Why you should not take such loan types offered during festivals!

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Diwali is just a few days away and shopping must also be in your mind. If you are short of funds, you might consider taking a loan. The number of people in India shopping with loans is significant and continuously rising. The loan market is upbeat during the festive season. Digital loans are fast gaining popularity. In the past decade, digital lending has grown by 9.5 percent annually.

According to a report from IIFL Fintech, the digital lending market in India was $38.2 billion in 2021. By 2030, it could grow to $515 billion. Fintech companies, non-banking financial companies or banks provide loans in collaboration. These institutions leverage technology to expedite the loan application and approval process. Often, loans can be obtained within a few hours.

Even in case of digital loans, Buy Now Pay Later or BNPL, is quite popular. As the name suggests, BNPL allows customers to defer payment after purchase. This means customers can pay later for the goods bought.  Customers can either make lump-sum payments or use any flexible repayment options like no-cost EMI to make the payment later on.

For the no-cost EMI scheme, customers must have a debit or credit card.  BNPL can also be used by customers who don’t have any payment cards. Banking experts say that BNPL is the right option for customers who have never taken a loan before, and those with no credit history. However, it is essential to think carefully before going for the BNPL option.

Using BNPL can increase the risk of unnecessary expenses. If not used wisely, it can increase burden of debt on customers. Delay in repayment may lead to late payment charges. Not making payments on time can also harm your credit score.

Before using BNPL, make sure to find out the associated interest or fees. Because not every platform offers a completely interest-free option. Moreover, you may have to pay processing, prepayment, or part-payment fees.

Additionally, recovery agents can be aggressive if you miss payments. So choose a BNPL provider whose terms are clear. Who has a good reputation. Make sure you fully understand the terms and conditions.