Traveling is always a pleasant experience. We all want to see the world, spend time in a new place, and take a break from work and stress, but not all of us can afford it. Of course, taking credit for a trip is not always a good idea, but what if we are talking about a wedding voyage? Or maybe you want to organize a once-in-a-lifetime journey and need financial freedom?
In this situation, you can apply for a vacation loan, which is a personal credit given by many financial institutions. However, the terms and conditions of these credits depend on your credit score and lenders’ requirements.
So in what situations is it worth using a vacation loan, and in what situations should you avoid it? Let’s find out.
Best vacation loans for your trip
Before we say whether such personal credits are good, let’s look at some banks’ and online lenders’ offers. We’ve selected five financial institutions that provide vacation loans and evaluated them based on several essential criteria.
This online platform provides vacation loans from $2,000 to $50,000 at 6% to 36% interest. The borrower will have to repay the entire amount within 36-60 months or earlier, as the platform does not charge extra fees for early repayment.
The company’s main advantage is finding lenders even for people with fair and good credit scores. You must have a minimum score of 550-600 to get money through Best Egg. Besides, it doesn’t provide credits with its own money; Best Egg is just a platform on which you can find the right lender.
Then, once you are approved for the money, the lender will send it to you through the platform within one day. Speaking about excellent bonuses, let’s mention the Flexible Due Date, which means you can change your loan repayment terms within one calendar year.
PayDaySay score: 7/10. The main advantage is the large variety of personal loans, and the main disadvantage is the obligation to pay an origination fee of 1-6% and high APR.
Discover® Personal Loans
This online platform offers credits from $2,500 to $35,000 at the lowest rates. In addition, you can repay the entire amount in 36-84 months, and the annual loan rate will range from 5.99% to 24.99%.
To get money from Discover Personal Loans, you must have a good credit score from 660-720. The company’s website has an online calculator where you can roughly estimate your loan terms without registration and personal data entry.
You have just to indicate the amount of credit, the length of desirable repayment, and your credit score category. Judging by user reviews, this app is excellent specifically for vacation loans for several reasons:
- You can get the money the same day you’re approved.
- If you have a change of plans and cancel your trip (which is very common these days because of covid-19), you can return the loan within 30 days and pay no fees.
PayDaySay score: 10/10.
You can apply for a personal loan from this company. It gives credit from $5,000 to $100,000 for 3-7 years at 6.99%-22.23% APR. To get money from this company, you must have a good credit score – 680 points or more.
As soon as you get notification of the loan approval, you can plan a trip even for tomorrow because SoFi deposits the funds the same day. Platform users note the lack of fees as one of its significant advantages.
Besides, if you activate autopay (automatic withdrawal of a monthly payment from your bank account) for a loan of $30,000 and 2 years or more, you get a 0.25% discount on your interest rate. PayDaySay score: 10/10.
Read More: Sofi Review
Marcus by Goldman Sachs
This company offers some of the best rates on personal credits, ranging from 6.99% to 19.99%. So if your credit score is fair or good (660 points or more), and you need between $3,500 and $40,000 for 3-6 years, you can get credit from this financial institution.
The only downside is the company’s long deposit time, which is between one and five business days. However, the platform has its merits – there are no fees but a rate discount for autopayments. PayDaySay score: 9/10. This company has an excellent interest rate, but sometimes five days of waiting for a loan can ruin a trip.
Finally, let’s discuss a company suitable for people with good or fair credit (minimum credit score must be 600 points). Lending Club has a higher interest rate than its predecessors, 6.34%-35.89%, but it deposits money into your account quickly, in one or two days.
Lending Club offers various personal credits from $1,000 to $40,00 for 3 to 5 years. The company has no discount for autopayments, but it is possible to change the repayment date if necessary. PayDaySay score: 8/10. If traveling is a way to get away from stress, you may have a lot more stress in your life with this interest rate.
Our selection requirements
As you can see above, we tried to select the most favorable options for different categories of users. In making this selection, we were guided by the following requirements:
- Est. APR. This indicator is the most important in our selection and, generally, when you take out a personal loan. It depends on APR and how easy it will be to return the money.
