Why you should not take out a loan for a holiday or trip?

When planning a trip, we often don’t have enough money to rest properly. At such moments we try to find the money to make up the amount we need: shaking out piggy banks, searching the pockets of old winter jackets or phoning wealthy relatives. Sometimes we try to save on the holiday itself by looking for cheaper accommodation, a shorter route, smaller food supplies and so on. Many people also see a loan as an easy alternative that lets them get money quickly and enjoy a full holiday. Almost nobody talks about this, because information that loans should be used for travel and leisure is mostly published by banks and financial companies, which are interested in people borrowing as much as possible. So let’s look at the reasons why you should never take out a loan in order to go on holiday.

If you spend borrowed money on a holiday, you will overpay considerably!

And it is not about the interest… The point is that if there is an available credit limit on your card, you will 100% make several rash purchases, because scientists who study economic behaviour have shown that borrowed money is not perceived as your own. Figures such as Daniel Kahneman and Amos Tversky wrote about this in their books. Such money is easier to spend without thinking about the consequences. As a result, instead of a café we go to a restaurant, instead of one souvenir we haul home a bag of gifts for every colleague at work, and instead of travelling by bus we zip around the tourist city by taxi. This is exactly the overpayment we are talking about, because instead of the expected 4-5 thousand hryvnias on entertainment you will spend much more.

You risk being stuck with an active loan for a long time!

Once you have spent borrowed money, remember that repaying it may take much longer than we planned. Often, instead of paying in extra funds and partly closing the loan, we pay only the mandatory payment. It is also called an “anchor”. Cunning lenders often mark this amount with a bright, large inscription, and the real debt with small, inconspicuous figures. They deceive our brain so that it seems we owe only a small sum. Once we have paid it, the brain gets a signal that everything is fine until next month. Thus the minimum payment turns from a temporary solution into a permanent routine, while the body of the loan hardly decreases – most of the payment goes to interest and fees.

An active loan will take money from your next holiday!

Ask yourself whether it is worth having a holiday that is 20-30% more expensive now, only to go nowhere at all next year. After all, the money you give away in interest and fees is not an abstract figure in a contract but a perfectly real sum that you will be short of a year from now. A notional 8-10 thousand hryvnias of overpayment is already the price of tickets, and sometimes half of the budget of your next trip.

The result is a paradox: you hurried to take a holiday a year earlier and, as a result, missed the next one. On top of that, part of your monthly income is already taken by the payment, so there is simply nothing to set aside for a new trip. And when the time for the next holiday comes, you will again have only one available option – a new loan. This is how a vicious circle forms, one that many people cannot escape for years.

Under no circumstances use microloans for a holiday!

People with a poor credit history may be unable to get a loan from a bank. The only way for them to borrow is so-called microloans. Applying to such companies and using the money for a holiday or entertainment is strongly discouraged.

According to Rostyslav Plashov, author of the analytical website 100kredit, which studies finance and lending in Ukraine, the share of microloans that people take for holidays may be 3-10%. In effect, such people value entertainment more than financial freedom. It is strongly discouraged to use this type of loan for entertainment. Of course, if you lost your wallet while on holiday, broke an expensive set of dishes in a restaurant, or your car broke down on the way home, turning to microloans is quite justified.

What is better to do instead?

To avoid using borrowed money for a holiday, it is better to plan your expenses and income more carefully. The simplest way is to open a separate account or a savings jar and set aside a fixed amount there every month. Even 1,500-2,000 hryvnias a month turn into 18-24 thousand in a year, and that is already a full trip without any debt. The main thing is to transfer this money right after payday, not at the end of the month from whatever is left. There is usually nothing left.

The second point is early planning. Tickets and accommodation booked 6-10 months ahead cost significantly less than those bought a week before departure. In effect, planning alone saves you the very sum you would otherwise have to borrow. You also get time to calmly compare options instead of grabbing the first one that comes along because of a lack of time.

Third, honestly assess your means. The type of holiday should be chosen to fit the budget, not the budget to fit the type of holiday. The Carpathians, Odesa or a few days in a neighbouring city this year is a perfectly good choice, not a defeat. Today it is young people under 25 who take out loans for holidays abroad, not realising that this is a trap, not entertainment. Yes, you will get unforgettable emotions and impressions, but they will last a few days, while repaying the loan will take far longer. A holiday is measured not by the price of the package but by the state in which you come home. Coming home with a debt for half a year is definitely not the best option.

If there is never enough money for a holiday or a trip, perhaps it is worth thinking about changing your place of work or profession?

Conclusion: should you take out a loan for a holiday?

In today’s realities, loans for holidays are hard to justify with rational arguments. But, to sum up, let’s try to put ourselves in the place of a person who turns to microfinance organisations or banks to fund their trip.

If you are absolutely sure that you will not be able to take a holiday in the coming years, and this is your last chance to visit a particular country and enjoy unforgettable experiences, then a small loan on preferential terms may be justified. Of course, only on condition that you have a steady income and understand where the money to repay this loan will come from.

Financial responsibility is an important aspect that affects the quality of your life and helps you realise that the economic side is extremely important in the modern world.