Should you take personal loan to go on vacation? Experts weigh in

Raising a loan is not unusual. Whether you need money for a house renovation or an emergency, you can seek a home loan from a bank or a fintech platform. However, if you believe that you can rely on a loan for anything and everything, then you are wrong. It is not recommended to seek a personal loan for discretionary spending, such as for a vacation or to buy a luxury item.

Easy instant personal loans allow people to spend more than they can actually afford. 

Preeti Zende, founder of Apna Dhan Financial Services, strongly advises against taking out a loan for travel. She says, “Travelling is considered your aspirational goal, so for such a goal, it’s always better for you to use your savings and regular income to fund it rather than going with an easy loan option. Such easy loan access makes us spend more than we budgeted, and then we have to pay the EMI at a higher level for the next few years. This ultimately reduces our saving capacity, and we end up compromising our important financial goals.”

Plan in advance

Instead of taking loan for travel, it is recommended to plan well in advance and save along the way. This can be done by investing in a mutual fund via SIPs or in a recurring deposit (RD) account.

“You can plan the travel goal well in advance. Budgeting and timely investing accordingly will keep us on track. Many of us go for a yearly domestic vacation, quarterly weekend gateway holidays and international vacation every couple of years. You can start a simple RD for a yearly vacation goal. One can keep aside a particular amount separately in the investment account each month for the next 3 months for the quarterly holidays, and for 2/3 years vacation, you can start investing in a debt fund and a conversation hybrid fund,” says Zende.

While speaking in a similar vein, Rohit Garg, CEO of Olyv, opines that consumers should budget carefully, evaluate their ability to repay against job and income stability, and consider alternatives such as saving in advance. “At this stage of the digital lending ecosystem, the challenge is not access to credit; it’s ensuring that credit is used effectively and responsibly,” Garg says.

Exercise caution

It is equally important to exercise caution while going ahead with discretionary spending. Experts warn that borrowing for consumption could provide satisfaction for the time being, but one should resort to prudent planning to avoid over-indebtedness.

“Loan for discretionary spending should be approached with caution. Even informed borrowers often underestimate the cumulative impact of multiple EMIs, turning short-term indulgence into long-term repayment stress,” says Aditi Singh, Chief Strategy Officer, Satin Creditcare.

While sharing a smart tip to help decide whether to borrow or not, she says that EMIs for such expenses should be 5-10 per cent of monthly income and total liabilities should be under 30 per cent.

“If luxury or travel expenses can comfortably fit within the discretionary portion of your budget, for instance, limiting EMIs for such items to 5–10% of monthly income and keeping total liabilities within 30%, then borrowing may be manageable. If not, it’s wiser to defer the purchase, build savings, and avoid relying on costly instant credit,” adds Singh.

Avoid stress

Experts also argue that taking a loan for discretionary spending leads to avoidable stress. A Paisabazaar survey revealed that around 27 per cent of people take loans for travel.

While referring to instant personal loans as a ‘double-edged sword’, Kundan Shahi, Founder of Zavo, a loan repayment platform, says they tend to create a lot of stress if used for non-essentials.

“Loans for luxuries may seem enticing, but they often come with adverse consequences. It’s vital to weigh the cost of borrowing against your ability to repay, ensuring your financial health isn’t compromised for short-term satisfaction,” says Shahi of Zavo.

Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.

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