It’s that time of year. The beach and the mountains are calling. You might be getting invitations to weddings in far-flung locales. And in the middle of the year, most of us are itching for a break from the daily routine. So, our internet browser entries are full of vacation searches that our bank account may not be ready to support. If you’re considering a personal loan to fund your travel shortfall, check out this article first and be prepared.
Things to consider before you take out a vacation loan
Taking out a loan for travel is a tough call. These loans are usually unsecured, so interest rates can skyrocket depending on your credit score. For example, let’s say you borrow $10,000 with a 36-month term. At 18% APR, that equals a $343.33 monthly payment. If you take the full 36 months to pay it, the added interest means you spend $12,360. And for three years, you’ll be stuck paying a note that might hinder your ability to enjoy future trips.So, ask yourself these questions before you take out a vacation loan?
- Is this trip nice or necessary?
- Can I really afford the monthly note?
- Are there less expensive alternatives to taking this vacation?
Only you can decide the answer to the first question, but here are some tips to help you answer the last two.
Look at your budget
Creating and keeping a personal budget is critical. The numbers don’t lie, and they will let you know exactly how much you can afford to spend on a vacation. But don’t approach your budget as a rule-imposing killjoy. Instead, look at it as a tool that creates flexibility. In the scenario mentioned earlier, your budget will allow you to afford $200 a month. Suppose the vacation is nice but not necessary. In that case, you can take money from other non-essential areas of your budget to cover the remainder. Your budget will also let you know if there are ways to earn extra income to offset the cost. If you keep historical records of your budget, a quick look back may also remind you of a windfall that might help offset the vacation costs.
Look for cheaper ways to fund your vacation loan
Shopping around for the best deals on flights, fuel, and vacation rentals is easier than ever. So, do your homework on several travel sites and lock in the best deal possible. Remember, just because you borrow a set amount doesn’t mean you have to use all of it. So, if you borrow $10,000 but only use $7,000, you may be able to give the remainder back to the lender without penalty. Also, check the rate a lender is willing to give you versus your credit card interest rates. If you have a 0% introductory offer on a card, that may be an alternative. Finally, don’t forget to look for travel rewards and points on any credit cards you have.
How to avoid vacation loans
Of course, you can avoid a vacation loan altogether. If you decide the trip you want isn’t necessary, it doesn’t mean you can’t take it. It just means saving up for it. Taking the earlier loan example, you could save up for a fantastic $12,000 trip by putting away $343 per month. Then, you’d have the added security of not getting a credit hit if you had to miss a payment or make a smaller one. While you are saving for the big trip, you can take smaller vacations closer to home or opt for a staycation that fits your budget.
So, is a vacation loan a good idea?
It all boils down to your tolerance for debt and if you feel the trip is necessary. Either way, following the tips here, will give you the best chance of avoiding excessive financial strain and allowing you to really enjoy yourself on your next trip.