The Benefits And Drawbacks Of Using A Personal Loan To Fund A Vacation
Should you use a personal loan to fund your dream vacation? Explore the benefits and drawbacks of this option with our comprehensive guide.
Vacation boosts productivity and restores job satisfaction. It can be a wonderful getaway from the mundane drudgeries of daily routine and bring back more positive outcomes. And those thinking of skipping or postponing a vacation, especially because of paucity of funds, should definitely reconsider.
The best solution to overcome the problem of funds is to finance the trip through unsecured personal loans. These vacation funds can be obtained for covering all expenses related to travel, lodging, food and entertainment.
Personal loans for vacation are offered by almost all banks and NBFCs. Most lenders offer loans for both domestic and foreign travels, though the interest rates may vary according to the terms and conditions of the lenders.
Benefits Of A Personal Loan For A VacationOne of the biggest benefits of a personal loan is that it helps to keep the savings intact. Some other advantages of using a personal loan for travel are given below:
• Accumulating enough money to fund a travel plan may take longer. In such cases an individual can apply for a small loan to cover the costs of a trip. Personal loans provide easy access to cash that are just perfect for emergency travel needs. Moreover it provides flexible borrowing limits that can be tailored to meet the needs of every individual borrower.
• Personal loans can be a good alternative to credit cards. Depending on the credit score of the applicant, these loans can be received at lower interest rates than that of credit cards. They are also easier to obtain than other types of loans.
• Taking a small loan is an efficient way to stick to the travel budget. These loans have fixed monthly payments, making it easier to plan ahead.
• Lenders typically report the payment record of all customers to the three major credit bureaus. So, if an applicant makes timely payments of the outstanding debt, it can help build their credit score.
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Drawbacks Of A Personal Loan For A VacationMany people believe that personal loans to finance a vacation is a very risky move and if avoided, the best. Here’s why one should not be using a personal loan for travel and vacation:
• Personal loans are unsecured loans and this is why they have very high interest rates. The rate of interest can somewhat be less for the most creditworthy applicant, but even then interest charges can increase the overall costs. To some extent a longer-loan term may reduce the monthly payment, but ultimately one ends up paying more on interests.
• Sometimes lenders charge a variety of fees on a personal loan for travel. It includes origination fees that typically range from 1% to 6% of the total loan amount and also, GST and others. So one must always look into the fees a lender charges before applying.
• Another important consideration is timely payments of the debt. A borrower mostly faces penalties for making late payments or for having insufficient funds for payment. Lenders report these cases of late payments and non-payment to credit bureaus, resulting in a drop in the credit score.
• Sometimes if the applicant does not have a decent credit score to qualify for a personal loan, he may have to pledge assets as collateral. It can be any kind of property like home, car, self-owned office or certificate of deposit (CD). The pledged asset can be kept by the lender during a default.
• Lenders prefer a low debt-to-income ratio or DTI ratio. Mostly banks take a look at the DTI ratio to determine the repaying capability of an applicant. So, additional debt for a vacation can impact personal finances as well as limit the eligibility for new loans and credit facilities.
While planning a vacation, a personal loan is a good way to finance the trip. But taking out a loan is a long-term plan. The best way to pay for a vacation is to plan in advance and set aside little extra cash for travel. But sticking to the travel budget may be difficult. In these situations, a personal loan may be the right option.
But one must have a high credit score to qualify for a low interest rate. Also, the loan application must be put through only if the applicant is certain to pay it back on time.
While many argue believing that a personal loan must not be used to pay for a vacation and should be treated as a last resort, it can be a good choice to plan a once-in-a-lifetime trip with your loved ones without worrying about money. So, if you are falling short of funds apply at IIFL Finance.
IIFL Finance personal loans for vacation can be taken by salaried as well as self-employed professionals. All IIFL Finance loan products involve a fast and simple process. The loans do not involve any tedious paperwork, nor do they have long waiting periods.
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