- A personal loan can help you get cash in the blink of an eye, but you could end up paying a high interest rate.
- The best way to pay for a vacation is to create a budget and save money up front.
- You might consider using a credit card instead of a personal loan to finance your trip.
- Learn more about Insider loan coverage here.
Taking a vacation can be a great way to recharge your batteries. If you are dying to leave but are running out of money to pay for your vacation, you might be tempted to take out a vacation loan to cover the costs.
A vacation loan is simply a personal loan used to pay for travel expenses, including transportation, hotels, meals, and other expenses.
How does a personal loan work?
Personal loans provide a quick influx of cash. You borrow a fixed amount of money for a fixed term and at an interest rate and pay that money back in monthly installments. The interest rate on your loan will depend on your credit score and other financial factors. In some cases, you can get your money back as quickly as the same day you agree to the loan terms.
Should you take out a personal loan?
There is no single answer to this question, but you should be careful before taking out a personal loan.
While it may be tempting to borrow money quickly to finance a trip, your trip will be cheaper in the long run if you can wait a little longer. Why? Because when you borrow money, you will end up paying interest, which will increase the overall cost of the trip.
If you fall behind on your payments, the loan can damage your credit score, making the lender less likely to give you money in the future. You’ll also be making payments long after your trip ends, as the minimum term for personal loans is usually at least a year, but if you can afford it, you can usually pay off your loan sooner without penalty.
Alternatives to personal loans
To save money
The best way to finance a trip is to make it a financial priority. Plan some of your paychecks for your vacation and set a target amount and target deadline. You may want to store your money in a high yield savings account because it earns interest and is easily accessible when you need it.
Using a credit card
If you just need a little extra cash to help you and finance your trip, a credit card may be a better choice than a personal loan.
Some credit cards offer introductory promotions that don’t charge you interest for a period of time. If you pay off your credit card balance before this promotion expires, this option could cost a lot less than a personal loan. No personal loan has an interest rate of 0%.
Plus, credit cards are revolving lines of credit, which means you can borrow money over and over again up to a set dollar limit while paying off part of the current balance in regular installments. On the other hand, personal loans are installment loans, which means that you withdraw all the money up front and pay off a fixed amount each month.
You may be able to use rewards from a card that offers travel benefits to fund some of your expenses.
However, be sure to use your credit card responsibly. You don’t want to go into debt to fund a vacation, especially because it could cost you dearly in interest.
Consider a lower cost vacation
You can choose to go on vacation somewhere more affordable. A trip can be the perfect time to explore the area around you: go to museums, parks and restaurants within driving distance. Depending on where you live, you can opt for a day at the beach or a hike.
While taking out a personal loan to pay for a vacation might seem like a good idea, you are better off budgeting for the trip and saving enough money to reach your goal, or enjoying a new experience closer to home.