Recent events have changed the face of travel. Stress, being stuck at home, facing international travel restrictions, and more have made getting away from it all more necessary and complicated than ever. Add in how to afford any kind of relaxation, and you may be wondering if a vacation loan is a good way to get out of the house and breathe some fresh air.
If you're feeling the need to travel, but don't have all the money you need, you're not alone. A personal loan for a vacation could be your ticket to escape for a little while.
A vacation loan is typically a personal loan that can vary in both amount and loan terms, depending on your needs.
With a vacation loan, you borrow money from a lender and come to an agreement on the repayment terms. Once you receive your loan money, you can use it to pay for your vacation however you see fit.
If you get a large personal loan to finance your vacation, you will likely be paying your loan off for a longer amount of time, but with a lower interest rate.
If you get a smaller unsecured loan, you can expect to have to pay your loan off relatively quickly with a higher interest rate, and other possible fees.
Your creditworthiness and payment history are also a factor. A solid credit history means you can expect to have better terms offered to you and may even be able to negotiate lower rates and fees.
If you have bad credit, you can expect to face higher interest rates and less favorable terms with little to no room to ask for a better deal.
Typically, you will also agree on repayment terms with your lender. Loans typically are paid back in monthly installments, though some short-term loans have biweekly payments for the life of the loan.
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As you already know, there are many types of expenses that come with a vacation. If you are going on a road trip, you will need to pay for gas and a place to stay every night.
If you're flying, you will need to pay for your flight there and back. Regardless of where you are going, you will need to pay for food as well as entertainment.
All of these travel expenses can really add up, so a vacation loan can be extremely helpful.
If the biggest barrier to travel is affording the upfront costs, such as airfare, or hotel reservations, a loan could be a good option to get your trip out of the planning phase. If you plan well and budget accordingly, you could have your entire loan paid off before you ever take your vacation. Doesn’t that sound nice?
While a travel loan can be critical for being able to go on your much-needed vacation, loans are not for everyone. It is important to know why loans can be useful as well as the risks that are associated with loans.
One important part of loans that financial advisors stress is that you should not take out a personal loan for things that are frivolous or unnecessary.
If you're thinking about taking out a smaller travel loan to cover some incidentals, know that some banks and credit unions have a minimum loan amount for personal loans. This means you may want to look into adjusting your travel budget to eliminate the need. If the costs are unavoidable, a cash advance on your paycheck could work. (Do your research and find one with no fees.)
Taking on debt means you have to pay interest, a possible origination fee for the loan, any fees the lender requires, prepayment penalties if you pay the loan back early, which can be expensive, and potential late fees, if you miss a payment.
In addition, you need to think about your credit history and how that affects eligibility. Do you have a good or even decent credit score? If you have good credit, think about how taking out a loan could affect your credit utilization ratio, or your overall account ages.
For example, if you've just taken out a home equity loan to do some house repairs, bought a new car in the past few months, and opened a new credit card, a travel loan could actually hurt your credit score. (Curious how? See our guide to credit scores.)
Do you have a solid history of repaying debts? (We're not here to judge!) If you've hit a rough patch and your credit report has some less than favorable items that a credit check will uncover, it may be better to take a staycation or cut back on your plans.
While you may think vacations aren’t necessary, they can actually be very good for your mental health and can help you de-stress.
With that in mind, if you're struggling to get by, taking a vacation overseas or somewhere extravagant isn't the best idea. You could find yourself in deep debt, needing to take out even more loans or lines of credit to keep your head above water.
This could put you in a loan trap cycle which you should avoid at all costs. (It will also negate any relaxation you got while on vacation!)
On the other hand, let's say you were planning to pay for your vacation with a credit card. Your card has a fixed rate annual percentage rate (APR) of 17% on all purchases. You find an online lender that prequalifies you for a personal loan at an APR of 12%. In this case, a loan may be the better option from a financial perspective.
Be sure to read all disclosures from the lender, and ask questions if you see anything in the loan application that doesn't make sense.
If you're in a favorable financial situation, being a smart borrower with vacation financing could be a positive for your future credit score and current travel needs.
Let’s look at some of the other pros and cons associated with getting a travel loan so you can decide if you should get one or not.
Like any personal loan, yes there are vacation loans for bad credit. They come with the usual drawbacks of a bad credit loan, such as higher fees, interest, and lower loan offers.
Having bad or no credit doesn't mean you don't need or deserve a vacation. (Plenty of us would disagree with that!) But bad credit loans carry the possibility of extra debt that can further drag you down.
Consider instead a smaller vacation that could be covered by a small installment loan or cash advance. Companies such as Possible Finance offer smaller installment loans up to $500, which could fund some fun staycation activities, or even a modest road trip.
The best part is, with a loan from Possible, you can make equal payments over the course of a month. Should you struggle with making your payment or you just don’t want to make a payment during your vacation, you can extend your loan payment within the app up to 29 days later.
In addition, at Possible we are fighting for financial fairness in an industry that is riddled with injustice. Because of this, we want to build value for our customers instead of keeping them in a debt cycle like other lenders.
When you pay back our loans, we report your payments to the credit bureaus, helping to increase your credit score. (Something many other lenders do not do.)
The Possible app is easy to use, with a quick application process and loan approval in minutes.**
The best vacation loan is the kind where you boost your credit, avoid bad credit loan rates, and get the cash you need straight to your checking account without having to get off the couch.
If you need just a few more dollars in your bank account to pay for a vacation or you are finding you ran out of money while enjoying a little R&R, consider getting a loan with Possible.
Download our app and get started in just minutes.
Again, taking out unnecessary debt is something that should be avoided if you can. While you may certainly need a getaway, the downsides of having debt that you could otherwise avoid means you may want to start looking into other options for getting money to get money for a vacation. Here are some available options to get money instead of a vacation loan:
While a vacation may seem out of reach without the help of vacation loans, taking on unnecessary debt and additional interest charges can negate any calm a trip will give you. Try saving before you take out a loan and if you have to take out a loan, do your research.
Consider ways you can plan a budget-friendly vacation, and be strategic on where you splurge. You could end up being able to afford a fun and rejuvenating trip without having to borrow money at all!
Finally, if you do borrow money, make sure it works for you. Payments should be affordable, stress-free, and you should keep your eye towards it building better credit for you. Apps like Possible offer fast cash that builds your credit, so you may want to explore those options before taking out a more traditional loan.
However you fund your trip, bon voyage, and make sure the memories that you make last longer than the debt does.