Who doesn’t love the idea of going on a holiday: Taking a break from the never ending cycle of work and projects and just living your best life! It’s that time of the year again where we yearn for a yearly vacation.
Imagine exploring the ruins of the Roman Forum, strolling along the River Thames while watching the sunset over the Big Ben or enjoying a dive in the Great Barrier Reef before it becomes a thing of the past due to coral bleaching.
As exciting and enthralling that may sound, the reality of it all is that such holidays don’t come cheap. Airfare, accommodation, food, transportation, guides, everything costs money. If you prefer exotic locations, this is definitely going to leave a dent on your wallet. As such, you might end up setting aside some money for your vacation which might end up taking a few years. In most cases, you’ll probably end up spending the money on more pressing matters.
So, when can I finally go on my dream vacation?
Generally, a vacation is considered luxury spending. It is therefore not recommended that one take a loan to pay for a holiday. However, there are situations where one may need to go on a particular trip and thus may need to borrow the money. If this is such an instance, then it may be better for you to take out a personal vacation loan than to use credit cards which have a much higher interest rate. Credit cards work best when kept on a low balance that can be fully paid off at the end of every month.
It’s the fear of missing out. You see the people around you travelling with their friends, their families while you mull away aimlessly at your desk. The urge to travel hits you hard and you before you know it, you find yourself taking out a personal loan to fund your travel plans. While a spontaneous trip sounds fun, it is best to evaluate if it is going to put a strain on your finances. If doing so is going to set you back with repayments in the months to come, taking time to save for the trip will be a better option. If not, having a staycation might also prove to be a better alternative. Who says taking a holiday has to mean getting on a plane and travelling across oceans?
An option that some people would explore would be to take up a vacation loan. Before you consider applying for a vacation loan, here are a few things to take note off:
Will you be putting a strain on your finances and budgeting plans if you take up the loan? If so, it would be unwise to do so as this may mean exhausting your money that you may have set aside for more important things, such as your savings.
Interest rates matter as they will be the additional fees that you’ll be paying on top of your loan amount. Although vacation loans don’t carry as much interest as credit cards loans, it is wise to check with the various institutions before deciding on which institution to take up your loan with. Do note that the maximum interest rate a licensed moneylender can charge you is capped at 4% per month.
If you are able to explore other legitimate funding alternatives such as borrowing from your relatives or friends, then that would be the best bet. This way, you’ll be able to reduce costs since borrowing from your closed ones usually won’t incur an interest fee charge. It is also more flexible as you might be able to negotiate and ask for a longer repayment period.
If postponing the trip won’t put such a strain on your finances, then why not? After all, taking a loan for a trip is unlike taking a loan to set up a business, where there might be a chance of cash inflows in the future. Hence, you might consider rescheduling your trip till you have enough to cater for the trip, instead of incurring extra debt.
Ensure that you have done the relevant homework and read the fine print on the conditions set by the financial institutions and ensure that these conditions are met.
Even though a credit card will not limit how much you spend, provided that you are within the given spending limit, the amount of interest paid on monthly balances can be prohibitive. This can lead to an accumulation of debt on the various credit cards that one holds and can affect one’s overall credit rating. With a personal loan, you know how much you owe as the loan has an end date, and the interest rates have been factored into the monthly repayments, if the interest rate is fixed.
Compared to credit card loans, a personal vacation loan is more advantageous in that: