Holiday Loans: 27% of Indians borrow for vacations, but at what cost?

Relying on loans for holidays can erode financial discipline, encouraging a cycle of borrowing for lifestyle expenses.

As the festive season and holidays approach, you're likely  planning a family vacation. Rising holiday costs often lead people to take out loans to cover expenses. Taking a loan for a holiday might seem tempting, especially with attractive travel packages and easy financing options.

A 2025 consumer insights survey by Paisabazaar sheds light on the rising trend of holiday loans, revealing how Indians are increasingly leveraging credit to fund their travel aspirations. The survey indicates that 27 percent of respondents utilised personal loans to finance their vacations, underscoring a growing willingness to borrow for leisure.

The surge in holiday loans is being driven by young borrowers, with Gen Z (20-30 years old) seeing a significant increase from 14 percent in H1 2023 to 29 percent in H1 2025, while millennials (30-40 years old) continue to dominate with a 47 percent share.

There's also a notable shift towards smaller loan amounts, with 30 percent of holiday loans in 2025 falling in the Rs 1 lakh - 3 lakh range, up from 13 percent in 2023. Additionally, loans between Rs 50,000 to Rs 1 lakh and those below Rs 50,000 have also seen increases, rising from 12 percent to 20 percent and 2 percent to 15 percent, respectively.

Additionally, private-sector salaried individuals emerge as the largest group (65 percent) availing themselves of these loans, likely due to their stable incomes and access to credit facilities.

Holiday loans can lead to significant drawbacks. Here's why financial advisors do not recommend such loans.

Financial burden of interest rates

Holiday loans, often marketed as personal loans, come with high interest rates, ranging from 10 percent to 20 percent per annum. For instance, a Rs 1 lakh loan at 15 percent interest over three years could cost you over Rs 1.3 lakh in total, including interest. This additional burden can strain your monthly budget, especially if you’re already managing EMIs for other commitments like a home or car loan.

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Risk of debt trap

Many households operate on tight budgets, with savings often directed toward essential goals like retirement, children’s education, or medical emergencies. Taking a holiday loan can divert funds from these priorities, increasing the risk of falling into a debt trap. If unexpected expenses arise—such as medical bills or job loss—repaying the loan becomes challenging. Defaulting on payments can damage your credit score, making future borrowing costlier and limiting access to credit for critical needs.

Alternatives to holiday loans

Instead of taking a loan, consider saving for your holiday. Setting aside a small amount monthly—say, Rs 10,000—can accumulate Rs 1.2 lakh in a year, enough for a modest domestic trip or even an international one with budget planning. Tools like recurring deposits or mutual fund SIPs, popular in India, can help you save systematically while earning returns. Additionally, opt for off-season travel to save costs.

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Impact on financial discipline

Relying on loans for holidays can erode financial discipline, encouraging a cycle of borrowing for lifestyle expenses. A holiday loan might seem manageable initially, but it can set a precedent for impulsive borrowing, leading to long-term financial instability.