Friday, 16 December 2016

It is A Good Idea to Take a Personal loan for an Overseas Trip?

People in India take loans for education, home renovation, medical emergencies, and even for vacations. However, a personal loan for an overseas trip (which can be usually quite expensive) can rarely be a good idea.
Why Does a Personal Loan for an Overseas Trip a Bad Idea?
Most personal loans can be obtained without collateral. You are free to use the loan for anything, and that is a big advantage. However, this advantage comes with a catch- huge interest fees. After all, the lender is granting you a loan collateral-free, thus taking a risk. This is why you have to pay high interest rate for the same.
It is important to understand the difference between good loans and bad loans. Among all possible reasons for taking a personal loan, an overseas trip(especially the one that is purely for fun and leisure) is probably the worst. The reason is simple- the loan you take for an overseas trip/vacation that lasts for 4-10 days have to be paid back with a hefty interest of 14-24% over an year of so. This is an absolutely extravagant transaction that can be easily avoided.
Another reason why a personal loan for a foreign trip should be avoided in because such a loan won't be an appreciated investment. For instance, a home loan, or a car loan are appreciated investments, which gain value over time, and hence improve your credit worth. A personal loan puts you in bad light, especially if you are taking it for an overseas trip. While you are entitled to spend the loan however you like, it may have consequences on your credit report.
 Risks Involved
Even if you are a great planner, and have spend a lot of time planning your trip, you can never predict the future. If you are overseas and your expenses cross your budget you may end up turning to your credit card for help. Since you already have a personal loan to take care of, the credit card bills (which can be quite high when the card is used in another country) can add to the financial pressure.
Another risk that comes with using a credit card overseas, is that if you have reached your borrowing limit, then you can't use the card for paying the personal loan EMI if need be. You can end up in huge debt, which can further make situation worse as it will continue to collect interest. Your credit score will be damaged, and you could end up making it to the CIBIL defaulters list.
The Verdict
If you have to take an overseas trip for a vacation then you should absolutely avoid taking a loan of any kind for the same. However, in some cases taking a personal loan can be fine. For instance, if the loan is of small amount, or the trip begs emergency, then you can take a personal loan. But still, it is best to avoid taking a personal loan at all costs. If possible, you can use your credit card for the same.
If you absolutely have to take a personal loan for a trip overseas, then make sure you take care of the following:
·         Planning: Make sure you get your numbers right before taking the trip. Calculate how much will the trip costs, including a margin for unexpected expenses.
·         Credit Card: Do carry your credit card with you, but make sure you only use it if absolutely necessary. It is easy to be swayed in the spirit of enjoyment in a different country, and you may want to spend on luxuries on a whim. Such ideas need to be controlled, for you will have a debt waiting for you to be taken care by back at your home.
·         Loan Comparison: Do spend your time in comparing all possible options for personal loans. Online lenders generally offer low interest rates on personal loans.

Loans should always be taken for emergencies, or for necessities. If you are taking it for a luxury then you can end up with troubling financial issues. Thus, use them wisely.

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