Is Borrowing to Spend on a Holiday a Good Idea?

Even though taking a loan for a vacation doesn’t look wrong on the paper, the overall idea seems to be a bit illogical.

Most people take personal loans to pay for emergency medical expenses, credit card dues, marriage, home, education and these days, even vacations. Travel loans are more-or-less a form of personal loan- the documentation, processing and charges levied being all similar to the personal loan. You are required to produce your salary slips, bank account statements, address proofs, identity proofs, etc., as a part of the documentation process. The loan eligibility depends upon your income and the city you live in. The processing fee ranges from 2.25 per cent to 3 per cent, differing fro bank to bank. The only difference here is that the loan disbursal is relatively faster for travel loans. If a personal loan tenor is five to seven years, the travel loan tenor is shorter, two to three years only. But why is taking a travel loan not really a good idea?

Even without collateral, personal loans come with very high interest rates. It is therefore important for the borrower to understand the difference good loan and bad loan. While taking a loan that will strengthen your asset base is a progressive loan, travel loans top the category of bad loans. How do you explain taking a loan to spend on a 3-10 day holiday trip and then paying an interest rate 13-14 per cent for the next two to three years? While you may enjoy the vacation for those few days, you may end up spending unnecessary money trying to recover the hangover of the huge travel loan.

What may worsen your financial situation: if you end up using your credit card, which can happen since most of the times we do cross our decided budget. So on one hand you have your EMIs to be paid and you have landed yourself into another pothole of the higher credit card interest rate.

Do you really want a long term pain, for a short term gain?
The best way to spend a vacation is to plan in advance and spend judiciously, especially if you have additional ongoing loans. Vacations are meant to be relaxing, and travel loans contradict the whole idea of relaxation. What is the point of a vacation which will lead to financial stress later on? Let loans be only for assets, necessities and emergencies.