These tips will keep you away from dark nights after Diwali
Diwali is a time we Indians consider an auspicious time to buy new things right from a new car to new gadgets or appliances. Over the past few years, banks and other financial institutions have been offering special festive season loans that allow consumers to purchase white goods around Diwali. While it may be a good idea to avail of consumer durable loans instead of jacking up credit card debt, one has to exercise caution while availing of the same.
Here are four tips to keep in mind if you have set your heart on a particular car/LED TV/gadget this Diwali and are considering taking a loan for the same.
Avoid an impulse purchase
Diwali shopping is a big event for you and your family. With stores in malls inviting you with incredibly ‘easy finance’ offers on the latest smartphone, it may seem within reach, but do not give in to temptations.
Make sure your loan is based on a genuine need and not just a tempting offer.
If you have already planned to buy that smartphone and have saved up for it partly, it surely makes sense to consider a finance offer on the same.
Read the fine print
A consumer durable loan may seem tempting because you do not have to pay a steep rate on interest like that in a credit card (where the annualised rate of interest may anything between 36-40 per cent) or a personal loan (12-14 per cent). However, do check out the real debt burden by taking into consideration other costs such as the processing fee that may be 2-3 per cent of the total cost of the product.
Further you will be expected to make a down payment of at least one to three EMIs. These terms and conditions differ from one lender to the other.
Read the fine print before you blindly bite the bait on the first offer you come across.
Loans are not available on every product
Lenders usually enter into agreements with certain top-notch brands during the festive season. This means that the product that you may have in mind, may not fall under the ambit of such an offer. Besides these offers come with deadlines, which means you may be forced to make the purchase when you are not really comfortable with it, financially speaking.
For instance, with both Dussehra and Diwali, falling in the same month this year, you may have already exceeded your monthly budget or are perilously close to exceeding it.
Check out your current liabilities
It may seem easy to make a down payment on the device you want with the Diwali bonus you have just received, but before you avail of any new loan, take a careful look at your existing liabilities, and ask yourself honestly whether you are in a position to take on an additional debt burden.
Not only should you be comfortable making timely repayments it should not influence your debt to income ratio negatively (financial wisdom suggests that it should ideally be under 35 per cent).
A high debt to income ratio may negatively impact your chances of getting a loan when you are really in need of one.
It surely feels good to buy sparkling new things during Diwali, but if you don’t really need it and have not saved for it, it is perhaps a better idea to postpone your purchase for a while rather than blindly increasing your debt burden and invite dark days right after Diwali!
Illustration: Uttam Ghosh/Rediff.com
The author, Director & Co-founder of Creditvidya.com, is a credit expert with 10 years of experience in personal finance and consumer banking industry and another 7 years in credit bureau sector. Rajiv was instrumental in setting up India's first credit bureau, Credit Information Bureau (India) Limited (CIBIL). He has also worked with Citibank, Canara Bank, HDFC Bank, IDBI Bank and Experian in various capacities.