Whether your city is in the throes of winter or your stressful job won’t let up, an indulgent vacation can sometimes feel like a necessity.
If you have the urge to travel but don’t have the money to afford it, you might consider using vacation loans to book the trip of your dreams.
Unfortunately, this temptation should be resisted in almost all cases. Taking out a personal loan to go on vacation isn’t a financially savvy move, and it’s a decision you could regret long after you’ve returned home.
“If you need to take out a loan to take a vacation, you can’t afford to go,” warned Matthew LaMont, a financial advisor, certified credit counselor, and president of LaMont Advisors. “The vacation will cost more than necessary due to interest paid, and you’ll be paying for the vacation possibly years afterwards.”
Here’s why vacation loans are a bad idea
With some financial decisions, there are significant pros and cons to weigh. But when it comes to taking out a personal loan to go on vacation, most experts agree there’s only one right decision: Don’t do it.
“It’s not a good idea to take out a personal loan to pay for a vacation,” advised Chad Rixse, a financial planner and co-founder of Millennial Wealth. “As much as we need our downtime to recharge our batteries, vacations are a luxury, not a necessity.”
Rixse could think of no advantages to taking out a personal loan for vacation, but he listed lots of disadvantages. “You increase your debt load,” he said. “You have to make monthly payments that might be a struggle for your budget. You’ll pay more than you borrowed by owing interest. And interest rates on unsecured personal loans can still be very high, even with good credit.”
The bottom line: Having a good time for a week or two isn’t worth the long-term price.
However, LaMont provided one exception. If the trip is for a once-in-a-lifetime event, such as a wedding for a close family member, taking out a vacation loan might be worth it if you don’t have time to save up.
But even in this situation, you shouldn’t take out a loan if you can’t afford the payments. Your loved one wouldn’t want you to ruin your credit to attend their wedding.
What should you do instead?
When it comes to paying for vacations, the best option is to plan in advance and save up enough money to afford the trip you want. “You’re better off making a vacation a goal,” LaMont said. “Work towards saving and paying cash, [and] then reward yourself with the trip.”
To make sure you don’t need to take out vacation loans, consider these tips:
- Start a dedicated travel fund and regularly transfer money into it. If you don’t have a lot of extra money, make a budget and see where you can cut costs to afford to save for a trip. You also could consider one-time financial moves that could result in big savings, such as refinancing your student loans. If you can lower your monthly debt payments, you’ll have more money to save for an awesome vacation.
- Use a credit card that rewards you with miles. If you can earn free plane tickets by putting your regular purchases on your credit card, it’ll make trips more affordable. Just make sure to pay off the balance in full every month. Otherwise, interest fees will negate the value of the rewards you earn.
- Look for affordable vacation options. Taking a trip doesn’t mean you have to spend a lot of money. Research low-cost vacation options and see if there’s a trip you can afford to take right now. If you can’t find a cheap trip, consider a staycation to explore fun locations in your area.
What if you decide to borrow a vacation loan anyway?
If there’s a once-in-a-lifetime event worth borrowing for, there are a few key things you can do to minimize the financial damage from taking out a vacation loan. You should:
- Shop around for a loan with the most favorable terms. Start with our personal loan marketplace to compare lenders and consider interest rates, origination fees, and repayment terms. Some lenders have minimum amounts you have to borrow to be eligible for a loan, which might be more than you need. You can find one that doesn’t with our guide to safely getting personal loans of $3,000 or less.
- Repay your loan as quickly as possible. You’ll pay less in interest and won’t be paying for your vacation for years to come.
- Borrow as little as possible. While you might need the money for plane tickets and hotels to avoid missing a big getaway, you don’t have to spend a fortune eating out or buying souvenirs.
While these steps limit the long-term damage to your finances, remember that a vacation loan should be a last resort for special occasions.
You also should remember that you don’t have to forego vacations forever, even if you can’t afford a trip right now. Check out our guide on how to save up for short-term goals quickly to get tips on building a travel fund.
When the next opportunity to travel comes along, you’ll have money in the bank and can go on vacation guilt-free because the trip won’t hurt your finances.
Interested in a personal loan?Here are the top personal loan lenders of 2019!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.95% to 35.89%*. The origination fee ranges from 1% to 6% of the original principal balance and is deducted from your loan proceeds. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at the time of application. The average origination fee is 5.49% as of Q1 2017. In Georgia, the minimum loan amount is $3,025. In Massachusetts, the minimum loan amount is $6,025 if your APR is greater than 12%. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months. Borrower must be a U.S. citizen, permanent resident or be in the United States on a valid long term visa and at least 18 years old. Valid bank account and Social Security number are required. Equal Housing Lender. All loans are subject to credit approval. LendingClub’s physical address is: LendingClub, 71 Stevenson Street, Suite 1000, San Francisco, CA 94105.
†Per reviews collected and authenticated by Bazaarvoice in compliance with the Bazaarvoice Authentication Requirements, supported by anti-fraud technology and human analysis. All reviews can be reviewed at reviews.lendingclub.com
**Based on approximately 60% of borrowers who received offers through LendingClub’s marketing partners between January 1, 2018 to July 20,2018. The time it will take to fund your loan may vary.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|5.75% – 16.24%1||$5,000 - $100,000|
|7.46% – 35.99%||$1,000 - $50,000|
|7.99% – 35.89%*||$1,000 - $50,000|
|5.99% – 24.99%2||$5,000 - $35,000|
|5.99% – 29.99%3||$7,500 - $40,000|
|6.79% – 20.89%4||$5,000 - $50,000|
|9.99% – 35.99%5||$2,000 - $25,000|
|6.95% – 35.89%6||$1,000 - $40,000|
|6.99% – 18.24%7||$5,000 - $75,000|
|9.95% – 35.99%8||$2,000 - $35,000|