Nowadays, traveling is no longer just a hobby, but is becoming a necessity. Work stress, a hectic lifestyle, and travel stories on social media inspire people to plan trips. But not everyone has a lump sum of money readily available. In such cases, many people decide to travel by taking out a travel loan or a personal loan for travel. Now the question is, is taking a loan for travel a wise decision or a financial mistake? The answer isn't straightforward. It's important to understand the complete financial implications.
What is a Travel Loan?
A travel loan is essentially a type of personal loan, specifically taken out to cover travel-related expenses. This can include expenses such as flight tickets, hotels, tour packages, visas, and travel insurance. Since no collateral is required for this loan, the interest rate is usually higher.
Advantages of Taking a Travel Loan
1. Your dream trip can happen immediately
If you have limited savings but don't want to postpone your trip, a travel loan allows you to travel immediately. You don't have to wait for years.
2. No pressure of a lump-sum payment
With a loan, you don't have to pay the entire amount at once. The expenses are spread out in EMIs (Equated Monthly Installments), which reduces the immediate financial burden.
3. Helpful in emergencies or special occasions
If you're short on funds for a honeymoon, family vacation, or any special occasion, a travel loan can be a viable option.
Disadvantages of Taking a Travel Loan
1. High interest rates
The interest rate on travel loans can often range from 12% to 24% per annum. This means your trip will end up costing significantly more than the actual expenses.
2. The joy of travel, the stress of EMIs
Even after the trip is over, the EMIs continue for months. Sometimes, the joy of the vacation fades, and the stress of the EMIs begins.
3. Can disrupt financial planning
If your income is limited and you already have a home loan or car loan, a travel loan can disrupt your monthly budget planning.
Let's understand with a simple calculation.
Suppose you take a travel loan of ₹2 lakh. The interest rate is 18% per annum, and the loan tenure is 24 months. Now your EMI will be ₹9,985, or approximately ₹10,000.
In two years, you will have paid ₹2,39,636, or approximately ₹2.40 lakh.
This means your trip cost you about ₹40,000 more.
When is taking a Travel Loan a good idea?
When your income is stable
When the EMI is not more than 20-25% of your salary
When you have a separate emergency fund
When the trip is very special and cannot be postponed
In such situations, a travel loan can be a controlled decision.
When should you avoid a Travel Loan?
If you want to travel only because of social media trends
If your job or income is uncertain
If you already have several EMIs running
If the trip is only for luxury and showing off
In these situations, taking a loan for travel can become a problem later on.
What are better alternatives to a Travel Loan?
1. Save in advance: Put a little money into a travel fund every month. This will eliminate the need for a loan.
2. Use your Credit Card wisely: If you can pay within the grace period, a credit card can be a cheaper option.
3. Plan a budget trip: Traveling during the off-season, using budget hotels and flight deals can significantly reduce expenses.
Experts believe that loans are always better for creating assets, such as a house, education, or business. Travel is an experience, but it doesn't provide financial returns. Therefore, a travel loan should be considered only as a last resort.
Disclaimer: This content has been sourced and edited from Zee Business. While we have made modifications for clarity and presentation, the original content belongs to its respective authors and website. We do not claim ownership of the content.
