Any festive season and the markets are ready with a variety of products and services along with attractive offers to lure consumers. Gifts and sweets are typically exchanged among friends and family during Indian celebrations. Not only do you have to scramble to buy everything you need, including clothes, jewelry, gifts, and even air travel if you are flying down to celebrate with your loved ones, but you also have to find it on sale so that you don’t spend a lot of money in the end.
People often tend to spend beyond their means during the festive season by opting for personal loans, consumer durable loans, and recklessly using their credit cards. The number of people taking out loans to do so has skyrocketed compared to previous years. But for festivals, is it a good idea to get a personal loan? All this and more will be discussed in this article.
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Downsides Of Availing Of A Festival Loan During The Festive Season
A loan with an offer should not be the reason for you to make the leap. You must remember that it has to be repaid with interest. Distinguishing your needs and wants before applying for a loan can help you make the right choice. A loan is best when it is taken for your important needs.
Personal loans may look very attractive, but before taking one let’s look at the drawbacks of using a personal loan to celebrate festivals so you can make a wise choice.
Taking out a festival loan during the festive season comes with the following drawbacks:
1. Excessive Spending
When you need money right away and don’t have any other sources of financial support, a personal loan is the best option. Unfortunately, people frequently apply for personal loans in order to obtain immediate satisfaction, putting themselves under stress and having to pay high EMIs. Therefore, if you want to purchase a luxury item, jewelry, or gadget that can be put off, it is essential to evaluate your needs and wants so that you can resist the urge to overspend if it is not absolutely necessary.
2. Cost per month
You can’t avoid this additional fixed monthly cost until it’s all paid off. If you’re on a tight budget, that can cause a lot of stress, you risk incurring late payment fees and/or damaging your credit score if you don’t make your payments on time.
3. Product's Value Declines
It is essential to determine the product’s expected lifespan before making a loan purchase. Smartphones and other consumer durables, in particular, depreciate quickly over time. If your product loses value before the loan is paid back, that makes no sense. In addition, the majority of brands regularly introduce new models, rendering older models obsolete and ultimately driving down their prices.
4. Expensive Loan
Even though NBFCs and banks offer a variety of deals during festivals, personal loans remain among the most expensive. If the loan amount or duration is shorter, the interest rate discount of 0.25% to 0.50% is negligible.
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Personal loans can be very helpful in times of financial need or emergency because they don’t require collateral and can be obtained with minimal documentation. Individual customers can take advantage of instant personal loans that can be obtained online in a matter of minutes from a number of banks.
While a personal loan can be utilized for any purpose, most people tend to avail it for luxuries that could be otherwise postponed. Due to the high interest and fees, repaying a personal loan can hurt your budget and other financial goals.
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Alternative to a Festival Loan
Typically, taking out a personal loan for a festival is never a good idea. So what is the best way so that you don’t have to compromise on anything while celebrating your favourite festival?
Save for your festivities
Start saving money for your next festival. One of the easiest ways to enjoy your festivals is to save money. You don’t have to worry about loan applications, repayment obligations, or the accumulation of debt. Take a look at your expenses and income, and figure out how much money you can set aside to toward your savings.
The best way to save money is with the help of a committee system. Everyone, I’m sure, is aware of committee. Committee is the most convenient traditional way of saving money by a group of people to get a lumpsum amount after a certain time. Members of the committee agree to contribute a predetermined amount to the “pot” at specific intervals, for a set duration. Each member collects the entire pot once, until everyone gets their turn. If your turn is early in the rotation, you collect the full pot of money and then continue paying your share for the remainder of the committee. The order is usually decided by a lucky draw but since family members, coworkers, or neighbours often establish committees together, there’s an element of flexibility.
The same concept has been digitalized by Money Club. Money Club is an AI based online committee platform which allows you to save money and borrow money when you need it. When you save a small amount every month with Money Club, you can bid for a lumpsum amount when the need arises. In this way you are free from the stress of high interest loans.
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Benefits of Money Club
- You can borrow money that is several times as much as what you have invested when you need it.
- You receive the funds 6 to 8 hours after placing the bid.
- Safe and transparent transactions as money do not lie with the organizer. Payments are made directly bank to bank account of members.
- The loan is against your own potential future contributions.
- The rate of interest is considerably less than what banks offer.
- No credit score required to get money in times of emergency.
- Better returns (20%-25%) when compared to fixed or recurring deposits.
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