The Pros And Cons Of Using A Personal Loan For Travel

The advent of fintech has led to easy availability of credit. Even to buy a smart mobile phone online, credit lines are embedded at the checkout page. The story is similar when it comes to travelling to your favourite destination, whether roaming around European countryside or relaxing on a pristine beach in Maldives or even driving around the Australian coast line. Most travels, international and even domestic, could leave a big debt in your pocket, and even force you to postpone your plans. Personal loans can take care of the finances while letting you enjoy your relaxing time with your family away from the everyday hustle-bustle of the city, but it has its own pros and cons.

Banks and non-banking finance companies have made personal loans available to most borrowers in a matter of a few clicks. But before you opt for a personal loan for travel, it is important you plan your holiday well in advance.

Planning For Travel

Budget -

Make a budget that would include not just flight tickets and hotel stay but also food cost, local travel, sightseeing expenses, shopping list, etc. This would help in understanding how much loan you need to apply for.

Compare Options -

Knowing the amount needed for travel will help you avail best financing options based on the interest rate. Personal loans carry higher interest rates but they are lower compared to credit cards. Borrowers with good credit scores also have the option to negotiate for a better interest rate.

Early Booking -

Once you get the money credited into your account, the first thing to do is to book flights and hotels. Last minute bookings could turn out to be costlier, disturbing your entire budget.

Personal loans ranging from Rs 50,000 to Rs 5 lakh are easily available. The entire process of applying and receiving money is done online with minimal paperwork. But before jumping in to apply for a travel personal loan, it is important to understand the pros and cons.

Pros

Readily Available -

It could not be out of place to say that personal loans are easily available. In fact, most of us have a pre-approved personal loan from banks. Even if it is not, the process is extremely easy. Moreover, lenders provide an online calculator that can be used to understand how the repayment would work and how much is the interest payment in total. This will help make a travel budget.

Cost Effective -

A personal loan will help enjoy the most out of the family vacation without compromising on anything, provided the plan is made in advance. Using a personal loan to make early booking of flights and hotel--two of the major expenses—will help ensure that you are adhering to budget. In fact, booking early tickets could actually help you save a few bucks that can be used for shopping. While interest rates on personal loans are higher, they are still cheaper compared to credit cards that are converted into EMIs.

Repayment -

Most lenders offer flexible repayment in the form of EMIs. Personal loan repayments usually range between three to five years. But borrowers can opt for the repayment tenure based on their comfort and also the loan amount.

Cons

Credit Score -

Personal loans are unsecured loans because lenders do not take any collateral from borrowers. To compensate for the risks, lenders charge a higher interest rate. But if you don’t have a good credit score, the interest rate could be even higher. Additionally, if there is an adverse history in terms of not making timely repayment of previous loans, lenders could also deny you a personal loan. These borrowers may also not be in the position to opt for a repayment cycle of their choice. Before applying for a personal loan, it is a good idea to check your credit score and repay any other pending dues.

Deviating From A Plan -

Any additional costs that are not budgeted during your travel could disturb your finances. Remember the EMI amount is arrived based on the budget.

Terms And Conditions -

Before taking a personal loan for travel, it is important to read terms and conditions, prepayment and foreclosure charges, penalties. Not reading about these charges could put additional financial strain. For this reason, it is important to apply for personal loans from lenders that have a transparent process.

Conclusion

Personal loans provide you an opportunity to go for an annual family vacation without dipping into your savings in one go. Given the easy availability and flexibility in repayment, personal loans can make your travel even more enjoyable without worrying about money.  

IIFL Finance provides personal loans of Rs 5,000 to Rs 5 lakh at a competitive interest rate in a transparent manner. You are free to use the IIFL Finance loan for any purpose, including travel, and the fund can be disbursed within few hours of submitting PAN, Aadhaar and bank statements.