Brooklyn was floored when she heard people were taking out personal loans of up to $50,000 to go to Europe. (Source: TikTok/Getty)
Australian travellers are being urged to rethink getting personal loans to pay for their winter travel plans. Nipping over to Europe or the US to escape the cold is a well-trodden path that thousands take every year.
But some aren’t spending months to save for the holiday and are instead taking out loans to ensure they can live life to the fullest. Tax expert Kiki told Yahoo Finance this can have huge ramifications down the line if you want to buy a home.
“It’s a bit risky taking out a loan, especially in this environment where the banks are quite strict with borrowing capacity, and taking out a personal loan of $50,000 will definitely impact your borrowing capacity,” she said.
“If they’re going on a holiday just to have a break and take some pictures, and it’s not for a family reunion or anything of that sort, then I think it’s a bit silly.”
Fifty grand might sound like a ridiculous amount to spend on a jaunt to Europe, but this number was cited by some on social media.
Brooklyn posted a TikTok asking how people managed to afford to go away every single year.
Was it just sneaky savings hacks? Racking up credit card debt? Staying in the cheapest, nastiest hostel and eating bread every day?
Everyone had their personal trick, but one person said, “I know a lot of girls take out $50,000 personal loans just to go.”
Another added: “I know of people who took out $50,000 to go on trips, absolutely astounding.”
The answer absolutely floored Brooklyn, especially considering she had budgeted just $16,000 for two people to spend 10 weeks in Europe.
“Is this genuinely something people are doing? Like, I save diligently, I don’t really drink, I don’t really go out and do any of those things, and I can’t afford to go on these massive holidays every year,” she said.
Data from Finder revealed Aussies have slowly been taking out more in personal loans for their holidays and travel plans.
In January 2020, Aussies were approved for $35 million worth of personal loans for getaways alone. While that’s a lot, it’s nothing compared to the $1.1 billion taken out for car loans in the same month.
Personal loans for travel obviously took a massive dip during the pandemic, but ever since July 2021, the total amount taken out has been steadily increasing. The latest data showed $59 million was approved just in July, 2024.
Kiki said people are too often trying to ‘keep up with the Joneses’ and con themselves into these huge holidays just because others are jet-setting at the same time.
Finder actually discovered more than 2.14 million people would go into debt to pay for their holidays.
A further 5 per cent of Aussies, more than one million people, said they felt pressured to organise travel plans they couldn’t afford.
Personal finance expert Sarah Megginson told Yahoo Finance you need to be very careful going down this route as it can be a slippery slope.
“A growing number of Aussies are drowning in debt to be able to travel,” she said.
“While it’s tempting to splurge on a holiday, taking out credit to do so can cause long-term financial consequences and keep you stuck paying off debt for months or even years.”
When Brooklyn uploaded her video, some Aussies weren’t too fazed by the $50,000 admission.
“I’m happy for them. As long as they pay it back who cares? Life is for living,” wrote one person.
“When it’s that or waiting 5 years to save — take the loan! See the world! Life is too short,” added another.
But Kiki said this laissez-faire attitude towards loans isn’t the best outlook.
“People just don’t realise the impact it has on them when they come back from the holiday, which is the concerning part,” she told Yahoo Finance.
“If you want to go on a holiday, then save for it, and then you won’t have to stress about the aftermath of coming back and having to deal with this loan that is probably anywhere between two to five years of repayments.”
Having debt hanging over your head for that length of time can take a huge toll on your finances and mental health.
Kiki said you can keep costs down by booking flights well in advance, checking the same accomodation on multiple sites for the lowest price, finding free walking tours, or going just before or after peak season. Also putting any savings into a high interest account can boost your money as much as possible.
That was another point many raised on TikTok. They’re both credit and yet it’s personal loans that seem to be demonised, some said.
However, Kiki explained that if you’re putting all your travel expenses on a credit card, you’re at least getting the frequent flyer points.
You could rack up enough points that flights for your next holiday are a fraction of if you bought them outright.
You can also get certain travel insurance when booking with a credit card, and some cards have interest-free periods if you pay off your debt in full each month, which is not usually available with personal loans.
Credit cards and personal loans can carry incredibly high interest repayment rates, with some north of 20 per cent, however, there are some in the 5-10 per cent range, depending on a few factors.
But Kiki said optics can play a role if you want to get a mortgage a few years after that big Europe holiday.
“The bank might ask why was this loan taken out, and if the answer is, ‘For a holiday’, then they might perceive that behaviour as not someone that is financially stable,” she said.
The same can and will happen if you have loads of credit card debt.
But the difference is you will have a credit card debt at the end of your holiday based on exactly what you’ve spent, compared to potentially overestimating how much you’ll need for the loan.
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