A vacation is necessary to reduce stress and give yourself space and time to get back to the routine with a clear mind. Most of the time when we plan a vacation, we think about immediate costs like lodging, food, a visa, travel insurance, etc. However, there may be numerous additional costs that exceed the budget. As a result, many people would rather take out a loan to pay for their vacations.
A holiday loan is nothing more than a travel-related personal loan. Personal loans for travel are available from a number of banks and Non-Banking Financial Companies (NBFCs) under the specific loan category Holiday Loan or Travel Loan.
Want to fund your travel without the burden of a vacation loan?
Do you want to get a vacation loan? Should you borrow money for a holiday to pay for your ideal vacation? In this article we will ponder on these thoughts.
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Comparison of Best Holiday Loan Interest Rates 2023
Banks Interest rate Max. loan amount Loan tenure
HDFC Bank 10.50% onwards Rs.40 lakh 60 months
Tata Capital 10.99% onwards Rs.25 lakh 72 months
Axis Bank 10.25% onwards Rs.15 lakh 60 months
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Should You Take A Vacation Loan?
Even though taking out a loan for a vacation and paying it back in manageable installments each month seems like a good way to plan your dream vacation because you won’t have to put off going because you don’t have enough savings, it’s not. It is not a good idea to plan your vacation using borrowed money.
Download The Money Club App And Save Money For Your Next Trip!
Here are a few drawbacks of a vacation loan:
- A vacation loan has long repayment periods spanning over several years.
- You pay additional charges and hefty APRs. In the long term, you can pay significantly more for a trip due to interest on the loan. The interest rate for a travel loan could be anywhere from 12% p.a. to 28% p.a., depending on the bank/NBFC policy.
- In addition to the costs that are covered by the loan for the holiday, you might have to pay for some things that weren’t planned for or your holiday budget might get stretched. The majority of people use their credit cards in this scenario. They convert credit card EMIs into large credit card bills. You run the risk of falling into a debt trap due to the high interest rates on your credit cards and the high interest rates on your holiday loan.
- Due to the fact that the holiday loan will increase your debt-to-income ratio, it may be difficult to obtain a new loan in the event that you need to borrow in the future for an emergency or unavoidable reason, such as the education of a child or the hospitalization of a family member. Lenders don’t give out large loans to people with high debt-to-income ratios or they might charge higher interest rates because it makes them more vulnerable. In addition, managing the numerous EMIs is challenging and frequently leads to a debt trap.
A few days of enjoyment can lead to long-term financial stress. Therefore, the most effective strategy is to save enough money over time to pay for your vacation. It makes no sense to take out a holiday loan for five to six days of fun and then live with a lot of monthly payments for the next three to five years. It is not a sign of financial discipline to take out loans to indulge in luxuries. Therefore, taking a Holiday Loan for your next vacation is not a good idea.
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Alternatives to a Vacation Loan/Holiday Loan
It is usually never a good idea to take out a personal loan for vacation. While using a loan to pay for a vacation may be appealing, there are other ways to finance your trip.
Prepare Your Savings
Start setting aside money for your trip in advance. Keep track of your monthly spending and think about setting a monthly target for your trip. Despite the fact that saving money can take some time, it’s one of the simplest and safest ways to pay for your vacation. There are no loan applications, repayment obligations, or debt accumulation issues to be concerned about. Saving money can help you finance your trip without taking on extra debt. Look at your income and expenses, and find ways to redirect certain expenses toward your savings. If you can’t do this, consider some money saving habits to earn a little extra cash to set aside just for travel.
Besides, the best way to save money is with the help of Money Club. The Money Club is an online chit fund platform which allows you to save money and borrow money when you need it. When you save a small amount every month in chit funds, you can bid for a lumpsum amount when the need arises. In this way you are free from the stress of high interest loans.
Download the Money Club App and fund your travel without the burden of a vacation loan.
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Be Smart, Finance Your Next Trip With Money Club!
FAQs on Vacation Loan/Holiday Loan
Most lenders offer instant personal loans to customers. Approval is provided within a few hours. Loan disbursal is done within a maximum of one or two days. So you can plan your travel accordingly.
Banks look for borrowers with a low risk of defaulting on their loans because holiday loans are unsecured. The borrower's ability to repay is evaluated by obtaining proof of income. This is also why banks require applicants to have a certain income to apply for a travel loan.
Customers have the option of repaying the loan amount in a variety of ways. You can pay the business in cash or with post-dated checks. Online transfers or standing instructions are the best ways to repay the loan amount.
Conclusion
Always make a plan well in advance and save money for your trip instead of taking on debt if you really want to enjoy it. There is no point in going for a vacation if it leads to financial stress later on. Read: Personal Loan For Wedding? 4 Ways To Fund Your Own Marriage
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