Should You Borrow Money to Travel?
Frequent travelers usually save up or use their credit cards to finance their trips. Some also take out a loan, specifically a travel loan, a.k.a. tourist loan. Borrowing money for a trip may not sound the most sensible, but if you use your credit card to book flights and shop abroad, aren’t you technically doing the same?
People who are highly deliberate with their finances may disapprove of going into debt in order to travel. However, there could be some perks to getting a travel loan. If you found a good lender, you can negotiate your terms so that you can still stick to your monthly budget while making your repayments. Plus, travel loans aren’t as big as home loans or car loans. You won’t be borrowing hundreds of thousands, so it’s easy to repay over a short period.
Potential Challenges to Borrowing Money for Travel
Travel is neither a tangible nor an appreciating asset. It is a luxury that loses value upon consumption. As such, it’s worthless to anyone but you.
Ask yourself what the trip means to you before borrowing money. Determine if the memories you’ll make will last a lifetime. If you’ll be sacrificing a part of your monthly income for repaying the loan, then your travel should be worth it. Depending on how much you borrow, you could be repaying the loan for years.
For example, if you borrow $10,000 for a month-long trip all over Asia, and the loan’s interest is at 15%, your monthly payment for 5 years will be $237.90. Your interest payments would add up to $4,273.96, making your total repayment $14,273.96. That’s a hefty amount of money for a depreciating asset. But if the travel’s value if beyond monetary for you, then paying over $200 every month for 5 years shouldn’t be an issue. You can negotiate for a more flexible term anyway, such as 10 years. But your interest payments will blow up more over that period.
The Good Side of Borrowing Money for Travel
Debts have such a bad reputation when it is used for anything other than homes, businesses, or cars. Some people even disdain travelers who use borrowed money for their trips. But a travel loan has more positive qualities than one realizes.
Travel loans allow for more financial flexibility. You can borrow more than what you need so that you’ll have room to enjoy your travel more. Say, your California itinerary didn’t include a tour to the Disneyland Resort initially, but upon setting foot in the state, you realized that it would be a bummer to miss it. But because you borrowed more than what you need, you can still buy tickets to the Disneyland Resort and enjoy a guiltless, spontaneous activity.
In addition, having extra money is useful in case of emergencies. Some trips result in unexpected food poisoning or injuries. Though an ER visit is the last thing in your mind while planning a trip, it’s better to be prepared for it than experience it empty-handed. If not a medical-related incident, emergencies can be extra baggage fees, hotel services, or unplanned activities.
Furthermore, travel loans give you more financial advantage than credit cards. Using a credit card tempts you to spend more because you’re not seeing your money get wiped out. Paying with cash, on the contrary, encourages you to stick to your budget. A travel loan’s fixed interest rate is lower than a credit card’s, too.
How to Qualify for a Travel Loan
There are many lenders offering travel loans. Each lender and loan offer different perks. But the qualifications are more or less the same for everyone. The terms, however, may differ depending on the location. In the Philippines, for example, a standard travel loan program has a term of 1 day up to 365 days, a principal amount of Php 1,000 to Php 35,000, and a fixed interest rate, calculated after application.
But as with any loan, you need a good credit score to be approved. A major credit scoring company will assess your financial records to see if you fit the risk profile. If you have no other debts, your chances of getting approved increases.
Here are the requirements for applying, assuming that you’re borrowing in the Philippines:
- Must be at least 18 years old at the time of application formalization
- A Philippine or U.S. citizen
- A permanent source of income
Having no credit score or history won’t automatically result in a denial. But for lenders to ensure that you’ll repay, they may ask for collateral, such as your car or another one of your properties.
Considering the amazing perks of a travel loan, being short on cash is no longer a hindrance to exploring the world. As long as you are a responsible spender, then borrowing money for travel won’t jeopardize your financial stability.