Festive loans: Smart financial boost or debt trap? Here’s how to borrow wisely this season

The festive season in India is synonymous with joy, celebrations, shopping sprees, and family get-togethers. Whether it is Navratri, Diwali, Christmas, Eid, or Durga Puja, people often feel the urge to indulge in gifts, gadgets, home renovations, or even bigger purchases like vehicles.

To fuel this demand, banks and financial institutions roll out “festive loans”—personal loans or consumer loans offered at seemingly attractive interest rates with added perks like zero processing fees, cashback offers, or easy EMIs.

But before you sign up for one, it’s worth asking: Are festive loans always a smart choice, or can they become a financial trap? Let us explore.

When festive loans are smart

1. For Planned, High-Value Purchases
If you’re eyeing a major purchase, say, upgrading your home appliances, buying gold, or renovating your house and you don’t want to disrupt your savings, a festive loan can help. The offers during the festive season usually come with lower-than-usual interest rates and flexible repayment tenures. Using the loan strategically allows you to spread the cost over time while enjoying the benefits immediately.

2. When Interest Rates Are Competitive
Banks and NBFCs compete fiercely during the festive period, often lowering interest rates on loans. If you are getting a personal loan at, say, 9–11% interest compared to the usual 14–18%, that is a smart financial move. Similarly, if the loan is cheaper than using a credit card (which typically charges 30–36% annually), it is worth considering.

3. When the Loan Comes With Additional Benefits
Some festive loans are bundled with offers like waived processing fees, zero-cost EMIs on electronics, or cashback rewards. If you were going to spend on these items, such deals can save money and provide convenience.

4. To Build or Improve Your Credit Score
For individuals with limited credit history, taking a small festive loan and repaying it on time can actually boost their credit score. A healthy credit score helps in securing larger loans like home loans in the future at lower rates.

5. For Emergencies Coinciding With Festivals
Sometimes, unplanned expenses like a sudden medical need, urgent travel, or repairs can overlap with the festive season. In such cases, a festive loan acts as a financial cushion without forcing you to break into long-term savings or investments.

When festive loans become a trap

1. Borrowing for Non-Essential Splurges
Festivals naturally create peer pressure—new clothes, gadgets, vacations, or lavish parties. But taking a loan just to keep up with the festive spirit or match others’ lifestyles is a trap. Once the celebrations end, the EMIs remain, and you may regret spending borrowed money on fleeting indulgences.

2. Ignoring the Fine Print
Attractive advertisements often hide terms like variable interest rates, prepayment penalties, or mandatory insurance costs. Many borrowers realize too late that the “low EMI” comes at the cost of longer tenure, meaning they end up paying more interest overall.

3. Overestimating Repayment Ability
It’s easy to think, “I’ll manage the EMI; it’s only a few thousand rupees a month.” But if you already have existing EMIs for a car, home, or credit card, adding another repayment obligation can strain your monthly budget. Missed payments can also damage your credit score.

4. Falling for “No-Cost EMI” Myths
Many festive loans are disguised as “no-cost EMIs” for gadgets or electronics. In reality, sellers often inflate the product’s price to cover the interest, or banks charge hidden processing fees. What looks like a sweet deal may actually cost the same—or more—than paying upfront.

5. Using Loans for Perishable or Short-Term Expenses
Borrowing for things that don’t add long-term value—such as parties, gifts, or travel—can be dangerous. Unlike a home renovation or a durable asset, these expenses vanish quickly while the debt lingers for months or years.

Smart borrowing tips

Evaluate the Need: Ask yourself whether the purchase is essential or just an impulsive festive splurge.
Compare Offers: Don’t jump at the first festive loan ad. Compare rates, processing fees, and benefits across multiple banks.

Check Your Budget: Ensure the EMI doesn’t exceed 30–40% of your monthly income (including other loans).

Read the Fine Print: Look carefully at tenure, foreclosure charges, and hidden costs.
Prioritize Short Tenures: Shorter repayment periods mean higher EMIs but lower interest outgo.
Don’t Mix Borrowing With Investing: Avoid taking loans for buying gold or stocks during festivals just to “capitalise on offers.”

Final thoughts

Festive loans can be a smart financial tool when used with planning and discipline especially for big purchases, emergencies, or to leverage seasonal offers. However, they quickly become a trap when driven by impulse, peer pressure, or hidden costs.

The golden rule? Borrow only when it adds value beyond the festival season and repay responsibly. After all, festivals are about joy and togetherness—not debt and regret.

The author of this article is Managing Director at Neeraj Bhagat & Co