Taking personal loans for holiday travel: How prudent is it? Check the costs and risks
Banks sanction personal loans for travel and holidaying. It is convenient as well since a personal loan does not demand any collateral to be pledged. However, what can be the risks, and more important, costs? Let's have a look.
Kolkata: Personal loans are considered by many as a great liberator in the sense that they offer quick cash at hand when the need is acute and there are no convenient alternative sources in sight. A loan can be taken for medical emergencies, for educational expenses, for any sort of consumption purposes, or even wedding and travel. Since there are no strings attached to personal loans, one can utilize the funds for any end-use. Many in fact are taking personal loans for travel and holidaying. But how prudent is the step and what are the costs involved? Let's have a close look.
Costs of personal loan: Really needed for travel?
If the travel is of a discretionary nature -- for holidaying or fun trip -- it is advisable not to opt for personal loans. The reason is clear. These can be adverse impact on credit score, higher interest rate etc.
Interest rate: A personal loan carries the highest interest rates of all retail loan products such as home loans, car loans and education loans since these are secured loans while a personal loan is an unsecured one. Annual interest rates on personal loans start from 9% and can go up to 25%-30%.
Credit score could suffer: If one applies for too many loans, it could harm one's credit score.
Avoidable habit: If you take one personal loan, it could easily lead you to another since it is so easy to apply for. That could lead to more loans and if one is not careful, it could be even for relatively frivolous purposes, or which are easily avoidable.
Credit cards an intelligent alternative: One can easily use credit cards for hotel and transport expenses. Credit cards also offer the facility of interest-free repayment, which is not possible in case of a personal loan.
However, if the trip is too important to undertake and there are just no alternative sources of funds, one can think of opting for personal loans. One has to remember that the interest rates on personal loans depend on the applicant's credit score, loan amount, income level and repayment track record of any past loans.