Should you take Personal Loan for Vacations?

    Many people around the world have a traditional approach when considering a personal loan to finance their holidays. However, there are some instances when taking a loan for holidays could be justified. For example, if you do not have enough liquid cash with you, financing your holiday with a personal loan will let you save more than your credit card. However, this option is advisable if you have a good financial standing and the reason you are taking a loan is because of an once-in-a-lifetime event, like your honeymoon.

    If you take a personal loan, you can repay it easily with fixed instalments. The instalments will make it a lot easier to handle your cash flow. Also, among all unsecured credit facilities available, personal loans attract the lowest rate of interest starting from 4.5% p.a. to 20% p.a. A credit card, in contrast is a lot more expensive with a higher interest rate close to 25% p.a. and other charges such as late fees.

    In Singapore, you have to borrow a minimum of S$1,000 to be eligible for a personal loan. In case you do not require this high an amount for your holiday, consider using other means of credit in its place.

    Risks associated with using personal loan to fund your holiday

    As it is with any type of loan, you must make space for monthly payments in your budget as you will have to pay late fees if you fail to pay the instalment on time and your credit score will be impacted. Also, your Total Debt Servicing Ratio (TDSR) will take a hit in case you are thinking of purchasing your first flat. Getting a personal loan can potentially reduce your odds of obtaining a mortgage because getting loans will increase your TDSR.

    Preferably, your unsettled debts must be less than 60% of your income. So if you do not want to delay the purchase of your first HDB flat till the time your debts are cleared, you might have to reconsider getting a personal loan to finance your holiday.

    Look for personal loans with promotional offers

    Try to find out banks that are offering personal loans with promotional deals. For instance, UOB, HSBC and Citi waive processing fees for personal loans every now and then. In addition, some banks offer exceptionally low interest rates or additional cash rebate to make their offerings most attractive. By getting a low-interest personal loan, you will be able to save a lot on interest payments.

    When should you apply for a personal loan for a holiday?

    Ideally, you should have a minimum buffer of up to three weeks for the loan application to be processed. Once you have made a decision to go on a holiday, you must apply for the loan immediately. Since you will have to pay for hotel rooms and flights upon booking, it would be better to have enough funds available. Under such circumstances, you will be able to take advantage of flash sales and promotions and save more money.

    The amount you borrow should not depend on the sum the bank is ready to lend, but it should depend on how much you require and your ability to repay over time. If you do not adhere to this rule, you may face a tough time repaying your loan.

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