Why are Festival Loans better alternatives to Personal Loans if your requirement is small?

by Vinaya HS on October 28, 2016

in Finance

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There is not much difference between a festival loan and a personal loan as far as loan structure is concerned. Infact, both are unsecured loans – i.e. do not need any collateral to be provided by the borrowers. But there are some differences that are there. Festival loans can be availed for smaller amounts of upto Rs 1 lac. Personal loans on other hand can be taken for larger requirements like Rs 25 lac.

This is one of the reason why festival loans come at lower rate of interest. Generally these loans are 2-3% cheaper than regular personal loans. Since the amount involved is small, the risk involved (of default) is lower. Hence the lenders are willing to take lower compensation (lower interest rate) for the lower risk they are taking.

So coming back to your requirement, if you need just a small amount of money for some months then you would obviously benefit more from lower rate of interest. Isn’t it?

This is the reason that you can consider taking a festival loan in this time of the year. Festival loans are specifically offered to help borrowers during this festive season when their expenses start getting out of hand. Though employers to pitch in with annual bonuses, fact is that bonuses tend to be less than what is needed by most employees. So lenders have come up with this special seasonal loan product that is designed specifically to help borrowers this festive season.

It is also possible that you might be considering using credit cards to part-fund your expenses. But remember that in spite of being quite convenient, credit cards are extremely costly. At times these can cost about 40-50% on an annual basis. So it doesn’t make financial sense to take a high-cost loan when a cheaper loan (in form of festival loans) is easily available.




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