- Loan amount. We understand that there are different travel plans, so we selected companies where you can take a loan for $1,000 and $100,000.
- Min. credit score and credit score category. This criterion is the most important for banks – on its basis, they decide what the conditions of your personal loan will be.
- Deposit time. We tried to choose organizations that provide funds within one or two days, so you can plan your travel when convenient.
- Repayment terms. All the companies we’ve discussed offer three years or more personal credits, meaning you won’t have to return from a trip and work hard to pay the money back immediately. In addition, we’ve found several loan options for you without early repayment penalties or a flexible due date so you can manage your repayment terms.
- Discounts. It’s always a pleasure to pay less interest on a loan, so we’ve considered that factor in our selection.
What is a vacation loan?
Now that we’ve seen the options for these credits let’s decide what they’re best used for and when you should avoid them. What is crucial to know about such loans?
First, it’s an unsecured loan that allows you to get money without collateral. Not all institutions have a separate “vacation loan” product, but almost all provide personal credits that you can take out to pay for travel. So it’s all the same thing. How it works:
- You realize you want to go on a trip but don’t have enough money.
- So you choose a lender and apply for a loan.
- If approved, you are given the entire amount at once, and you pay it off in fixed monthly installments over several years.
Usually, such a loan is used to pay for a flight, hotel, car rental, and other travel expenses. Therefore, the most critical question you should ask yourself before applying for such a loan is, “Am I willing to pay several years for a short travel?”
How to get a vacation loan?
Most organizations allow you to get such a loan online, right from your phone or computer.
What you have to do:
1. Choose the right lender.
Pay the utmost attention to the annual loan rate and whether there are any hidden fees – these are two things that make people fall into the debt trap.
2. Make sure you qualify for all the requirements.
Many financial institutions check your credit history hard if you are applying for money. Each check can take 5 points off your credit score, so ensure you meet the organization’s requirements beforehand.
3. Apply for a personal loan online and provide basic information about yourself as a borrower.
If you’ve realized that you qualify for the lender, you can apply for the money. This usually requires you to provide your first and last name, date of birth, place of residence, occupation, and annual income. Some lenders may ask you to attach documents proving your identity, address, and income.
4. Get the money and start planning your monthly payments.
The most important rule of all credits is that they must be paid back on time. So pay attention to your next payment date and ensure you’ll have internet and the ability to make all payments, especially if you’ll be traveling those days (the alternative is to activate auto payments).
Are Vacation Loans Really a Good Idea?
According to financial management rules, you should take credit only for the things you need. Anything else leads to the wrong behavior, where you spend more than you earn and end up in a credit trap. The same applies to personal credit for a trip.
In terms of financial management, this is the wrong decision, and going on a trip should be done with your savings. At the same time, let’s face it, we are not rational creatures but emotional ones, so only you can decide if you are willing to pay for a short journey for several years.
There are situations where a loan may be objectively necessary. For example, if you are determined to go on a trip, not with your own money, you should calculate, is it more profitable to use a credit card or take a loan for a trip? Usually, the second option is more suitable for people with a good credit history.
Who Vacation Loans Are Right For
Let’s look again at the things included in the decision to take a loan for travel:
- A great trip for 2-3 weeks.
- Monthly payments for the next 2-7 years, depending on the loan amount.
- An increase of at least 35 percent of the trip cost because of the interest on the loan.
This means that such a personal loan is worth taking only for people with a stable income and a firm decision to go on a trip. In addition, you need to have a good credit record. The higher your credit score, the lower the interest rate on loan, and the lower your final loan amount will be.
Also, a loan may be the only option for those who can’t avoid the trip, for example, if you need to go on a business or an emergency trip.In all other situations, it’s best to avoid such credits and use alternatives, some of which we’ll mention below.
Read Also: Best Hotel Credit Cards
How to Choose a Vacation Loan
If you have decided to take out a loan and are ready to pay it back in a disciplined manner over the next few years, you should choose the best terms. Take some time to search and evaluate all possible lenders according to the following parameters:
- Annual rate.
