The time for staying at home has passed. Every day that goes by brings new opportunities to get out, enjoy real-life social interactions, and travel when you feel like it. Going on a trip this year will be like doing it for the very first time. We’ve been confined, quarantined, and restricted long enough. In 2022, you can safely go on vacation. Your biggest challenge will be financing it. According to recent travel statistics, travel spending has exceeded 2019 levels for the first time since the start of the pandemic in April 2020. Domestic travel in the U.S. is forecasted to reach $1.06 trillion in 2025, with primary expenses being transportation, lodging, meals, entertainment and recreation, and other incidental items. You may want to consider a vacation loan if you planning on taking a trip this year.
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What is a vacation loan?
Vacation loans are personal loans that are used exclusively for vacation expenses. That can include airfare for travel, renting a hotel room or cottage, rental cars, and spending money. Vacation loans are unsecured, so you don’t have to put up any collateral to get them. The amount you qualify for will be based on your credit score.
How do vacation loans work?
Vacation loans work like any other personal loan. The only difference is in what you spend the money on. Before applying for one, create a vacation budget and figure out how much money you’ll need to accomplish everything on your to-do list. Use that number to choose the amount of your loan. You should also check your credit score to see if you’re eligible to get a loan.
There are numerous lenders who can provide you with a vacation loan. This includes traditional banks, credit unions, and online lending institutions. Your choice may be dependent upon your creditworthiness. Borrowers with lower credit scores can still qualify for vacation loans, but the fees and interest rate will be higher. Keep that in mind while you’re searching for a lender.
Personal loans are installment loans, meaning that you pay the money back in equal monthly installment payments. The number of months can be decided by the borrower. You can choose a short-term installment loan of a few months to a year or choose a multi-year term to make the monthly payments more affordable. Talk to your lender about what’s best for you.
How do I use a personal loan for vacation?
A vacation loan is a type of personal loan, so you would use it just as you would cash. After you apply for the loan and are approved, the lender will either deposit the loan funds directly into your bank account (which is the fastest and easiest way to receive funds), or they will send you a check. You can then use these funds to pay for any part of your vacation, from transportation to lodging to meals.
Just remember, you’ll have to start making monthly payments on the loan right away, plus interest, so make those payments on time.
Where to get a personal loan for vacation?
There are primarily three places you can get a loan: banks, credit unions and online lenders.
These lenders all offer personal loans you can use to pay for a vacation, but some online lenders may also offer loans specifically for vacation or travel.
Vacation loan statistics
According to WalletHub, Americans spend an average of $2,000 – $3,000 per vacation, though other experts estimate even more, even up to $4,500+ for a family of four. This is why nearly 25% of people say they’ve borrowed money for a vacation, and 37% believe travel is worth going into debt for.
WalletHub reports that in 2019, U.S. consumers had an estimated $12.6 billion in vacation debt, with that figure likely to continue increasing as spending on leisure travel increases.
While most of vacation borrowing happens through credit cards, nearly 13% of personal loans are used for vacation spending.
When it’s right to get a vacation loan
You should only consider a vacation loan if:
- You have a great to excellent credit score
- You can get a lower APR on a loan
- You have a consistent income that will allow you to make the monthly payments
- You can make the monthly payments on time each month
- You don’t already have a lot of outstanding debt
It’s also only right to get a travel loan if you can’t afford the vacation with what you have in savings, and you don’t have enough time to save enough to cover costs.
Who are vacation loans best for?
If you want to go on vacation and can’t afford it with money you have in savings, you may want to consider a vacation loan. If your credit score, history, and income will allow you to get a low APR and you’re able to make the monthly loan payments, it can be an option. However, you should also make sure a vacation loan isn’t better than paying with a credit card or using other options because it is a type of debt and can impact your credit score.
Pros & cons of vacation loans
|Fast Approval and Funding||APR (Interest Rate)|
|Unsecured (No Collateral)||Taking on New Debt|
|Cheaper than a Credit Card||Affects Your Credit Score|
Alternatives to vacation loans
You could just use your credit cards to pay for your vacation, but credit card interest rates are, on average, much higher than personal loan rates.
Home Equity Loan:
This is an option, but most homeowners don’t want to risk defaulting and losing their home for the sake of taking a vacation.
401(k) Advance Loan:
This is a great option because you’re borrowing your own money. Check with your payroll administrator to see if you qualify.
Paying for a vacation with your savings is the most cost-effective, but chances are that’s not what you were saving for. Keep that money in the bank. Find another way.
