Should You Take A Loan For Vacation?

Pick up any city supplement of a local English newspaper and you will find it filled with travel advertisements. From casinos in Macau and Las Vegas to month-long cruises in the Bahamas and the Mediterranean, there are host of options available at your disposal if you have the money to spend. According to the travel companies, Indians, especially the younger generation are leading the pack in terms of both domestic and international holidays. According to a report by Indian tourism department, 18.33 million Indian nationals departed from India for international vacations in 2014, and a whopping 1281.95 million domestic tourists took a vacation within India during the same time period.

If you are also planning to go on a vacation or planning a road trip and looking for ways to pay for holiday travel without going broke or maxing out your credit card, – a personal loan for travel is the right option for you. Many financial institutions are offering personal loans to feed your travel appetite be it for a domestic or an international vacation.

A personal loan for vacation can be explored, but you need to evaluate the pros and cons before you make the final decision. So before you decide to get one, here are some things to consider:

Why personal vacation loan can be an attractive option?

• The process of personal loan disbursement is quite fast. So for travel plans made with family and friends at the drop of a hat, opting for a personal loan will save you a lot of time and related worries.
• It’s easy to budget, which means right from the beginning, you know what amount needs to be paid back as EMIs and what is the tenure (total time period) of this loan.
• It is an unsecured (collateral free) loan, which means you don’t have to put your home, valuables on the line to get funds.

Things to keep in mind while opting for a loan for vacation

So you’ve decided to go for a personal loan for vacation. Here are some do’s and don’ts while opting for such a loan:

• Set up a limit on funds that you deem would be enough for covering your vacation expenses so that you reduce the chances of overspending. Also, create a 10% margin on these funds for contingency expenses or any overshooting of expenses as the loan approval and disbursal will be done only once.
• Borrow as per your repayment capacity rather than going for unnecessary luxury expenditures during the trip. There is a clear trade-off between the itinerary cost (including food, lodging, etc. costs) that you choose and your loan amount. Hence, if you spend beyond your means during your vacation, you will end up stretching your monthly budget and increasing the chances of default at the time of repayment.
• Try to keep the repayment tenure as short as possible, while balancing it with your monthly budget. A longer term means higher interest payout. Also, in the future you may need additional funds for business, vehicle, medical expenses or a home. In that case your overall eligibility may take a hit due to sizeable existing loans that show up on your credit report.
• Check for the full and part prepayment clauses in case you wish to payoff your personal loan sooner as opposed to following the stipulated tenure. Quite a few institutions levy prepayment charges (up to 5% of the outstanding amount plus service tax) while some lenders do not allow the borrower to prepay personal loan.
• Check the repayment schedule before signing up as some banks/financial institutions set a minimum number of EMI payments that need to be made before you make a prepayment. ICICI bank for instance states that prepayment of the loan is possible subsequent to payment of at least 6 EMIs on the existing loan. Whereas HDFC Bank allows prepayment after at least 12 EMIs have been paid, whereas Axis Bank and Bajaj Finserv levy ZERO prepayment/foreclosure charges on their personal loans.

The point you need to understand is that vacations, whether they are planned months in advance or spontaneous, do not come cheap nowadays. Therefore, it is advisable to you have arranged enough funds before you travel. However, in case your vacation expense exceeds your current funds, a personal loan can be explored as a viable option. However, do remember that, it is important to use the funds wisely, and have a repayment plan chalked-out well in advance to enjoy that dream vacation with your loved ones!