Should You Take a Personal Loan for the Holiday?
Holiday plans usually involve traveling back and forth to meet friends and family members. Unfortunately, this can be expensive. The good news, however, is that many financial institutions are willing to offer some financial aid. As such, many individuals opt to borrow personal loans for traveling. And most cases, there is nothing wrong with that. These loans present an excellent solution for achieving a short term goal. Not to mention, they offer favorable interests. Therefore, they’re a safer way of funding your holiday expenses.
But, before you take these loans, it’s essential that you understand everything they entail. Continue reading this new blog post to learn more about these loans and whether they’re worth trying.
What Are Personal Loans for Holiday Travel?
These are just as they sound; loans to use for your holiday expenses. Note that personal loans are unsecured loans which individuals use for various purposes, including debt consolidation, weddings, medical expenses, etc. Unlike other long term loans, personal loans come with better interest and favorable repayment terms.
Although some lenders advertise loans for traveling as vacation loans, these usually function as personal loans. These loans have fixed monthly payments and are offered in terms of 1-7 years. As most of them are unsecured, individuals don’t put collateral to qualify for these loans. But, note that those with very low credit scores might be required to apply with a co-applicant or cosigner.
How Can You Get a Personal Loan for Holiday Travel?
You can get these loans from online lenders, credit unions, or banks that offer them. Lenders often don’t restrict individuals on how they should use their loans. Thus, one should be able to use their personal loan for trips and vacations. Interest rates depend on one’s credit score as well as the debt-to-income ratio. Note that although interests can begin from as low as 5%, some borrowers with excellent creditworthiness are offered even lower rates.
Online lenders may also want to know your educational history and employment when applying for these loans. This is especially common with everyone who have a low or thin credit history.
Pros of Taking Personal Loans for Holiday
Since this loan is an installment one, one will have fixed monthly payments. Therefore, they’ll be paying almost the same amount each month. Again, personal loans for vacations are easy to obtain, unlike their counterparts. As long as you have a fairly good credit history, expect money to be deposited into your account quickly.
Also, sticking to the budget will be easy if you have a small loan. You’ll only utilize the money you have from your loan and keep credit cards for emergencies. Therefore, this will help avoid overspending. Additionally, personal loans have no impact on your credit use ratio as with other long term loans. Also, you’ll not struggle saving money all year only to realize that it is not enough to cater to your vacation expenses. Furthermore, personal loans offer low-interest rates compared to credit cards.
Drawbacks of Borrowing Personal Loans for Vacations
As with other loans, these also have some drawbacks. For starters, although they are low-interest loans, they’re still not interest-free. So, expect to pay more money than you had borrowed. Also, in most of them, individuals are given a small financial aid, which means you can’t travel to far distances. And, even if you can, your stay will be limited.
Again, with many credit cards, individuals are given an extended period of interest-free borrowing. Meaning, no interest is charged as long as they don’t exceed a specific percentage of their credit line. But, this luxury cannot be afforded with personal loans.
Lastly, these loans come with some hidden fees that may inflate how much you’ll be repaying. For instance, a lender may charge prepayment penalties for those who pay their loans too early. It’s therefore wise that you be aware of any potential fees before taking this loan.
Alternatives to Paying for Your Vacations
Well, financing your travel with a loan is generally a bad idea. However, there are many ideas that you can implement so that you can save money to cover your vacation expenses. These include:
Cutting down costs – many people don’t have a monthly budget. As such, they often overspend. Statistics say that most individuals spend at least R700 – R3,000 per month on unnecessary expenses. This money saved up can pay for your trips. Take, for instance, a person who eats an R200 lunch every day. Per week that person spends R600, which adds up to R2,400 a month. That means, if you pack your lunch, one can easily save a good amount per month and use that money for their vacation. Apart from eat-outs, you also need to reconsider your other memberships as well as subscriptions.
Automate savings – having a saving account is one thing, but depositing money to that account is another. Automating transfers into these accounts will help you save a lot of money.
Have a travel budget – often people concentrate on budgeting for transport and accommodation costs. But vacations have many other expenses too. For instance, entrance fees, eat-outs, money for purchasing souvenirs, etc. It’s thus wise that you budget for these expenses and save extra money in case of unexpected situations. Again, consider trimming your budget. For instance, you can use cheaper modes of transport or stay in cheaper hotels.
Final Thoughts: Should You Get a Personal Loan for Your Vacation?
Financial advisors would advise you not to take these loans. Experts say that it isn’t right going into debt to go for a vacation as it promotes bad financial habits. Using loans to pay for luxury is not a good idea. It’s always advisable that you pay vacations with money that you already have. That means saving enough cash for those who don’t have it. Note that taking personal loans means you’ll have to make payments every month until your loan term is over. And this can become a huge burden, especially for someone with many expenses. Therefore, individuals should look for other alternatives for saving money for their trips, and consider personal loans as their last option.