Whether you are planning to explore stateside attractions or discover distant lands, having a vacation is the best way to soothe your soul and, at the same time, ignite your imagination. One thing that many of us worry about is putting a sizeable dent in the bank account. A valid concern indeed!
However, if you don’t have money set aside, you have the option to take out a vacation loan. Travelling is the only way to break away from your mundane life, but financial issues make it impossible to consider. When you sit down and calculate your budget, you either cancel your plan or postpone it indefinitely.
Suppose you can’t reach your saving goals. So, you decide to apply for a loan. The loan helps you cover everything from any small things you need to buy before the trip, tickets, accommodations and all the touristy things you plan to do. You are so focused on your trip that you fail to create a plan that outlines how you will pay back the loan once your vacation is over.
Hence, you need to cleverly budget your trip and have a failsafe in place so you won’t have any trouble making weekly or monthly payments when you get back. Here’s a crash course for you on how to utilize a personal loan offer for a vacation:
What’s a Personal Vacation Loan?
A personal vacation loan is a standard small loan that allows you to cover travel costs, including hotels, transportation, meals, rental care, and other expenses. Rather than paying upfront, you can use this loan to finance your entire trip in monthly instalments.
Understanding How a Vacation Loan Works
A vacation loan is like an unsecured loan. You don’t need to provide collateral to ensure the buyer that you will pay back the loan. You are qualified based on your credit score and your credit history.
Once approved, you can borrow a small amount and pay it back with additional charges and interest. The amount of money offered may vary from lender to lender, but since a personal loan has a short timeframe, you will be given 12 months to 2 years to repay the loan. Some lenders ask for collateral when the loan amount is above $2,500 or $5,000.
One of the most important things about a personal loan you need to focus on is the annual percentage rate (APR). With this information, you can determine how much you will have to pay in total. Like the loan amount, the interest rate varies from lender to lender and is usually between 5% and 36%.
Pros and Cons of a Vacation Loan
Pros
Easy to Obtain
Compared to other loan types, a personal loan for a vacation is easy to obtain if you have Fair or Good credit. The online application for a personal loan offer is simple to understand, and you will get approval within 24 hours after filing it.
Allows You to Stick to a Budget
When you secure a vacation loan, you get the exact amount you need for all your expenses. With this amount, you can keep your credit card limit for emergencies.
Does Not Affect Your Credit Score
Since you access your vacation loan from a separate account, you don’t need to worry about your credit score.
You Know Exactly How Much to Spend
The terms of a vacation loan are simple: You get the loan and pay it back with a small fee and interest. With the lump sum amount, you can adjust your budget and ensure you don’t reach for your credit card.
Cons
The Loan Is Not Interest-Free
With credit cards, you won’t be subjected to any interest if you stay within a limit and pay the amount back within a given time frame. You don’t have the same luxury with a vacation loan.
Smaller Loan
Compared to a home equity line of credit (HELOC), the loan amount is much smaller. You might be able to take a trip to the nearby city but visiting Disney Land or Hawaii is out of the question.
High Interest Rates
Vacation loans have high interest rates, which are around 10%. This is because the loan does not ask for collateral.
Final Thoughts
Taking out a vacation loan can be a sensible decision if you have a plan to pay back the loan. Consider your long-term goals and personal finances to make sure that you can afford the loan. If not, you can look into alternatives, such as HELOC, or use your credit card or savings.
