Travel is the only thing you buy that makes you rich. Sure, but if you’ve seen that meme flying around, the one about That Rich Friend Who Travels, you know that it isn’t the first priority in everyone’s budget. While we’ve managed to craft a life of travel for ourselves, it can be tricky if you have other priorities. So for many people, a great way to do this, is by taking out a personal loan.
Depending on your situation, it may or may not be a great idea. Since most personal loan interest rates are a little better than credit cards, it’s a good way to get your bucket list sorted! Naturally, it must be approached with caution. You don’t want to end up being played over by a bank that will take advantage of your travel dreams, so take that loan sensibly! So if you’re thinking about taking out a personal loan for travel, there are a few things you should consider:
Compare it against Credit Cards
When you take out a personal loan, you borrow a certain amount of money, agree to terms like paying interest plus fees within a certain schedule. While credit cards do however come with certain benefits like reward points etc, the interest rate is higher than that of a personal loan. And with personal loans, thanks to the repayment schedule, you know exactly when you’ll be debt free, and can work towards it in a systematic manner. It does however make sense to calculate how much you’ll be repaying and at what intervals to ensure it is something you can live up to.
Consolidate with Credit Cards
If you’re tempted by the benefits of credit cards like insurance and reward points, you can consolidate your personal loan and credit card debt to get the lower interest rate and payment schedules. Ensure that you’re pre-approved for the total amount before you travel, so that you don’t get caught with a massive credit card bill on your return.
Do you really need it?
While Personal Loans can be a tempting proposition, don’t be greedy about it. If all it means is a more luxurious trip, or a way to travel beyond your means, take a moment to think about whether it’s really necessary. Especially if you already have a home loan, review your financial situation and check whether the financial implications of breaking savings is really worth the interest you’ll be paying.
Find the right loan
There are so many personal loans being advertised right now, but don’t take them at face value. Ensure you do your homework, comparing them to find the right one for you. While interest rates may vary, do also take into account things like processing fees, documentation fees, pre-closure fees, monthly charges and pre-approvals.
Borrow what you can repay
While a loan is all about gaining financial freedom to do things you couldn’t otherwise, ensure you can afford it in the long term. Travel is never worth living beyond your means, so ensure your regular income or anything that you expect to earn is at least 50% more than your monthly loan repayment. Take into account financial goals and responsibilities. Missing a repayment can have a negative impact on your credit score, hampering your chances for any future loans.
Read the T&C
Loan paperwork is lengthy, filled with jargon, confusing and boring. But make sure you familiarise yourself with anything that you’re getting into so there are no nasty surprises later on.
Discuss it with family
Make sure you discuss taking a loan with your spouse and dependent family members as this may affect them too. Ensure that everyone is on board with any sacrifices, diligence etc that is expected of them during repayment and if you’re using any of them as guarantors, make sure you don’t let them down.
Use it wisely
Just because you have access to a loan shouldn’t mean using it in a blowout holiday (unless that’s the precise reason you want it, if it’s a special occasion or something) But normally, it makes sense to limit your loan to cover essential travel costs and not end up paying for a short holiday for months on end.