Should you take a loan for your vacation?

Should you take a loan for your vacation?

You alone can decide your priorities in life. If you have a good grip on your financial situation and have a plan to repay the extra interest accrued on your vacation loan without stretching your sources of income – then, why not? Go for it! Use your personal loan for a vacation or a high-value electronic gadget – the choice is yours. But, before you do that, you might want to check out what you will be facing if you take out a personal loan for a vacation.

Banks and financial institutions are keen to grant loans to customers. Their source of income is the main criteria for disbursement of loan since lenders’ interest lies in regular repayment of the loan. However, they are also wary of loans that turn sour and end up as non-performing assets. So, your credit history matters in the personal loans eligibility criteria. In the family of loan products, unsecured personal loans are excellent assets for lending institutions. The reason behind it is the high interest rate charged. If you take out a personal loan, you will be charged considerably higher than if you were to apply for a home or car loan. Let’s assume an average of 16% interest on the loan. Due to their short repayment tenures, you will end up paying almost 1/3rd more than the principal amount on your loan.

There are certain advantages of taking out a personal loan. The paperwork goes through faster and lenders need no verification of the end purpose of the loan. Also, because the loan amounts are not as big as they would be for home or education loans, it is easier to repay them within the stipulated timeframe. However, as in cases of all borrowings, lenders are keen to know your CIBIL score.  It gives them a good idea of your credit history and debt handling discipline. If you have got your CIBIL report generated, you might want to check that the score is on the higher side of 750. If not, you might want to look for ways to improve credit score fast, so you are eligible for that personal loan approval.

Now, that you have got the lowdown on personal loans and the pros and cons of taking one, the next question you need to ask yourself is whether locking a part of your income in the EMIs for this type of loan will squeeze you financially or not. If you are confident that your debt to income ratio (i.e. amount of money from your income used up in debt) will remain less than 50% for the time that you have to repay your loan, you don’t have much to worry about. If you are sure that you are going to earn from other assets that you have – perhaps a Fixed Deposit scheme that is about to mature soon, or perhaps dividends that you are going to earn from some shares, or even bonuses that you expect in the office – you are in a comfortable position to pay off the loan. Taking that expensive vacation may seem like a worthwhile deal.

However, if you are at a stage in life, where you are quite certain that in the next 2 years, you have bigger plans for yourself and your family, in terms of buying insurance products or investing in a house, or maybe if you consider the other end of the spectrum, where you are uncertain about the stability of your job, then taking a loan out to enjoy 10 days of your life may hurt you more than you can imagine.

It is anyone’s guess that if you are considering the option of taking out a loan for vacation, you are looking at not only whether it is feasible to apply for a loan, but also at the reasonableness of the action. If you have achieved financial stability, or don’t foresee further financial responsibilities in the near future, and are only lacking in the lumpsum required to take an expensive vacation, taking such a loan should not hurt your peace of mind. However, there is always the flipside of uncertain times. If you are sure that you have got yourself covered even for those uncertain times and the EMIs won’t be a stretch, then you might as well start to compare personal loans online to get the best rates of interest. And, bon voyage!

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