Is Taking a Personal Loan for Luxury Really That Bad?

Are you borrowing for comfort or falling into a trap? A 2023 survey revealed that over 20% of personal loan borrowers in India used the funds for travel purposes. Specifically, 16% took vacation loans between January and March 2023, which rose to nearly 24% in the June quarter. Is it smart to borrow just to live rich now? Or is it a bad idea in disguise?

Personal loans are everywhere today — fast approvals, no paperwork, and digital signatures. These loans promise freedom. But not all freedom is good for your wallet especially when you're borrowing just to spend on things that won’t grow your money.

Why Indians are Taking Loans for Luxury?

Gone are the days when loans were only for education or emergencies. Now people take loans for iPhones, destination weddings, luxury watches, designer clothes, and even weekend trips.

A growing number of young Indians prefer a lifestyle over savings. Thanks to BNPL, app-based lenders, and credit on UPI, spending is just too easy. This mindset shift is what makes personal loans for luxuries dangerous.

Let's say you earn ₹50,000 a month. A ₹1,50,000 personal loan at 15% interest over 2 years means you'll pay ₹7,300 monthly. That’s 15% of your salary, gone. For what? A holiday that’s already over.

Cost of Luxury via Loan vs. Saving 

This table is enough to show how unnecessary interest silently eats your money.

Borrowing Looks Easy. Repayment Doesn’t.

The digital loan process feels smooth. You get ₹2,00,000 in your account in 10 minutes. But the hard part begins after that.

Every EMI, every month, reminds you that fun is over but the bills aren’t. Miss one EMI, and banks will call. Miss two? Your CIBIL score drops. Then the real trouble begins.

Real Life Example:

Shivam from Pune took ₹1,50,000 for a Bali trip. The EMI was ₹6,800. Three months later, he switched jobs and delayed two EMIs. His credit score fell from 750 to 620. Now he’s struggling to get a home loan. Was that Bali trip worth it?

EMI Breakdown on ₹1,50,000 Loan at 14% for 2 Years

As you can see, you pay more interest early on. So cancelling the loan halfway still leaves you with little benefit.

Better Ways to Buy Luxury Without Loans

You don’t have to stop dreaming. But there are smarter ways to fund your wants without becoming a debt machine.

1. Sinking Fund Method

Open a new savings account. Decide your goal. Let’s say you want a ₹1,20,000 DSLR. Put ₹10,000 monthly. In 12 months, you buy it, stress-free.

2. Reverse EMI

Act like you're already paying EMI. For example, put ₹7,000 in a Recurring Deposit every month. After a year, you have ₹84,000 + interest.

3. Buy Second-Hand or Wait for Deals

Festive offers, refurbished goods, and older models can give you 30-40% savings. No loan needed.

Saving ₹10,000 Monthly vs. EMI for ₹1,00,000 Loan

Psychological Trap: Loans Give Fake Wealth Feeling

This one is rarely discussed. When people get a loan, they feel richer. Because ₹2,00,000 in your account feels powerful. That false sense of power makes you overspend.

Later, when the loan ends, there’s emptiness. You’ve already enjoyed the vacation, worn the fancy shoes, posted the photos — but you’re still paying for it.

This is called the “Hedonic Treadmill” in behavioural finance. You keep chasing newer highs without really feeling content. A new gadget, a new bag, a new loan. The cycle never ends.

How Much You Pay for Instant Gratification?

Conclusion 

If your luxury purchase doesn’t help you earn money or grow in value — it’s better to wait and save. Loans should be used only for emergencies, business investments, or life-building assets like education or housing.

Using personal loans for fun is like eating junk food on EMI. It tastes great now. But the cost isn’t just money. It’s your financial health, credit rating, mental peace, and future dreams.

FAQs

1. Is taking a loan for a destination wedding a good idea?
It depends. If you can repay without affecting your savings or retirement goals, maybe. But it's better to cut down scale or save longer. Weddings are one-day events, loans last longer.

2. How do personal loans affect my credit score?
Each EMI affects your credit history. One missed EMI can drop your score by 50-70 points. If you default, you may not get future loans or credit cards.

3. What’s the best alternative to personal loans for buying luxury goods?
Start a goal-based SIP, use a sinking fund, or delay purchase until your bonus. Even EMI on credit cards with 0% interest (if paid on time) is better.

4. Can I prepay a personal loan early to save on interest?
Yes, you can. But check if the lender charges foreclosure fees. Prepaying in the first 6-12 months saves the most on interest.

5. Are EMI holiday or moratorium options smart?
Only for emergencies. Lenders charge interest during the holiday, and your total cost goes up. Avoid unless you really need a breathing space.

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About the Author

LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?