Two things you should ask yourself while entering the ‘mela loan’

Finance Minister Nirmala Sitharaman, in a meeting with the heads of public sector banks (PSB) on Thursday, urged banks to hold “melas loans” and shamiana meetings in 400 districts across the country. The credit melas, scheduled to start on October 3, are aimed at boosting retail and NBFC lending. “In the public eye, the programmed banks will now show that they are really boosting liquidity through the NBFC or directly to customers ” Sitharaman said in his direction, adding that during these public meetings, banks have been asked to make loans to five new customers for every old customer who wants credit, and that customers who want to take home and vehicle loans should attend these meetings . While private banks had already been pushing to increase retail lending, this will bring PSBs to the same level.

But while this boost could be good for the economy, retail borrowers should ask themselves two important questions before jumping into lending.

You need it?

With increasing availability and access, loans have become an easy alternative to out-of-pocket expenses for many Indians. According to a recent report by CASHe, a digital lending company, in 2018, 23% of salaried millennials took out short-term personal loans to refinance individual EMIs and 14% borrowed to pay off their loans. But accepting discretionary spending loans and repaying other loans can be a slippery slope.

“Borrowers must ask themselves if they really need the loan and if they need what they intend to buy with the loan amount, be it a device or a new house,” said Lovaii Navlakhi, founder and CEO of International Money Matters, an investment advisory. Sebi’s registered.

According to Navlakhi, the easy availability of loans can be detrimental to the financial well-being of borrowers. “If loans weren’t so readily available and you were going through a financial shortage, you might have been more inclined to settle for what you can afford, especially during the holiday season. But an easy loan can tempt you to go ahead with the expense, “he said.

Can you repair it?

Quick and easy loans that are available before the holiday season can be a relief, especially in light of the general slowdown and the resulting financial pressure that many are facing. But taking out a loan means that you will have to pay it off on time and with the added burden of interest. In fact, the slowdown is one more reason to question whether repaying the loan will become a burden.

“Borrowers should examine the serviceability of the loan. They should ask themselves, if their income were to stop for two or three months, would they be able to pay off the loan? “, Said.

Navlakhi also warned about the dangers of borrowing for lifestyle expenses. “What typically happens is that you switch to a higher lifestyle, just because it’s readily available, but then you want to downsize it, but it becomes very difficult,” he said.

As festive as it may sound, a “mela loan” can spell disaster for uninformed borrowers who take out loans simply because they are available. Take the time to find out if you need a loan and, if you accept one, how well you might be able to serve it before you borrow it.

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