by Christy Bieber | May 28, 2021
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Asking these questions will help ensure you don't regret your choice to borrow.
After a year when travel was virtually impossible for most people, many Americans are eager to hit the road this summer. But if you're planning a trip, you'll have to figure out how to pay for it. For some, this could mean taking out a vacation loan.
A vacation loan is a type of personal loan that you use to pay for the cost of a trip. Many lenders offer these types of loans specifically marketed for travelers. But before you decide to take out a vacation loan, there are four key questions that you should ask yourself to ensure you're making a choice that's right for you.
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Borrowing money can be a good option, but the added interest will make your vacation more expensive. That's why it's a good idea to first see if you have a better alternative to taking out a vacation loan. Some options may include:
If a vacation loan works best for you, your next step will be to figure out how much personal loan you can afford. That way, you can make sure your monthly payments will be affordable. To help you out, you might want to first create a budget.
Make sure you can easily work the monthly loan payments into your budget while still covering your bills and other priorities. If there's a question as to whether you can afford the payments without making a lot of sacrifices, you may want to think about borrowing less. Otherwise, you could end up regretting your choice once your vacation is over.
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The amount of time it takes to pay off your vacation loan is also worth considering.
You could take out a vacation loan that you will pay back over a long period of time. Doing that could make your monthly payments even more affordable. After all, if you give yourself five years to pay off your loan, then each monthly payment could be pretty small.
But ask yourself if you really want to still be paying for this vacation in five years' time. If the answer is no, then see if you can still afford the payments with a loan that has a shorter payoff timeline.
Check out our guide on the pros and cons of longer repayment terms for more information.
You should also ask your lender what the total costs of your vacation loan will be over time. This will be determined by:
Say, for example, that you're borrowing $5,000 for the trip of a lifetime. If you borrow at 10% interest and pay your loan off in two years, your total costs over time would be around $5,537. That would mean you'd pay an extra $537 for your vacation loan.
A vacation loan can be a great choice -- especially for the memories you end up making. But it's a good idea to know the total costs before you make that decision. And by asking yourself these four questions, you'll be in a better position to make the best choice possible.
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