by Venus Zoleta, on category "Loans"
October 18, 2018
Travel now, pay later. The mere thought of it elicits both excitement and fear. You can get a travel loan to fund your trip, visit your dream destination, and pay it back when you get home. At the same time, you’re scared it would lead to uncontrollable debt.
In the Philippines, banks and private lenders offer travel loans to Filipinos who don’t have enough money to travel within the country or abroad. Although a travel loan covers typical travel-related expenses such as flights and hotels, there’s also a special type of personal loan called the travel assistance loan that caters to tourists, immigrants, and students who need to fulfill their visa application or show money requirements.
Some travelers get this type of personal loan because of its low interest rate, as well as flexibility in terms of repayments (as opposed to forking out a lump-sum cash).
Should you borrow money from a lender for travel? If you’re choosing between a travel loan and another financing option in the Philippines, ask yourself these four questions to make a sensible decision.
Figure out how much your trip will set you back. Include all travel essentials in your computation—from airfare and accommodations to tours and shopping. Cut on costs where you can, like choosing budget hostels instead of three-star hotels. Set your travel budget within your means—it should be something you can afford given your income.
Once you’ve set a reasonable budget for your trip, check how much money you currently have to cover your expenses. To get the amount you actually need to borrow, subtract your available travel fund from your budget. This will prevent you from borrowing more money than you need and dealing with more debt than you can manage.
However, you may not need to get a travel loan if the difference between your budget and your available fund is something you can save up for weeks or months before your departure date. Saving up is better in this case because you won’t have to worry about paying the interest on top of the actual loan amount.
To decide if you really need to borrow money for travel, review your income and spending, including any existing loan and credit card balance.
Will your monthly budget allow you to repay a travel loan monthly for up to a certain number of years? Your monthly loan repayment should not be higher than 30% of your monthly income.
Take a look also at your savings. It isn’t practical to spend your emergency fund on your trip (Travel doesn’t qualify as an emergency, right?). But if you have extra money to add to your travel fund, you’ll be borrowing less when you get a travel loan. Or you might not even need to borrow at all.
Can’t afford that month-long solo backpacking trip in Southeast Asia or anniversary trip with your fiancé to Europe? Consider postponing the trip until you’ve saved up enough for it.
In contrast, no need to worry about borrowing money from a lender as long as you’re sure about how you’ll pay off your travel loan, and that you won’t have to live paycheck to paycheck after your trip.
Unlike borrowing money for starting a business, buying a car, or building a home, a travel loan doesn’t have an obvious ROI (return on investment). This means you can’t earn more money from traveling, in contrast to making a profit from a business, driving a car, or renting out a property.
Traveling offers some intangible and immeasurable benefits. Aspiring immigrants can finally reunite with their loved ones who are based overseas. Entrepreneurs can learn best practices in their industry from observing how other countries do them. Professionals can expand their skills and boost career growth by studying abroad. Tourists can experience different cultures and make lasting memories with their family.
In any of these cases, a travel loan becomes a good debt because you get something valuable in return. Be sure that your reason for traveling is worth the long-term costs such as the loan fee and interest payments.
A travel loan isn’t the only option for financing your trip. You can opt to use your existing credit card when traveling. But if you’re often traveling abroad, you can save more with a dual-currency credit card and/or a card with no foreign currency transaction fee.
Compare personal loans and credit cards for travel to know which one is the most beneficial to you. For one, travel loans have lower interest rates than credit cards. Loans also have fixed monthly amortization and repayment schedule.
Travel credit cards offer money-saving perks like air miles, rebates, travel insurance, purchase protection, and other travel benefits that travel loans don’t provide. A credit card is also safer to carry around than cash and allows you to repay only the amount you actually use.
You don’t want to struggle for several years with your loan repayments after enjoying a two-week vacation abroad. This is why it’s very important to carefully decide whether to get financial assistance through a travel loan. Research and compare your options to ensure that you can pursue your wanderlust without going broke afterward.