Borrowing to go on vacation has pros and cons to consider and depends on many factors such as destination, amount required, your credit score, and what your financial institution has on offer when it comes to charges, repayment terms and schedule, early repayment, etc. While for some people it is a stupid idea to borrow to go on a holiday, a trip abroad or vacation is a great opportunity to gain valuable experience and make money out of it.
Borrowing to go on vacation may be a bad idea if you need a lot of money and your options are more limited. If you have fair or poor credit, then financial institutions are likely to offer you a loan with higher interest charges. You may get approved for a collateral-free personal loan but the interest charges are high compared to secured options. Borrowing to finance your holiday doesn’t make sense if you have multiple debts to repay because this will add to the total balance. Another downside is that this will lower your borrowing threshold and ability to borrow in the future. In fact, your application may be turned down or you may not get the loan amount you apply for. If you need urgent cash, you would be forced to apply with bad credit and payday lenders that charge extremely high rates. Finance experts point out that loans should be used for emergencies, assets, and basic necessities and not for luxury items and travel. While this is not a luxury per se, borrowing to go on vacation means that you are living beyond your means.
While there are downsides to keep in mind, borrowing to go on vacation makes sense in some cases. If you use a secured credit card during the introductory period, then the amount borrowed can help you finance your holiday without paying tons of money in interest charges. This works pretty much like an interest-free loan provided that you repay the outstanding balance by the end of the intro period. Keep in mind that some issuers offer cards with relatively short introductory periods of about 6 months. If you have multiple high-interest balances to repay and plan an expensive vacation, it pays to shop around, especially if this is a one-in-a-lifetime opportunity for your family. If this is your partner’s or children’s dream holiday, then you may want to get a holiday loan with fixed payments. Fixed rate loans are easier to budget and plan when it comes to monthly payments. Keep in mind that the best deals and rates are reserved for regular customers and borrowers with stellar credit and a solid payment history. If you have a good or fair score, you have to do quite a lot of shopping around to find affordable rates. At the same time, paying cash (if you are short of cash) puts limitations on what you can do. You have to settle for less which can ruin your vacation plans. You may return home feeling stressed, deprived, and anxious instead of happy and revived.
Alternatives to Borrowing
There are alternatives to finance your holiday and one is to arrange that money is automatically transferred from your deposit account or paycheck to a separate account that you forget about and then use the money to go on vacation. The best way to go about it is to open a high-interest or savings account for additional savings.