronic goods, etc. The interest rates for consumer durable loans start from 9.8% p.a. Lenders may also charge a processing fee of 1-3% on the loan amount. The documentation is minimal and loan processing is usually completed on the spot. Many lenders also offer zero or low-interest EMI loans wherein the interest component is subvented by the manufacturer or merchant.
Personal loan: Personal loans are also commonly used for financing festive spends. While the personal loan amount can go up to Rs 40 lakh, lenders sanction personal loan application on the basis of your credit score, monthly income, employer profile, existing EMI commitments, etc. Among other loan features, the interest rates of personal loans can range anywhere between 10.75-24% p.a. while their loan tenures can extend up to 5 years. While lenders usually charge a processing fee of up to 2.50% on the loan amount, many of them waive off processing fee during the festive season.
Credit card swipes: Credit cards are also convenient instrument for financing festive spends. Many credit card issuers enter into tie-ups with various companies/merchants for offering EMI options on particular brands. All you need is to inform the merchant about your wish to convert your transaction into EMI. There is no requirement of any fresh documentation and approval is almost instant. Many card issuers also offer 0% or low cost EMIs on spends incurred on pre-specified brands. In such cases, the partner brand or merchant subvents the interest component as in the case of consumer durable loans.
Credit card issuers also allow transactions beyond a threshold limit to be converted into EMIs. So, if the concerned merchant does not have any EMI-related agreement with the card issuer, you can still swipe your credit card and convert the transaction into EMI. Other financing options through credit cards are conversion of the entire credit card dues into EMIs and credit card balance transfer option. Under the balance transfer option, existing credit card dues is transferred to another credit card at lower or zero percent interest rate for a pre-determined period. Alternatively, you can also opt to convert the transferred dues into EMI.
Loan against credit card: A loan against credit card is a pre-approved loan offered to the existing credit cardholders against their credit limits. Their credit limit will decrease by the sanctioned loan amount. Credit card loans are sanctioned within the same day, sometimes within a few hours of making the loan application. Their loan tenure can be as low as 3 months and can go up to 5 years. Interest rates of such loans usually start from 11.5% p.a. onwards, depending on your loan tenure, credit profile, etc. As with other loans, they too come with a processing fee of up to 2% of the loan amount.
Top-up home loan: This option is only available to existing home loan borrowers. Just like personal loans, there is no usage restriction on the proceeds of personal loans. However, the loan amount would not exceed the difference between original sanctioned loan amount and the outstanding loan amount. Loan tenure too would not exceed the residual loan amount. The interest rates of top-up home loan start from 8.7% p.a. onwards whereas their processing fee can go up to 1% of the loan amount.
How to choose between various credit options
Top-up home loans would work best for existing home loan borrowers for financing big ticket festive spends as they have one of the lowest interest rates among all credit options. Those who qualify for top-up home loan with tenure greater than 7 years, can also use it to make car purchases. For the rest, personal loans would work best for financing big-ticket expenses as they have longer loan tenures and lower interest rates than loan against credit card, EMI conversion and balance conversion.
When it comes to small ticket transaction, zero- or low-cost EMI offers through consumer durable loans and credit card offers would work as the best option. Their shorter tenure of 3-6 months would translate to lower interest cost. The loan processing too is almost instant with little or nil documentation. For brands not covered under such offers, you can directly swipe their credit card with the merchants and convert the transaction(s) into EMIs.
Loan against credit card would work well when you require financing for multiple festive spends and most of them do not qualify for conversion to EMIs. However, if you do not qualify for loan against credit card, then opt for the balance conversion option or balance transfer option.
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