Should You Use a Vacation Loan?
While it’s always best to avoid accruing debt whenever possible, and especially on non-essential expenses, a vacation loan is not a bad idea depending on your financial situation and the circumstances around your trip planning. Many advisors will recommend that you either find alternative means to fund your trips without debt or postpone them. However, there are certainly situations where a vacation loan can be a great way to pay for your trip.
If you already have an amount budgeted for your vacation, but don’t have the cash in hand to pay it, a personal loan can help you out, since they usually don’t include prepayment fees. Once you have the funds, you can pay it off in full. Additionally, if you are sure you’ll be able to afford the payments every month, a personal loan for travel may be a good way to speed up the process without impacting your finances.
Finally, if you are planning a honeymoon or vacation, and you are expecting to start a job that will increase your income, or if you’re planning on having steady income in the future, a loan now may not be the worst idea (although, again, it’s always important to ask whether you can actually afford the loan before taking it out).
Advantages and Disadvantages
Pros:
- Personal loans offer lower starting interest rates than credit cards and other financing options
- You know exactly how long you’ll be making payments thanks to fixed terms
- You can borrow smaller amounts and avoid debt you don’t need
- Most vacation loans don’t include prepayment fees, so you can pay them when you’re ready
- Personal loans let you avoid revolving debt
- They’re short-term debt compared with credit card
Cons:
- You’re still taking on new debt to finance non-essential expenses
- You may have to pay high origination fees in some cases
- Prime rates are usually only available if you have excellent credit
- Loan amounts may be too high even at the lower end
How to Qualify for a Vacation Loan?
As with any form of financing, there are some things you can do to make sure you qualify for a personal loan for travel.
- Have a credit score of at least 630. Most personal lenders require that you have good (600) to excellent (700+) credit before they’ll approve you, with better scores getting lower rates.
- Make sure you have a steady source of income, or a guarantee of employment in the near future. Lenders are concerned that you pay your loans on time every month, and a steady income is a major plus.
- Keep a low ratio of debt to income. Another important factor for lenders is how much you’re paying each month in debt. A higher ratio means you can afford less new debt and may affect your ability to pay. The goal is to stay at or below 40% debt-to-income.
How to Get the Best Rates
Even if you qualify for a personal loan for vacations, you may not have access to the best possible rates and terms. To ensure you do, the first thing to watch for is how to improve your credit score. While 630 means you have good credit, most lenders reserve their prime interest rates for borrowers who have excellent credit.
You can sign up for a credit reporting and monitoring service to boost your score or focus on restructuring your finances to slowly build your financial track record. Additionally, you can work on reducing your existing debt by paying it off slowly and budgeting around it. This will also help you improve your credit.
Vacation Loan Alternatives
If you would prefer to not take a loan, there are still a few ways to finance your next vacation or honeymoon:
- Savings are the best way to pay for travel. While it may take a little longer, putting aside a few dollars every month lets you plan and comfortably pay for a trip without a penny of debt.
- Credit cards may also be better suited for smaller expenses (paying for tickets or a hotel, but not necessarily both), as they give you more flexibility in amounts.
- 0% credit cards may also be a good choice, as they let you pay back simply what you spent, and can defer any interest rate until you’re almost in the clear.
- Point of sale travel financing may also be a good solution if you want to spread your payments out without having to incur additional debt. This way, you pay the full amount, but not all at once.
Vacation Loans vs. Credit Cards
Perhaps the biggest question you may have is about the difference between a personal loan and a credit card. While both are financing solutions, travel loans let you set a fixed amount and payment term at lower starting interest rates than a credit card. This means that you’ll know exactly what you need to pay, and when. Moreover, it means that once you’re done paying your loan, you’ll be done with your debt. Credit cards, on the other hand, may offer smaller amounts available, but they come with revolving debt. This means that you’re constantly paying off debt while at the same time accruing more.
When trying to finance a large expense like a trip, using a credit card can be risky because it may end up costing you more in the long run than a personal loan, especially if you’re still using that credit card while paying off your expenses. In the end, a credit card may be slightly more convenient, but it can raise the price tag of your expenses due to long-term interest and fees.
There are some days when you just need a vacation after a long day, week or month at work. In some cases, a vacation may be part of a bigger celebration—your honeymoon, for instance, is a holiday you’ll never forget. However, while vacations and adventures are exciting and fun, they’re also expensive. Paying for your honeymoon may not be so easy after the expenses for your wedding, but a vacation loan can help you take the dream trip you’ve been planning, when you’re ready for it. 
