Taking a Personal Loan for a vacation might be attractive when you are itching to visit some new places without funds on hand.
However, before applying, there are various crucial points to consider so that your dream trip doesn’t turn out into a bad debt nightmare. Here are some crucial points to be considered before taking a Personal Loan for the vacation.
Assess Your Financial Position
Before proceeding to apply for Personal Loan, one should assess his current financial status. Are you relatively stable financially in order to take on another debt? Compare your income, debts you have already acquired, and every expense coming in on a monthly basis in order to see if you have enough to pay off the loan comfortably. A holiday is a short-term expense while paying an installment of a loan will continue for several months or even decades. For instance, a two-week trip to Goa may run at ₹1,00,000. Can you easily service the amount for the next year?
Know Your Interest Rates
The interest on Personal Loans varies greatly with your credit score and who lends you money. Make sure to crosscheck the rates from different banks or other financial institutions.
So, a lower interest rate will save you money in the long term, but then you have to think about the total cost of the loan which consists of various hidden fees and charges. And you will find interest rates play a key role in figuring out how much you eventually pay for your vacation loan.
Now, let’s consider the above example:
- Cost of your vacation for two at Goa: ₹1,00,000
- Loan term: 24 months
- Interest rate: 12.5% per annum
Take a Personal Loan of ₹1,00,000 for 24 months with an interest rate of 12.5% and calculate the equated monthly installment (EMI) using the reducing balance method. This means you’ll pay relatively less interest each month.
For this particular case, the EMI would be roughly ₹4,731 per month and total amount you will repay over the year is around ₹1,13,538. That is an additional ₹13,538 paid as interest for the comfort of taking the loan.
Know the Repayment Terms
The terms will differ with the loan amount and your creditworthiness. In the example above, though the monthly EMI of ₹ 4,731 seems quite tolerable. Ask yourself if you could comfortably handle such an expense along with any of your other financial commitments.
A longer tenure of repayment may decrease your monthly EMI but, thereby pay more in terms of interest. In other words, if the tenure is stretched to 36 months, your monthly payment would be less but the total interest cost would get higher.
Use an EMI Calculator
You can use an EMI calculator while planning to take a Personal Loan as it will guide you how much you will need to repay every month. In this connection, some tools such as the RupeeQ Personal Loan EMI Calculator will be quite helpful. You can calculate your total EMI by inputting the amount you want to borrow, the rate of interest and tenure in which you want to pay back the loan. This will help you to make the proper budget.
Calculate the Total Cost of the Vacation in Advance
You should work out the total cost of your vacation on the basis of airfare, accommodations, meals, and sightseeing, apart from miscellaneous expenses, before approaching the bank. On that realistic estimate, you will know whether the amount of the loan given to you is sufficient and adequate to the repayment capacity.
Impact on Credit Score
Applying for a Personal Loan will reflect on your credit report. If you already have a lot of pending debt or poor credit, another loan will negatively affect your score. In addition to that, not paying EMIs on time or skipping it altogether will hurt the credit score even more. So, do ensure that you know all about how taking a vacation loan will impact your future financial life .
Top Tips: How to Improve Your Credit Score
Emergency Fund Must Not Be Touched
The loan to fund a vacation is a luxury, not a necessity. If you are tapping into your emergency savings or compromising your financial safety net, then probably it should not be taken; you need to have enough savings in case of emergencies before committing yourself to this kind of loan for non-essential travel.
Do Not Overborrow
It is so easy to get tempted by the higher amounts you qualify for while applying for a loan. Instead of borrowing only what you need, this might lead to higher repayments and unnecessary interest costs. For example, during a holiday, borrow only that which you need. You may need ₹1,00,000 for a trip to Goa; therefore, there is no need to take a loan for ₹1,50,000 just because you can. You will borrow only what you need and that will make repayment easier and lesser your burden on interest.
Long-term Thinking
Though it may be exciting to fund a holiday of your fantasy, do remember that a Personal Loan is a long-term affair. Vacation joy may last only for a short period of time, but the monthly EMI payments will haunt you for a more extended period of time. Think if the memories created during the vacation are worth all that afterward.
Consider borrowing through RupeeQ
If you are still planning to fund your vacation, then RupeeQ is a pretty good bet that can make it easy for you. It gives you access to a range of loan products with competitive interest rates. This platform connects you with multiple lenders, ensuring that you get the best-suited loan offers in terms of your profile.
Furthermore, It also provides a hassle-free process for getting a loan along with tools such as credit score checks and EMI calculator to allow you to take the right decision.
For example, you could find a instant Personal Loan at an lower interest rate that is below the market average which will save you a significant amount through the loan tenure. On the platform, you are exposed to the comparison of different loan options and you can elect one that favors you. It also allows you speedy approvals so you won’t have to wait too long to be funded for your holiday.
Summarizing
You can take a Personal Loan for a vacation because you can spend time on vacation purposes if you plan ahead and know what you are doing. Compare the loan offers of different banks carefully against your long-term financial goals, and plan it all out.
Keeping all these factors in mind is how you can ensure that your vacation loan augments your travel experience rather than burdening you.