Vacation loans for bad credit
Bad credit is any credit score that comes in under 680. Traditional banks won’t touch you if you’re under that number. Online lenders who specialize in bad credit loans will approve you, but the cost will be high. Interest rates go up as credit scores come down. If your score is really bad, using your credit cards might turn out to be cheaper.
Pros and cons of vacation loans for bad credit
|Making payments on time each month can improve your score||Hard credit inquiry|
|Secured loan options||High APR|
|Can add a cosigner||Can affect credit score|
How to qualify for a vacation loan?
Once again, the steps are the same as with any other personal loan. You don’t need any kind of security (collateral), but you will need to submit to a “hard inquiry” on your credit report. To qualify for a vacation loan, you should do the following:
for the best lender
Fill out an application
Credit score requirements for personal loans vary according to the lender. Most banks want to see credit scores over 680, which is the “good” range for consumers. Anything under that is considered “bad” credit. We’ve included an additional section on that below.
How much does a travel loan cost?
The actual amount a travel loan costs depends on the amount of the loan you take out, the term, and the APR. APR for personal loans can range from around 5% up to 36% depending on the lender, but the lower the APR, the less you’ll end up paying over the life of the loan.
Let’s say you take out a $5,000 travel loan with an APR of 10% and a term of 24 months. Your estimated monthly payment would be $230.72, and you’d end up paying an additional $537.28 in interest. If that same loan’s term was 36 months, your monthly payment would decrease to $161.34 but you’d end up paying $808.24 in interest.
Now, say you take out a $5,000 loan with a 18% APR and 24-month term. Your monthly payment would be $249/62 and you’d owe $990.88 in interest. Change that term to 36 months, and while your monthly payment would decrease to $180.76, you’d owe $1,507.36 in interest.
The larger the amount you take out, the longer the term, and the higher the APR, the more the travel loan will end up costing you.
Tips for getting the best vacation loans
The first step in getting the best vacation loan is to set a budget for your vacation, estimating the cost for transportation, lodging, food, activities, shopping, excursions, and anything else you plan on doing. Subtract how much you’ll be able to pay with cash or savings. This will help you estimate the loan amount you’ll need.
Next, shop and compare. Get prequalified where you can, which can give you a more unique estimate of APR, loan amount and term you’d be approved for, and monthly payment. Compare average APR rates and fees, minimum credit score requirements, and other factors.
After you’ve compared your options, it’s time to apply. Typically, the fastest way to apply, get approval, and get funding is with an online lender. You can also prepare ahead of time by gathering all required information and documentation and having it at the ready.
How to compare vacation loan lenders
There are dozens of lenders to choose from when you’re looking for a vacation loan, so do your homework and compare each of them before submitting an application. The points you want to base your comparison on should include the following:
Interest rate (APR)
Origination and Monthly Fees
Payment Terms and Conditions
As stated above, the interest rate may be higher if you have a low credit score, but it will vary by lender, so shop around. You’ll also want to look for origination fees and monthly fees. Those can get expensive. The payment terms are the length of the repayment period and any penalties if you pay it off early. Convenience might mean simply finding an online lender.
How do I apply for a vacation loan?
Follow the four steps below to get a vacation loan:
Pre-qualification only requires a “soft inquiry” on your credit report, so it’s best to do that with multiple institutions. Soft credits don’t affect your credit score. As for documents, you’ll need proof of identity, income, and employment. Get those together before you apply.
If you are going on vacation and can’t afford the cost with what you have in savings, a personal loan may be the next best option. Typically, personal loans have lower APR than credit cards, so you’ll likely pay less in interest over time. Personal loans can also help your credit score as long as you can pay them off and make the payments on time.
Yes, you can get a personal loan to use for vacation expenses like lodging, transportation, meals, entertainment, activities and excursions, shopping, and more. Use the personal loan funds like you would cash.
You may have difficulty qualifying for a personal loan if your credit score is below a 660, though some lenders may still approve your application with a score as low as 580. You also may not qualify if you have a poor credit history, too much debt or too high of a debt-to-income ratio, or no consistent income to repay the loan.
Travel loans are a good option if you badly need to go on vacation and need extra cash to cover it. Travel loans are personal loans, so they’re easy to apply for, and funding can be available to you quickly. They also typically come with lower interest rates than credit cards.
Another idea is to consider funding half the vacation with personal savings and the other half with a vacation loan. In this scenario, you still get to go on the vacation, but you also avoid a substantial portion of interest and only have to borrow half the cash you need.
If you’re hesitant about taking on any new debt, a final thought is to defer the vacation until you have more cash savings to cover your expenses.
Banks offer personal loans, which can be used for going on vacation. This is the same as a vacation loan.