Personal Loan for Valentine’s Day

In a utopian construct, everyone would have already saved up for the upcoming Valentine’s Day break. But if you are like the majority of regular people (or mango people from the movie, ‘Love Aaj Kal’), who haven’t saved enough for the loveliest of days, your first thought/scheme would be to use your credit card. However, as we will explain in the forthcoming paragraphs- this could damage your finances in the long run. To top it, if you already have huge payments to be made on your plastic, putting new expenses on them could result in a cardinal financial sin.

In such a situation, a short-term personal loan -- popularly called the ‘holiday loan’ -- might just be the right thing for you. It would generously cover vacation expenses like sight-seeing, shopping, travel and hotel bookings. Following are a few reasons why opting for a personal loan instead of a credit card for the much-awaited Valentine’s Day is the smarter option:

·         You know exactly how much you will have to pay

Having submitted your personal loan application, the lender bank checks into your credit score before declaring the final verdict on your loan. Once approved, the interest rate, repayment span and terms become constant entities.

While signing the loan, you are informed of the exact amount to be paid each month and that does not vary overtime. This, in turn, helps you to pre-plan your budget over the loan period so that you don’t default on your installments. “The fixed payment offers something that a credit card, which simply requires a measly minimum payment, doesn’t,” states Chris Alberta, President of Alberta Enterprises, and the CEO of both Senior Benefits Group and Senior Health Direct.

There runs a certain level of uncertainty while paying up your credit card debts, especially if you don’t pay the monthly balance in full. Calculation of the repayment amounts can be a little confusing- particularly when new charges are added while trying to pay off the existing balance.

·         Lower interest rate

As the wise say, ‘While borrowing money, fetching the lowest rate of interest is the key to saving up’. If you have a promising credit score, it is possible to attain a personal loan with a much more affordable rate of interest than your credit card. Furthermore, a credit card loan is offered at flat interest rates, while a personal loan is offered at reducing balance rates. 

In a flat rate loan, the monthly interest is calculated on the initial amount of loan taken and it remains so throughout the loan tenure even if the principal amount reduces. On the contrary, in a reducing balance loan, the outflow of interest gradually reduces as the principal gets paid off.

·         You can spend only as much as you borrowed

Since you get a lump sum in a personal loan, you exactly know the amount you have available to spend. In fact, you are not bound to spend the whole amount. If you have leftover cash after your vacation, you could use it to jump-start your payments.

In stark contrast, your financial life can get delinquent with credit cards. Multiple credit cards or even a single card could get dangerously stretched up in comparison to a personal loan amount. The psychology being that a credit card facilitates the tendency to over-spend without the subsequent realization dawning on the card-user. In short, it thrives in your oblivion. Also, since credit card interest rates are higher than that of personal loans, it could take you a reasonably longer time to pay off your card bill, and you end up paying more in interest overall.

All reasons apart, a Personal loan-funded Valentine’s Day will bring joy to your special someone, and that’s surely beyond a price!