3 questions to ask yourself before travelling with a personal loan
It’s only January, but that doesn’t mean Aussies everywhere haven't already started scrolling wistfully through Instagram picking out their next holiday destination.
In fact, a recent survey from travel insurer InsureandGo, found that one in ten Aussies have picked their next holiday destination because of social media.
With a destination picked out, the next step for many Aussies holidayers is finding the money to foot the bill for their Contiki tour through the highlights of Europe, Thai resort or South American trekking adventure.
One of the options for those who don’t have enough savings put away is to consider a low rate personal loan. A personal loan allows you to borrow a set amount of cash to use for your travel expenses, whether that’s flights, hotels, tours or spending money. You’ll pay interest on the loan amount over a set time period, and there may also be upfront or ongoing fees to consider.
If this holiday loan sounds like the right fit for your holiday budget, make sure you carefully consider the pros and cons before applying. Here are some of the questions you should ask yourself to make sure you’re on the right track.
1. Is a secured or unsecured loan better?
This is something to ask yourself before you start your personal loan hunt. If you have a big asset, like a house or a car, which you can put up as security against a loan, then you may be able to opt for a secured personal loan, which often have lower interest rates on offer. On the other hand, a flexible unsecured personal loan doesn’t require you to own any big asset - but you may wind up with a slightly higher interest rate.
2. How much interest will I pay?
Unlike funding your holiday from your savings account, when you opt for a personal loan to cover your travel bill, you need to factor interest into your overall budget when you get home. For example, say you take out a $6,000 loan from a big bank to pay for your holiday with an interest rate of 15.99%. Paid back over two years, you’ll have monthly repayments of $294 and pay $1,050 in interest all up. That means your holiday really cost you $7,050.
On the other hand, if you compare personal loans and choose a lender offering a 8.16% interest rate instead, you might only wind up paying $523 in interest.
3. What are my other payment options?
As with any other financial decision, whether or not a personal loan is the right way to fund your holiday is a choice that depends on your personal needs and situation. One of the benefits of a personal loan is that you can opt for a fixed rate and know what repayments you’re in for upfront, helping to plan a repayment budget. But after doing your research, you could decide that the flexibility of a travel credit card or debit card is a better option.
So before you settle on a personal loan, be sure to read up on the other travel money options available to fund your next holiday.
And if you’re ready to take out a personal loan and jump on a plane, head over to our comparison table to find the best option for you.