Whether you are looking for new experiences in life, or you just feel like it’s time for a well-deserved break away from home and work, nothing sounds more fun than getting to your dream destination. However, traveling is expensive and while you may not afford to finance it, a personal loan to help you finally tick off that destination on your bucket list can come in handy.
While most financial advisors may dissuade you, there are several reasons why taking a vacation loan could actually work in financing your travels. First, a vacation loan is one of the best ways of taking on an expensive holiday, without using savings that can help you during emergencies. Also, a vacation loan is a great way of realizing dreams that you could have otherwise taken a long time to actualize.
Pros and Cons of Vacation Loans
A vacation loan is a loan that helps in provisioning people with a means of traveling and taking holidays despite having a limited amount of money to accommodate expenses such as traveling.
The lender you approach will lend you the amount, which you will then repay in installments over the tenure of the loan.
- Since a vacation loan is a personal loan, repayment is through fixed monthly amounts. Therefore, the amount you repay monthly will be the same. This is better than a credit card or other lines of credit, which are repaid over a fixed “loan term” period.
- Unlike credit cards, which have high-interest rates, personal loans have lower interest rates.
- Rather than using savings kept for a rainy day, a vacation loan can help you finance all your travel needs and keep your saving for future emergencies
Like other types of credit, vacation loans also have several disadvantages.
- First, it’s not advisable that you get into debt for something that is unnecessary. The best way of financing a trip is by saving up until there is enough to pay for one.
- Secondly, a vacation loan may attract extra fees that may increase the total loan amount. Some lenders may charge prepayment penalties for early loan repayment. Compare loan offers from multiple lenders to avoid loans that attract pre-payment penalties.
Also, ensure that you can afford the monthly payments. If the estimated payments are steep, taking the vacation loan may not be worthwhile.
Pros and Cons of Personal Loans
A personal loan is a type of unsecured loan that you can use to borrow from as little as $500, up to 6 times your monthly salary if you earn $120,000 or more annually.
- Personal loans are easily available and can be disbursed within the same day of application
- You can spread your loan repayment over a long tenure ( up to 7 years) with personal loans.
- Many lending companies offer promotional deals for personal loans that you can use to save money
- Personal loans are unsecured and do not require collateral
- The interest rate on personal loans is fixed, which makes borrowing a personal loan safe
- The interest rate for personal loans is quite high if compared to other types of loans in the market.
- Personal loans come with extra fees and charges such as processing fees, which could range between 1%-3% of the principal loan amount
- In case you need to pay your fee early, personal loans attract early repayment fees which range between $100-$250 depending on the lending company you approach.
How Much Would it Cost?
The range for Annual Percentage Rates (APR) is between 6% to 36%. Lenders may also use the reason for your loan borrowing as a factor in determining the loan amount and interest rate.
The rate also depends on your credit score primarily, and the percentage monthly income you are using to pay other loans (debt to income ratio). Your interest rate on a vacation loan is likely to be lower if your credit score is high and your debt to income ratio is low.
Alternatives to Vacation Loans
There are other alternatives to leisure travelling loans that you should consider before getting into debt.
1. Save for Your Vacation
It’s not only wise that you use savings for a dream vacation, but it’s also liberating. Research on how much your trip may cost (including flights and destinations.) You can then create a travel account and save monthly.
2. Use Travel Credit Cards
As mentioned above, travel credit cards can save you money, especially if you have a good credit rating and travel frequently. Signing up and usage of travel credit cards offers bonuses and other perks that will help in reducing the overall cost of your vacation.
3. 0% Credit Card
If your credit score is excellent, you may qualify for a low-interest credit card or a 0% APR card. You can use the 0% APR card to make purchases and carry a balance that is interest-free for 12 to 18 months. If you repaid your trip in good time, you can skip the interest altogether.
4. Point of Sale Travel Financing
You can get financing options from booking tickets with airlines and travel websites that partner with lenders such as Affirm and UpLift. These financing options are made to cater to travelers with an average credit rating, and who may not qualify for a travel card.
5. Lines of Credit
A line of credit is a type of loan, which you can draw funds on severally up to 4 times your monthly income.
If you already have a line of credit that you opened in the past, you can draw against it to fund your trip. However, it’s not advisable to open up a line of credit to fund your leisure travels.
6. Personal Loan
Just as the name suggests, a personal loan is a simple and unsecured loan that is provided for personal use and has a tenure of 1-5 years. Personal loans have lower interest rates compared to other loan options such as credit cards loans, and the monthly repayment amount is low.
How to Get a Vacation Loan
If a vacation loan is your only way out and you really want to travel, these tips will help you to get one.
- Check your credit score and see if there are any improvements that need to be made. Resolve errors and sort out any neglected accounts before applying for the vacation loan
- Compare offers from different lenders to determine the loan features important to you, ( such as fast disbursement, mobile apps for loan management, etc)
- Pre-qualify your loan needs with multiple online lenders to determine the best repayment terms and lowest interest rates that befit your budget
- Ensure that you have all the necessary documents including your W-2s and Social Security Number, and bank accounts.
Once you’ve done a precheck on the above guidelines;
- Determine your lending company of choice, which offers flexible loan terms, and low monthly interest rates
- Apply online or call to book an appointment
- Discuss the plans available for your budget with a loan officer
- Read and sign the contract
- Receive the vacation loan within the agreeable time set with the lending company
What Should I Consider Before Taking a Vacation Loan?
1. The necessity of the Trip
Since vacation expenses are not investment-oriented, you may consider postponing your vacation until you have raised enough funds to allow you to travel. Postponing might be a better option compared to accruing debt.
2. Your Debt Repayment Ability
Several factors go into determining your ability to repay the vacation loan. If your income is committed to repaying other loans, you might now want to add up an extra loan. You may end up with a damaged credit score if your income to credit ratio is low.
3. Interest Rates Offered on the Loan
Several factors such as your credit score and income to credit ratio may affect the amount of money that banks and other online lenders are willing to offer and the interest rates. While most vacation loans attract low-interest rates compared to other lending options, ensure that you know the interest rates before taking a vacation loan.
4. Other Sources of Money
Experts advise against taking vacation loans. Rather than taking a loan to fund your travels, you could exhaust other funding options that wouldn’t necessarily leave you in debt. A great alternative source of vacation funds would be to save for your trip.
5. Eligibility for a Vacation Loan
Different lenders may set requirements that limit access to people with excellent credit ratings and income to credit ratio. Ensure that you meet all the eligibility criteria before applying for a personal loan.
6. Risks Involved
There are more risks in taking a vacation loan, compared to benefits. First, you will commit yourself to repay a loan over a significant period, which will reduce your income drastically. In-case of a secured loan, you risk losing your assets through repossession, in-case you default. Your credit rating may also be affected if you default on the repayment of the vacation loan.
Alternatively, Check out the Short Term Endownment Plan for Saving to fund your vacation trips.
While a vacation loan can help you get to your dream destination sooner than you could have while saving, the risks of remaining in debt outweigh the benefits. Nonetheless, if a vacation loan is a necessary and viable option for you, ensure that you have a solid plan on how to repay the debt without straining your income. Whether it’s your dream honeymoon or an island-hopping cruise, a vacation loan will help you get there.
Instant Loan can help you to easily finance your travel by offering competitive vacation loans with flexible monthly repayments and low-interest rates.
See if you prequalify for a vacation loan now!