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Kolkata: The average working Indian undergoes regular periods of stress. When it reaches an unbearable limit, vacation can be an effective antidote that helps one of unwind and get back into shape. Often it so happens that we are keen to travel on a holiday but we don't have the sufficient funds necessary for the trip. The moot question is, should one take a personal loan and go on a vacation? Or, will it be an act of financial indiscretion? Let's find out.
Personal finance advisers generally recommend that the best practice is to resort to personal loans when one finds oneself in an emergency situation such as footing a medical bill or quickly paying the fees of admission to an educational institute. Discretionary spending with the help of personal loans is not encouraged by most advisers.
Wrong precedent: If an individual incurs a loan for a discretionary cause as vacation travel, it could be an encouragement to reckless consumption. If such a loan is taken once, it could lead to a string of impulsive financial decisions which can be very costly on any pocket. It is advisable to kill such impulses at the first instance.
Debt trap is not far away: Travel for holidaying is quite expensive these days. If you apply for a personal loan for this avoidable reason, you could be taking the first step to a debt trap. The reason: personal loans are the most expensive of all types of retail loans. The interest rate on personal loans is considerably higher than either on home loans ands vehicle loans. Bearing a higher interest cost for years can trigger financial stress for many.
Can upset prospects of another loan: You never know when an emergency is going to hit you. If you burden yourself with an expensive debt today and keep paying an EMI, if you go for another loan due to emergency requirements, the chances of clinching another loan diminishes. Banks are more eager to lend to someone who is not servicing any debt at the time of application. If you are already servicing an EMI, it will reduce your creditworthiness.
Personal loans are unsecured loans -- loans that are sanctioned without keeping any collateral assets from the borrower. The lending institution checks the regular cash flow of the applicant -- either through salary income or other sources such as pension or rent or consultancy income -- credit history and whether the applicant is already paying any EMIs. Based on such information, the lender usually sanctions a personal loan, which makes lenders insecure and they want to cushion the risk with a higher rate of interest.
The rate of interest hovers between above 10% to above 30-40% depending on the amount borrowed and other factors. Almost all banks add a one-time processing fee while sanctioning a loan.
