Personal loan: Why raising it for travel may be avoided? Here are key reasons | Mint

Personal loans: If you are planning to raise a personal loan it is important to note that this should be meant for something important. Some of the key reasons for raising a personal loan include an emergency, home renovation, tuition for higher education and to host an important function such as a wedding or a reception.

Most of these expenses are unavoidable and therefore it is not uncommon to raise a personal loan for any of these.

Meanwhile, it is recommended to refrain from taking out a personal loan for avoidable expenses such as going on a trip or indulging in a recreational activity.

Avoid loan for travel for these reasons:

I. Higher interest rate: Personal loan is unsecured and therefore it has a higher rate of interest. Therefore, you end up paying far more than the money you took as loan.

II. Impact on credit score: When you take too much of credit, it may adversely affect your credit score especially if it is more than your monthly income can easily repay.

III. Inculcating a bad habit: When you get into the habit of raising loan for something as dispensable as travel, your tendency to raise loan will naturally increase multifold. So, it is recommended to raise the loan only when it is absolutely essential.

IV. Use of credit card: Travel cost primarily includes hotel and flight bookings – both of which can easily be done via credit card. Therefore, there is no strong reason to rely on a personal loan instead of a credit card.

However, you may still consider taking personal loan for travel when one of the following takes place:

I. Too important to cancel: Travel plans were made long ago with the people who matter a lot, for example your school friends. And it so happened that you are currently low on bank balance but your financial situation will soon change in a month or two.

II. Meeting the deficit: It entails an exotic trip and you are short of funds only by 10-20 percent of the total travel cost. For example, when you are scheduled to spend ₹3 lakh on a trip to Europe, while you are short of ₹30,000. 

Taking a small personal loan for a few months won’t harm much for a trip which can’t be postponed.

III. Key event: When the travel is primarily meant for an important conference or event which will provide good networking opportunities and would be beneficial for your work in the long run.

(Note: Raising a loan comes with its own risks. So, due caution is advised)