Financing Your Travel: Is Personal Loan The Correct Choice For Your Dream Vacation?

A personal loan is easily available nowadays and can be taken out for catering to individual expenses related to travel, marriage, or even to increase our liquidity for the moment

Repaying your personal loan in a timely manner can help build your credit score.

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We all have dream vacations and travel bucket lists that we want to tick off. But dreams are not always affordable. Often, we have to look out for multiple avenues to satisfy our wanderlust without having to empty our pockets. One such solution is a personal travel loan. 

A personal loan is easily available nowadays and can be taken out for catering to individual expenses related to travel, marriage, or even to increase our liquidity for the moment. While the option is a tempting one, the question remains is it a wise one? Let’s look into the advantages and disadvantages of using a personal loan to tick your bucket list. 

Pros

Live In The Moment - A personal loan allows you to travel as per your wish, without having to worry about your liquidity. The flexibility provided via a personal loan helps you capitalise on exclusive opportunities like a concert ticket or a cultural festival and facilitates living in the moment. By using a personal loan, you don’t have to miss out on such once-in-a-lifetime experiences because you didn’t save enough. 

Budgeting - Unlike relying on a credit card, a personal loan helps you plan the trip on a fixed budget. The pre-decided set monthly payments provide a predictable budget layout and helps limit your impulses from going overboard on the vacation. By setting aside funds for your monthly installments, you can set a fixed budget for your other expenses and savings. 

Credit Score - Repaying your personal loan in a timely manner can help build your credit score. It can act as proof of your responsible financial behaviour and also your creditworthiness. This will also be a great help in securing your future loans at better terms and interest rates.

Downsides

Debt - A personal loan is essentially debt. While it provides a flexible option to go for a vacation and pay back for it gradually, you are signing up for debt till you complete the repayments. The debt could impact your budget and also limit your pocket in emergency situations. 

Interest Trap - The interest rates on your personal loan can actually end up increasing the cost of your trip. While the cost of a trip funded by your savings can be spread out over time, one funded by a loan becomes more expensive including the interest payments made till the final repayment. The privilege of borrowing money to finance your travel can be quite costly in the long run.

Risk - A loan will always have a defaulting risk. Any late payment or missed deadline can add on as penalty and land you in a trap. Further, an unforeseen circumstance could result in you missing out on making the repayments in time leading to an endless circle of debt, and create havoc on your future fiscal planning. This can also have negative effects on your credit score and hinder future loan prospects.

So, before you rush to finance your trip with a personal loan, evaluate your financial health. Check if you can afford limited liquidity for the future till you complete your loan repayment and ensure you don’t find yourself in a debt trap due to impulsive spending habits or missed deadlines.