Personal loan: Is it a good idea to splurge on experiences with borrowed money? Keep these golden rules in mind | Mint

Are you a travel freak and love to explore new places? Or are you a young college student who likes to visit the country’s hinterland to interact with people from different regions? Else, do you desperately like to view, see and feel the things which your income may not support — but you find these experiences too important to be deferred to a future date?

If that is the case, you might have to rely on a personal loan to fund these expenses.

Raising a personal loan could be a ‘good’ idea or ‘bad’ depending on who you speak with. Here, we deconstruct the feasibility of raising a personal loan for the things which do not appear to be mandatory in the true sense of the word.

Why to take a personal loan

Some of the key reasons for taking a personal loan are marriage expenses, buying a luxury gift for your partner, home renovation, or a personal emergency.

In view of this, raising a personal loan to splurge on experiences seems a little out of drift. What can those experiences be? They could entail bungee jumping in New Zealand, visiting a monastery in Bhutan, exploring vineyards in France, mountaineering in Himachal or tasting an array of chocolates in Zurich, Switzerland.

Well, these things are definitely ‘avoidable’ and not urgent by any stretch of the imagination. However, there is a small nuance to it. What if you are a travel freak and have an aspiration to cover a dozen countries before you retire? Then travel is not completely ‘avoidable’. 

Also, if you are a wine connoisseur, visiting a vineyard in France may make more sense than for someone who wants to do it just for the sake of travel.

Similarly, what if you are a passionate mountaineer and it gives you a sense of purpose in life and keeps you productive and efficient in your professional life? Then going on a trek in Himachal Pradesh is perhaps not out of sync.

Likewise, if meditation has given a new lease of life to you, then visiting a monastery in Rewalsar (in Himachal Pradesh) is definitely not a waste of money.

Manage budget wisely

It is still imperative that you sort out your budget beforehand. Regardless of how important these sojourns are, you must ensure that these expenses are within your budget. And if not, you can save the money over a period of time before you decide to spend. Else, you can take a personal loan.

Experts, meanwhile, have a different take on this matter. “Unless there is no other option, one should avoid taking a personal loan since the interest rate is quite high on personal loans. One should rather save and invest in a planned way to meet such discretionary spending,” says Sridharan S, Founder of Wealth Ladder Direct.

Another wealth advisor Livemint spoke to opines that taking out a personal loan means compromising your future financial stability.

“Using a personal loan to fund experiences, such as travel or luxury purchases, can provide immediate gratification and unforgettable memories. Yet, it’s important to weigh the benefits against the cost of borrowing, as personal loan interest rates in India range from 10 per cent to 24 per cent. While enriching experiences can enhance quality of life, they should not compromise future financial stability. Saving in advance or considering less expensive alternatives to avoid the burden of loan repayments is any day a better option,” says Nitin Rao, Head of Products and Proposition, Epsilon Money Mart.

While echoing similar sentiments, Preeti Zende, a Sebi-registered investment advisor and founder of Apna Dhan Financial Services, says, “It is enriching to explore new places, get new experiences and enhance our horizons to learn new things in life but the question mark is at what cost? Is the travelling hampering your retirement corpus or does it get you in a debt trap? Instead, you can start a simple recurring deposit for a yearly vacation goal. One can keep aside a particular amount separately in the investment account each month for these travels. For an aspirational journey, you can start investing in a debt fund and a conversation hybrid fund.”

To sum up, one should avoid taking a personal loan unless it is absolutely necessary but no category of expense such as travel is a complete ‘no-no’.

There is no absolute answer as to how important that discretionary expense is. It varies from person to person. So, before you decide whether it is important to you, dig a little deeper to find out what kind of person you are.