During the festive season financial institutions come up with enticing loan offers and discounts to corner a higher share of consumer financing. However, with multiple credit options available to choose from, selecting the best and most suitable one may prove to be a tedious task.
Here are some of the most commonly used credit options:
One of the most popular credit options for financing festive spends is personal loan. The interest rates are 9%-24% p.a., depending on the applicant’s credit score, monthly income, employer profile and job profile. While the loan amount sanctioned can go up to Rs 30 lakh depending on the applicant’s repayment capacity, some lenders offer up to Rs 40 lakh. While the repayment tenure is mostly 1-5 years, a few lenders may offer higher tenure of up to seven years.
Credit card swipe & EMIs
Many merchants, e-commerce websites, retailers, etc., tie up with credit card issuers to offer exclusive discounts and EMI payment options on credit card purchases. Many card issuers also tie-up with merchants/manufacturers to provide no-cost EMIs to card holders in which the interest component is borne by the merchant/manufacturer and the cardholder has to just repay the purchase cost in the form of EMIs. Some credit card issuers also offer additional discount on opting for no-cost EMIs.
Loan against credit card
Credit card issuers offer pre-approved loan to select existing cardholders with consistent bill repayment history. Being pre-approved, processing time is less and the loans are disbursed instantly or within a few hours of making the application. Tenure can range between six months and five years and interest rates start from 10.99% depending on the tenure opted for and the credit profile of the card holder.
Consumer durable loan
This credit option is useful for those lacking credit cards or other alternative loan options for purchasing household appliances, electronic goods, etc. The interest rates for consumer durable loans vary from lender to lender. Many lenders have started offering consumer loans on zero-cost EMI wherein the interest component is subvented by the manufacturer/merchant.
Top-up home loan
This credit option is only available to existing home loan borrowers. Top-up home loan involves no restriction on end-usage of funds. The loan amount primarily depends on the original sanctioned home loan amount and outstanding loan amount. Loan tenure primarily depends on the residual tenure of existing home loan.
Interest rates are usually the same or a bit higher than that charged on the underlying home loans. While the processing of top-up home loans usually takes longer than a week, some lenders have started offering instant top-up home loans with very quick disbursals.
For existing home loan borrowers, top-up home loans would work best for financing big ticket festive spends because of lower interest rate and longer tenure. For the rest, personal loans would be suitable. For financing spends on consumer durables and other small ticket transactions, zero-cost EMI options available through consumer durable loans and credit card EMI offers would be best because of the availability of shorter tenures, instant loan processing and nil or little documentation.
The writer is CEO & co-founder, Paisabazaar.com