Going on holiday can be considered a luxury, but in this age of ruthless competition and stress at work, a trip to some corner of the world seems to have become necessary to unwind. Such a vacation doesn’t come cheap, however, which is why it’s sometimes necessary to get a travel personal loan. But before you decide on getting one, here are a few things to consider:
Factor #1: Do you really have to borrow?
Before getting a travel loan, you need to decide if you really need to borrow in the first place. Instead of getting into debt, consider using your savings if you have any. You may be unwilling to take out funds tucked away in the bank, but if you really want to spend on your vacation, using your reserves would save you more money since you won’t be paying for interest.
Factor #6: Your financial situation
Here’s another important consideration: can you afford taking out a travel loan? You need to look at three things: how much you’re earning, spending and keeping. If the amount you keep is more than enough to pay for the travel loan’s monthly, then your wallet can probably handle a few premiums.
However, there are also other aspects of your financial situation to consider. For instance, is your job stable enough to let you completely pay for the loan? Do you have other debts to pay? If you’re just new at your job or have other commitments, then you may have to hold the loan off for a while.
Factor #2: Why not use a credit card?
Maybe you don’t have to take out a loan since you can use your credit card instead. It may have a higher interest rate than a regular travel loan, but there are cards that come with perks such as free travel insurance, travel miles, and/or zero per cent interest.
Factor #3: Credit score
You also need to look closely at your credit score before taking out a travel loan. If you have a low credit score, you’ll surely be given a higher interest rate if you take on any debt, and this would cost you more money. If you can wait for a few more months and work on improving your credit score in the meantime, you’ll be offered a lower rate when you do take out your travel loan.
Factor #4: Interest rate
Notice how several of the factors listed here are related to the loan’s interest rate? That’s because interest rate is an important consideration in any loan since it determines how much the borrower will spend overall. You need to look for the travel loan with the lowest interest rate and work on other related factors (listed here) that can affect this interest rate.
You also have to decide whether you’re going to get a fixed-rate or variable-rate loan. As its name suggests, fixed-rate loans have unchanging interest for the duration of the loan, while variable-rate loans are affected by the prevailing cash rate.
Factor #5: Secured or unsecured?
You need to decide whether you’re getting a secured or unsecured loan. A secured loan means you need to provide collateral as a guarantee; this will serve as security in case you default. It’s easier to get a secured loan approved even with a lower credit score because your collateral reduces the lender’s risk. An unsecured loan asks for no collateral but you have to deal with a higher interest rate.
Factor #7: Repayment
Finally, you have to think about how long repayment would take. A travel loan shouldn’t take too long to settle. It should be finished in a year, unless you’re agreeable to keep paying well after your tan lines fade. That means the value of the travel loan shouldn’t be too large that the only way to afford it is to stretch your payments and spend an unreasonable amount of money on interest.