by Dana George | Feb. 11, 2021
We all need a vacation right about now. The big decision is how to pay for the getaway.
Imagine that COVID-19 is behind us. We're no longer wearing masks and social distancing, so you decide to celebrate by getting away. The only fly in the ointment is that you are cash poor right now and need a way to pay for the excursion. If you're considering a vacation loan, here's a look at the upside of these loans, what you need to look out for, and if there are any other ways to finance your dream vacation.
A vacation loan is an unsecured personal loan used for travel. While you might think of a personal loan as a way to pay for home renovations or car repairs, it is possible to use the same type of loan to party in an exotic locale.
Some lenders have a specific category of loans called "vacation loans." Other lenders put zero restrictions on how you can spend loan proceeds. That means you can use the money for anything, from fishing off the coast of Costa Rica to fantasy baseball camp with retired MLB players -- even if the loan is not specifically labeled a "vacation loan."
Let's consider some of the pros of borrowing money to finance your travel dreams.
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There's no denying that there is a downside to borrowing money for leisure travel. The biggest drawback is that you may spend months or years paying for a trip that lasted a week or two. It can make sense to borrow if you don't have the funds to travel for something important like a relative's funeral or to help move your elderly grandfather into a nursing home. However, the decision to borrow is a bit weightier when the trip is purely for fun. That's because, in addition to the amount you borrow, you may end up paying origination and other loan fees. You will definitely end up paying interest.
Here, let's compare the cost of a trip paid with cash to financing it through a personal loan:
As mentioned above, using cash to pay for a vacation means not having to pay loan interest. You can increase the speed at which you save by taking on a side-hustle or cutting unnecessary expenses, like subscription services and meals out.
If your credit is good, you may qualify for a credit card with a 0% promotional interest rate. These promotional rates typically last from 12 to 18 months. Let's say you take that trip to London using a card with a promotional rate lasting 18 months. If you spend $5,000 traveling, you can avoid interest payments by making 18 equal payments of $278 per month.
If you feel that your trip can't wait and decide to take out a vacation loan, here are a few things to keep in mind:
Making a financial decision is like choosing who you're going to date: What you decide may not be right for someone else and vice versa. Whether you choose to take a loan to pay for travel now or postpone your trip until you can pay cash, the decision is yours to make. In either case, safe travels.
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