- A personal loan can help you get cash in an emergency, but you can end up paying high interest rates.
- The best way to pay for a vacation is by budgeting and saving the money up front.
- You may want to use a credit card instead of a personal loan to fund your trip.
- Read more about Insider’s credit coverage here.
A vacation can be a great way to recharge your batteries. If you’re dying to escape but don’t have the money to pay for a vacation, you might be tempted to take out vacation credit to cover the cost.
A vacation loan is simply a personal loan that is used to pay for travel expenses including transportation, hotels, meals, and other expenses.
How does a personal loan work?
Personal loans ensure a quick inflow of money. You borrow a fixed amount of money with a fixed term and a fixed interest rate and repay this amount in monthly installments. The interest rate on your loan depends on your creditworthiness and other financial factors. In some cases, you can get your money the same day you accept the loan terms.
Should you take out a personal loan?
There is no one-size-fits-all answer to this question, but you should be careful before taking out any personal loan.
While it can be tempting to borrow money quickly to fund a trip, if you can wait a little longer, your trip will be cheaper in the long run. Why? Because when you borrow money, you end up paying interest, which adds to the total cost of the trip.
If you default on payments, the loan could affect your creditworthiness, making it less likely that a lender will give you money in the future. You will continue to pay long after your trip, as the minimum personal loan term is usually at least a year.
Alternatives to personal loans
The best way to fund a trip is to make saving a financial priority. Schedule a portion of your paycheck for your vacation and set a fixed target amount and deadline. You might want to keep your money in a high yield savings account as it pays interest and is easily accessible when needed.
Use a credit card
If all you need is a little cash to bridge and finance your trip, a credit card may be a better choice than a personal loan.
Some credit cards have introductory promotions that do not allow you to pay interest for a period of time. If you settle your credit card balance before this promotion expires, this option can cost significantly less than a personal loan. No personal loans have a 0% interest rate.
Additionally, credit cards are revolving lines of credit, which means you can borrow money up to a set dollar limit over and over again while paying back some of the current balance in regular payments. Personal loans, on the other hand, are installment loans, which means you take all the money upfront and pay back a set amount each month.
You may be able to use the rewards of a travel discount card to help fund some of your expenses.
However, make sure you use your credit card responsibly. You don’t want to go into debt to finance a vacation, mostly because it could cost you a lot of interest across the board.
Consider a cheaper vacation
You can opt for a cheaper vacation. Staying here could be a perfect time to explore the area around you – visiting museums, parks, and restaurants that are accessible by car. Depending on where you live, you can opt for a day at the beach or a hike.
While it might be a good idea to take out a personal loan to pay for a vacation, it might be better to budget for the trip and save enough money to reach your destination, or a new experience nearby instead Enjoy your home.