Choose the right type of credit this festive season: All you need to know

Doing so can result in sizeable saving in interest cost

1. Purchase of a consumer durable can be done through a wide variety of loan options - personal loan, consumer durable loan, or a top-up home loan.

2. Compare the interest rates of the loan options you are eligible for.

3. A loan of Rs 500,000 taken at 12 per cent for a five-year tenure will result in an interest cost of Rs 167,333.

4. The same loan taken at 8.7 per cent for the same tenure will result in an interest cost of Rs 118,392, a saving of Rs 48,941.

5. Avoid gorging excessively on credit this festive season.

6. The rule of thumb to follow is that your total equated monthly instalment (EMI) on loans should not exceed 40 per cent of your net salary.

7. Unsecured debts should be limited to 10 per cent of net salary.