Why shouldn’t you finance your durable consumer goods with a personal loan?
Personal loans increased by 12.3% on an annual basis (year-on-year) in February 2022, according to data from the Reserve Bank of India, indicating a strong increase in demand in the category. The personal loans category has also grown at a healthy pace and increased by 12.3% in February 2022 to Rs 33,06,650 crore (outstanding) as of February 25, 2022 from Rs 29,44,789 crore (outstanding) as of February 26. 2021, driven mainly by durable consumer goods.
According to experts, the jump in the personal loan segment is due to the recovery in demand after a period of lull during the pandemic.
The RBI data also revealed that the growth of advances on time deposits increased by 26.1% in February 2022 on an annual basis, while the growth of advances to individuals on stocks and bonds increased by 20.4%. % over the same period. Loans against gold jewelry and other personal loans increased by 26.2% and 21.5% in February 2022 on an annual basis, respectively. However, education lending saw negative growth of 2.2% per year in February 2022.
Experts say that the personal loan for durable consumer goods is the highest because of the high margins in this type of loans. A number of shell banks and lenders with excess liquidity are eager to provide loans for the purchase of durable consumer goods.
Consumers also want to take advantage of a plethora of personal loans in the retail segment – signs of improving consumer and labor market confidence as lockdowns ease and vaccinations pick up. are accelerating.
Anant Ladha, Founder of Invest Aaj For Kal, a financial planning company, says: “After the pandemic subsided a bit, companies pushed aggressively for sustainable consumer purchases through loans. personal, because the margin is high. But now is the time for consumers to be careful and educate themselves.
Experts advise consumers not to take out personal loans to buy durable consumer goods. This is because a consumer good is not an asset, but something that depreciates over a short period of time. Plus, it doesn’t have a high resale value. Thus, taking out a high-interest personal loan for such a purchase does not seem to be advantageous in the long term.
Here are some other options you might consider instead to finance your purchase of consumer durables:
Delay purchase or use cash: The best option is to buy cash, from the available balance at your disposal. If you don’t have spare cash, consider it a short-term goal and start saving. Don’t let your desperation to buy something affect your financial life by going into unnecessary debt. “Personal loans for durable consumer goods are the worst decision. There are two reasons: a high interest rate and no tax advantage. It would be rather wise to save up and use this fund to purchase your consumer durables. And even delayed gratification is completely acceptable, and you could postpone your purchase, rather than ruin your long-term finances,” adds Ladha.
Buy now, pay later: The second option could be to use a Buy Now, Pay Later (BNPL) card to ensure you repay the amount on time without interest charges. BNPL cards generally have an interest-free repayment window. Remember to repay the amount on time to avoid interest and penalties.
Sustainable consumer loans: There are consumer durable loans on the market specifically for the purchase of durable consumer goods. These are loans offered by financial services companies, such as Tata Capital, HDFC, Capital First, to name a few, at low or no interest rates. The ideal way to choose the right option is to opt for a loan option that covers most durable household products for a low interest rate, low down payment and longer term.
It is true that bringing home a durable consumer product certainly makes you happy. That said, care must be taken that, in the interest of short-term happiness, we don’t derail our long-term financial well-being.