Borrowing during the festive season is quite common, given that most households find it auspicious to move into their dream home or purchase a new vehicle during this time.
Borrowing during the festive season is quite common, given that most households find it auspicious to move into their dream home or purchase a new vehicle during this time. Whether it’s a last-minute addition to your spending list or a planned move to purchase a new vehicle, keeping in mind the following tips before borrowing would help you sail through this festive season:
1. Make sure you aren’t over borrowing
Do not get carried away by loan offers such as zero processing fees or zero interest charges if they are not aligned with your loan requirement. Just because you are eligible for a higher loan amount does not imply that you should go ahead and borrow more than you can repay. Doing so would over-stretch your finances.
As a rule of thumb, ensure your debt to income ratio doesn’t exceed 50-60% after taking into consideration the loan to be taken. In addition to this, make sure you finalize the loan amount carefully before submitting your loan application. Use online EMI calculators to get a fair idea of the amount you would be required to repay according to the tenure chosen.
2. Check your eligibility before applying
While it is quite common to apply for a loan for making big-ticket purchases during the festive season, most of us ignore checking our loan eligibility before applying for it. This practice may lead to disappointment in case your loan application gets rejected. It can also have serious implication on your credit score given that direct applications to lenders are considered hard enquiries by credit bureaus.
To avoid this, check your loan eligibility through online eligibility calculator available on online financial marketplace like Paisabazaar.com. You may even apply for loans through such platform since such applications are considered as soft enquiries by credit bureaus and therefore do not reduce your credit score.
3. Contain your credit utilization ratio within the 40-50% mark
In order to make the most of a wide range of rewards, discounts and cash backs offered by credit cards, it’s important to use them judiciously, especially during the festive season. Credit cards are a great substitute for cash transactions, and can even assist in building credit score.
While using a credit card, make sure you contain your credit utilization ratio to 40-50%, as credit bureaus may pull down your credit score if you breach this mark. In case you notice that you are nearing this mark, request your card issuer to increase your credit limit. Also, if you are planning to make a bigger purchase such as smartphone or television set, you may consider converting such purchases into EMIs.
Remember that failure to repay credit card dues on time can result in high interest charges, which may go up to 48% p.a.
4. Compare amongst various lenders
While making various purchases during the festival season, we shop around to buy the most suitable things as per our requirements. Similarly, before finalizing the lender for your loan, make sure you compare all loan options, to strike the right deal with the most suitable lender. While comparing, it’s also important not to limit your search to just interest rates. Instead, base your comparison on other parameters such as loan tenure, processing fee, prepayment/foreclosure penalty, disbursal time, service terms and conditions etc. You may also visit online financial marketplace to compare the various loan options.
(By Naveen Kukreja, CEO & Co-founder, Paisabazaar.com)