This percentage determines how expensive the loan will be for you. If possible, always choose the lowest interest rate.
- The repayment term and monthly payments.
Remember that you have to pay a certain amount monthly for several years. It’s a big commitment. But do not try to get a personal loan with the lowest monthly payment. For example, imagine you are offered a $10,000 loan at 15% APR; you only have to choose a repayment term.
If you select a loan for three years, the monthly payment will be $400; if you decide for five years, the monthly payment will be $300. It seems like it would be easier to pay off the loan in 5 years, but it isn’t because in 3 years, you will pay $14,500, and in 5 years, it will be $17,500.
Try to borrow for the shortest term possible, but remember that it doesn’t make sense to take money for just one year if you don’t have the opportunity to make your monthly payments on time.
- Penalties and hidden fees.
Some lenders offer great interest rates but do not tell you they have service fees, membership, late payment penalties, and other hidden costs. Read the contract carefully to avoid falling into the trap of such credits.
- The last important parameter is reporting to a credit bureau.
A regular monthly payment on your loan consists of 35% of your credit score; it’s an essential factor. Ask your potential lender if it will report to the credit bureau because paying off your loan on time can help you significantly improve your credit score and get better loan terms.
Vacation Loan Alternatives
If you are unsure whether you want to take a loan, you can use one of the alternatives to pay for your travel expenses.
- Travel credit cards
These cards help you save money on travel with rewards and perks. For example, if you use them when you travel, you can pay for hotels with discounts, receive free flight miles, and find profitable rideshares. It’s essential to pick the card that best fits your spending habits.
For example, if you fly often, cards with accumulated miles are best for you, and if you rent a car when you travel, it’s better to choose cards that offer bonuses for rent services. The typical adult who travels once or twice a year can save more than $2,000 over five years.
- 0% credit card
This credit card allows you to use a certain amount without paying interest for 6 to 24 months and may be the best option for paying for your trip. Its only disadvantage is that you can use a small amount of money and pay it back within a short period compared to other loans, but the 0% annual rate overcomes these disadvantages.
Remember that at the end of the introductory period, unpaid balances will incur interest, so you have to pay them back in time, or this option will become unprofitable.
- “Buy now, pay later” loans.
These loans allow you to split your travel costs into multiple payments, making them a great alternative to other loans. It would work for those on a budget or short trips. You can just pay ¼ of the amount at the moment and the other three payments every two weeks at 0% APR.
However, you should understand that the platforms that provide BNPLs partner with airlines or hotels. This means you won’t be able just to borrow $5,000 and use it as you want; you’ll need to take out a BNPL loan for every purchase. If a temporary interest-free loan does not suit you and you need more money for a more extended time, it is better to take out a vacation loan.
A personal loan for vacation is an opportunity to spread a significant expense over several years. You shouldn’t use this option for a regular trip because the loan can add a lot of stress and problems for the next few years.
However, this loan may be the right solution if you decide to have a wedding trip or a once-in-a-lifetime trip. Also, it’s suitable for people who have to go on an emergency or business trip because, more often than not, you can get the money the very next day.
If you don’t see a “vacation loan” financial product at your bank, choose just a personal loan – it’s often the same thing. To get the money, you’ll need to provide standard information about yourself as a borrower and possibly documents proving your identity, income, and address.
When choosing such a loan, pay attention to the interest rate, hidden fees, penalties, repayment period, and monthly payments. And if you do decide not to take out a loan, consider the alternatives – 0% credit cards, travel credit cards, or BNPL loans.
Sources Used in Research for the Article:
- What is a Buy Now, Pay Later (BNPL) loan, Consumer Financial Protection Bureau, https://www.consumerfinance.gov/ask-cfpb/what-is-a-buy-now-pay-later-bnpl-loan-en-2119/
- Vacation Loan, Best Egg, https://www.bestegg.com/personal-loans/vacation-loan/
- Vacation Loans, Discover, https://www.discover.com/personal-loans/vacation-loans/