Planning a vacation? Personal loan vs credit card vs buy now pay later compared

Everybody needs a holiday to relax and take a break from routine life. However, whether it’s a weekend getaway or a longer 1-2 week trip, holidays can weigh heavy on one’s wallet. Therefore it is always advisable to create and stick to a budget and use money from one’s savings to pay for a vacation.

However, if one doesn’t have savings on hand, personal loans, credit cards, and buy now pay later (BNPL) can come to the rescue.

But, which of these is actually worth it?

In order to get an answer to this, it’s important to understand all these forms of consumer credit.

All these credit options are of a somewhat similar nature. Be a personal loan, credit card or BNPL - all allow one to buy consumer services upfront with repayment over a definite period but what makes them different is the repayment period and the rate of interest, said Amit Chaturvedi, Co-Founder Paytail while talking to CNBC-TV18.

So, one should make an informed choice considering all the factors.

Elaborating further, Nitin Mathur, CEO at Tavaga Advisory Services said that a personal loan is a collateral-free loan, which can be used to cover all the big-ticket expenses associated with travelling, including airfares, tour packages, hotel charges, etc.

“The eligibility criteria, here, primarily include CIBIL score, age, income, and work experience. Since one can get the personal loan amount upfront, it helps in planning travel better and avoid overspending,” he said.

Credit cards and BNPL, on the other hand, are preferred for smaller ticket-sized purchases and give the convenience to instantly pay for purchases like dining, sightseeing, transportation fares, and other trip expenses. However, it’s important to note that personal loan disbursement requires more documentation while BNPL and credit cards are almost immediate in processing, Mathur told CNBC-TV18.

Talking about the repayment period, Mathur said that personal loans are provided for a longer duration of about 12 – 60 months while BNPL is for more short-term needs, typically 15 days to 3 months. Credit cards borrowings, on the other hand, can be converted to monthly instalments or paid back the following month.

Interest rates are highest in the case of credit cards (in case of a carry forward).

Replying to this, Anshuman Narain, Vice President at CashBean said that borrowers should either go for a personal loan or BNPL because these are more transparent options and relatively low cost (though that would depend on various factors).

"With good BNPL options one can even get nearly interest-free borrowings and with personal loans also (if one has a decent credit history) can get low-interest credit much quicker than traditional banking," Narain said.

However, that may not hold true for all.

In the end, the most suitable financing option will depend on one’s financing needs - the loan amount, flexibility requirement, duration for which funds are sought, etc, Mathur of Tavaga Advisory Services said.

"The point is that whichever option one chooses, it’s important to ensure that he/she can afford to repay it before getting into a debt," Mathur added.