If you are observant enough, you would have witnessed an increase in number of special unsecured loans being offered to you during festival season. Isn’t it?

This makes sense as generally; it’s during the festival season that people tend to spend more on things (that they were waiting to buy). So what should you do if you yourself are planning to take a small loan to make festival-related purchases?

The best thing to do is to carefully assess all the available loan offers. It’s possible that some of the loans might look better than others given the offers that are being publicized. But as a borrower, it’s your responsibility to dig deeper.

There can be loans that claim 0% interest or zero processing fee or something similar. You need to be aware that no lender will give you anything for free – least of it the money you are borrowing.

When the loan being offered comes at 0% interest rate, it almost always comes with some kind of processing fee. Like if you take a loan of Rs 20,000 with 0% interest and a processing fee of Rs 800, then the total cost for you will be Rs 20,800 that translates into 4% interest on one-time basis. So this is a far cry from the claimed 0% interest rate.

But it’s possible that some lenders might actually lend at 0% if the tenure is very short. Like if you purchase a laptop that costs Rs 30,000, then if you pay an EMI of Rs 10,000 for 3 months, then it is indeed zero-percent loan. But if the EMI is Rs 5400 for six months (which includes Rs 5000 as EMI and Rs 400 as processing fee), then the total cost comes to Rs 32,400. This means that the cost of loan was 8% for six months.

So as you see, you need to be careful about what is being claimed and what lenders are actually offering. Though RBI is now against misleading claims being made by lenders, it helps to be vigilant and understand the mathematics behind the personal loan offers.