Are you aching to fly to your dream destination and explore the sights you’ve always wanted to see? Going on a vacation can help you recharge and make memories with your loved ones — but the costs can add up quickly.
According to a survey conducted by savings and investment company Twine, “The average spend on a weekend trip is $564 and $1,928 for a week-long vacation.”
If you’re planning to go on a trip but have limited funds, you might consider taking out a vacation loan to cover a costly getaway.
Understanding how vacation loans work is important to make sure you know what you’re getting into. You don’t want to be left paying for your travel experience long after it’s over.
Here’s everything you need to know about vacation loans to help you plan, save, and borrow responsibly for your much-needed vacation.
Vacation loans, or travel loans, are unsecured personal loans. This kind of loan involves borrowing money without needing to put up any collateral, like a house or car.
Vacation loans can help you finance your vacation and cover any travel-related expenses. When you’re a bit short on cash, these loans provide you with the luxury of travel without having to dig into or empty your savings account.
Your eligibility and interest rate will depend on several factors, including your monthly income, debt levels, creditworthiness, and financial history.
You can choose a vacation loan of a specific amount with a fixed interest rate. You’ll repay this loan through regularly scheduled payments for a specified term length.
The benefits of fixed payments are twofold:
Since vacation loans are essentially a type of personal loan, there are few limits on how you can spend them. Here are some ways you can use the funds for traveling:
If you’re looking to finance a vacation, taking out a personal loan is a far better option than incurring a high-interest credit card debt.
Borrowing for any unnecessary purchase makes it more expensive because of interest. Your future budget is also affected when you commit to repayment over a specific period.
Before taking out a vacation loan to pay for your travel expenses, think about your monthly budget first. Make sure that your budget can handle the monthly payments, so you can commit to paying off the loan on time.
You should aim to borrow no more than what you can comfortably afford to repay within three to six months. This will keep your vacation loan from interfering with your other financial goals.
Below are the pros and cons of vacation loans to help you decide if they are right for you.
Once you’ve decided that a vacation loan is the right option for you, you can begin the application process with these six steps.
Before applying for a vacation loan, or any kind of loan, it’s always best to check your credit report first. This will give you an idea of which loan terms you may qualify for.
Having a good credit score provides you with a wide range of options when it comes to lenders, loan offers, and other borrowing terms (interest rates and fees).
Make sure to review your credit report thoroughly and address any errors before proceeding with the application.
For personal loans, the minimum and maximum amounts you can borrow vary depending on the lender. Some lenders offer small loans (from $1,000 to $10,000), while others offer larger loans (up to $100,000).
When you decide how much you want to borrow, you can narrow down which lenders will best suit your needs. It also gives a budget that you can work within.
Shop and compare different lenders to determine what they offer and decide which loan features are important for you.
While the interest is equally vital, the right lender should offer more than just the cheapest interest rate. The annual percentage rate or APR is what you should keep your eye on.
APR provides a real picture of how much you’ll pay for a vacation loan. It reflects the interest rates, points, and fees charged by your lender.
A great loan offer usually comes with the lowest competitive rates and repayment terms that work best for your budget.
If you have an excellent credit score, you can negotiate the loan fees. Don’t immediately accept and pay all fees charged by the lender.
The application process for a personal loan is fairly simple. You need to provide your basic information, such as your name, social security number, income, and place of employment.
Most lenders run a soft credit check after you’ve submitted your application. A soft credit check has no impact on your credit score.
The lender will either approve or deny your loan application based on your credit history. Your creditworthiness will let you know how much your personal APR, interest rate, and fees will be.
After selecting a lender that best fits your needs and budget, let them know that you’re ready to proceed with the loan.
The lender of your choice will run a hard credit check, which can affect your credit score. However, making a regular monthly payment should result in a quick rebound in your score.
The lender may ask for additional documents when verifying your financial information. The faster you can provide the required documentation, the faster you can receive your funds.
Once the loan application is approved, expect the lender to deposit the funds into your bank account within one to seven business days.
Vacation or personal loans are a great way to finance a trip without putting yourself in a financial bind. These loans are likely to have lower rates than credit card debts.
However, interest rates for vacation loans largely depend on your financial background. There’s a higher chance of securing a more attractive rate when you have a solid financial background.
Another smart way to finance your dream vacation is by borrowing from a credit union. Credit unions are not-for-profit financial organizations that can offer lower interest rates and fees.
At 121 Financial Credit Union, we can help you make your dream vacation come true. With our vacation loans, you can borrow up to $25,000 with a fixed APR as low as 8.50%.
No need to deal with high-interest credit card debts or fluctuating interest rates! Our low minimum payments also let you know your payments in advance so you can easily budget.
Ready to book your next trip? Complete our online loan application or visit a 121 Financial Credit Union branch near you to find out if you qualify for a vacation loan.