A tepid economy is leading to a sluggish claim for loans. However, personal loan segment has seen a good response in both urban and rural areas.
The data that we have collected shows a rise in the number of people taking a personal loan for a vacation.
Usually customers in India take personal loan to pay high interest Credit Card dues, meeting hospital emergencies, weddings, home renovation and also for vacations. Although on paper there is nothing wrong in taking a personal loan for vacation but the logic seems Topsy- turvy.
A borrower, hence, should always know the variation of good loans and bad loans. The whole segment of personal loan is considered as bad loans, but taking it for a vacation tops it. It defies sense that a borrower would take money for a say 5-10 days holiday and then pay interests of somewhere between 14-23 % for the next two years or maybe more.
For instance, a borrower takes a loan of Rs 3.5 lakh at an interest rate of 17.5 % for 3 years, which is Rs. 12566 in EMI. The worse part here is that in the 3 years you will end up paying over Rs. 1 lakh as an interest. If the holiday ends for a week, it means you have spent over Rs. 4.5 lakh just for a vacation. A personal loan can give you a week of great holiday but with three years of debt and most likely no more holidays for those three years and interest to pay on top.
This also cut down your overall borrowing threshold. It means if you need a loan while you have the personal loan running on another side, there are chances that you won’t get the amount you want or you will be refused for a loan altogether, further things can get worse if you have a poor credit rating.
Loans must always be taken for necessities, requirements, assets and emergencies. If it is for luxury, anyone could be living beyond their means.
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| Personal Loan for Vacation |
The data that we have collected shows a rise in the number of people taking a personal loan for a vacation.
Usually customers in India take personal loan to pay high interest Credit Card dues, meeting hospital emergencies, weddings, home renovation and also for vacations. Although on paper there is nothing wrong in taking a personal loan for vacation but the logic seems Topsy- turvy.
Why taking a personal loan for a vacation doesn’t make much sense:
A personal loan is a collateral free loan and a borrower can take it for any purpose, in that sense a borrower has full rights to use it for a vacation. But being collateral free, personal loan comes up with very high interest rate.A borrower, hence, should always know the variation of good loans and bad loans. The whole segment of personal loan is considered as bad loans, but taking it for a vacation tops it. It defies sense that a borrower would take money for a say 5-10 days holiday and then pay interests of somewhere between 14-23 % for the next two years or maybe more.
For instance, a borrower takes a loan of Rs 3.5 lakh at an interest rate of 17.5 % for 3 years, which is Rs. 12566 in EMI. The worse part here is that in the 3 years you will end up paying over Rs. 1 lakh as an interest. If the holiday ends for a week, it means you have spent over Rs. 4.5 lakh just for a vacation. A personal loan can give you a week of great holiday but with three years of debt and most likely no more holidays for those three years and interest to pay on top.
Major Risks:
Generally the best planned holiday sees budgets being crossed and one resorting to using a credit card. This can be a tricky thing to do. On one hand, you have a high EMI with high interest loan and you end up using your credit card. If the amount is small then it may not be a problem, but a large amount can turn into a chaos. It will be a double whammy where you have loan with high interest rate and even higher interest rates on credit cards, if you are not able to afford paying the amount in full.
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This also cut down your overall borrowing threshold. It means if you need a loan while you have the personal loan running on another side, there are chances that you won’t get the amount you want or you will be refused for a loan altogether, further things can get worse if you have a poor credit rating.
Bottom line:
The best way to have a good vacation is to plan well in advance and save precisely for it. When your savings are built up, then it would be the right time to go on a trip. A vacation which leads to financial stress later on is not worth. In the end it is much of a personal choice in deciding how much the holiday is worth to you. A few days of joy which leads to a loan hanging around your neck for the next several years might not be the best plan.Loans must always be taken for necessities, requirements, assets and emergencies. If it is for luxury, anyone could be living beyond their means.
