Points to consider before you avail a loan for shopping

• While you may have received your Diwali bonus, or saved up to shop for the festivities, it is always not advisable to wipe them all off to make purchases that are not 'necessities.' Using your credit card or EMI options for a planned payment cycle is always advisable when you do not have enough money at your disposal. It is especially not advisable to spend your savings away on purchasing gifts if you have dependents.
• Never break your emergency fund for shopping. Shopping is not a necessity and emergency expenses cannot be anticipated. You do not want to leave yourself and your dependents exposed to that kind of risk.
• Credit cards come with reward points and special offers to make your purchases. Some of the banks are also tied up with popular offline and online retailers to provide additional cashback offers.
• Planned payments are always better to manage finances. If you make a bigger purchase, like an electronic gadget, credit card or EMI payments will buy you additional time to make the payment. This will leave you ready funds for any urgent expenses like home repair or insurance premium due.
• Unless planned for, avoid using funds recently matured investments to shop. You can rather look at equity or other short term instruments that you take benefit of, ahead of the approaching election year. However, if the investment was made for purchases during the festival season, it is wise to go ahead and use them.
• Apart from the 13 to 20 percent interest rates charged by banks on the borrowing options, you will also be charged a processing fee of 2 percent.

Personal loan

While looking at various options to borrow, look at the affordability factor too, as some of these, like personal loans, charge a very high interest rate. For example, if you are looking at a bigger expense like a vacation or a high-end gadget, a personal loan may look attractive but comes with interest rates as high as 20 percent. The interest rate could take a toll on your cash flow for the following months. You should go for it when all other options fail.

If you do, however, need a personal loan, make sure you do a thorough research on the interest rates charged by different lenders and choose the cheapest option at your disposal with a reasonable loan tenure.

Loan options to shop (other than personal loans)

• Retail EMI
• Bank overdraft
• loan against property
• loans against investments like PPF, gold, mutual funds, FD,etc
• Ask for an advance salary at work
• Borrow from friends or family

Retail EMIs and credit card payments are the most popular among shoppers in India besides personal loan. Credit card purchases are especially wise for small purchases, as provides you a reasonable time, say 45 days, before the interest charges start kicking-in.