Should You Use Vacation Loans To Cover Travel Expenses?

Vacations are a fun and exciting way to relax, spend time with family and friends, and explore new places. But they can also be costly. According to Budget Your Trip, the average cost of taking a one-week vacation in the U.S. is $1,993. Some travelers are turning to vacation loans to make their trip a reality.

But paying for a holiday with debt is a risky financial choice, and if you’re considering this type of borrowing, it’s important to know how holiday loans work and understand the pros and cons.

Vacation Loan Statistics

Are holiday loans a good idea?

While vacation loans can help you make your dream trip a reality, we don’t recommend using them: Before considering a vacation loan, make sure you’ve saved and budgeted enough to be able to take the trip yourself.

“Travel can provide rich experiences and the potential for personal and professional growth, making it a wise investment in certain circumstances. However, getting into debt for leisure travel without a clear financial plan can lead to unnecessary financial strain in the long term,” says Annette Harris, certified financial counselor and certified financial fitness coach at Harris Financial Coaching.

Taking out a loan for a non-essential expense, like a vacation, can put a strain on your budget and limit future financial opportunities, Harris said.

There are two situations in which a holiday loan may be justified.

• You are traveling for unavoidable, urgent reasons (such as caring for a sick loved one).
• If you’re going on a once-in-a-lifetime trip like your honeymoon, and you’re confident you can pay off the loan without missing a payment, dipping into emergency savings, or putting off more important financial goals.

If you are considering taking out a holiday loan, first take a good look at your budget and weigh the pros and cons.

Benefits of using a vacation loan

• Fixed monthly payment. Your payments are fixed, meaning you pay the same amount each month, making it easier to plan.
• Interest rates may fall. Depending on your credit score, interest rates on personal loans are often lower than alternatives like credit cards. If you plan on using a credit card to pay for your trip, a vacation loan could be a low-interest alternative.
• Please help fund an emergency (or expensive) trip. If you are traveling out of necessity rather than for pleasure and are short on time, a vacation loan is a great option to get you going sooner.

Disadvantages of taking a vacation loan

• Interest will increase the cost of your trip. If you take out a loan, you’ll have to pay interest on top of the cost of the trip itself.
• Fee The value of the loan may decrease. Many lenders charge an origination fee, which is deducted from the loan amount, so be sure to find out what fees the lender charges before you apply.
• Monthly payments. Taking out a holiday loan means you have to make monthly payments until it’s paid off, which means you could be paying for your trip many months down the line. Taking out a loan is a long-term investment.
• It could negatively impact your credit score. Late or missed loan payments can seriously damage your credit and may even lead to the lender suing you.

How do vacation loans work?

A vacation loan is an unsecured personal loan that you can take out to cover expenses related to travel or vacation. Vacation loans can be used to cover any travel expenses, including transportation, lodging, food, and entertainment. Vacation loans can be taken out from any lender that offers personal loans, including banks, credit unions, and online lending companies.

“Someone looking to enjoy a vacation can borrow a lump sum and pay back the loan amount plus interest over a set period of time with fixed monthly payments,” says Dani Pascarella, founder and CEO of OneEleven Financial Wellness. “This is no different than a personal loan taken out for any other purpose.” As Pascarella points out, taking out a vacation loan means that the vacation will inevitably be more expensive because of the interest that will have to be paid.

“Because it takes months or even years to pay off the loan, that money can’t be used for other things you might need in the future,” Pascarella adds.

How to Get a Vacation Loan

1. Check your credit score. Different lenders have different minimum credit score requirements, but generally, you need a good to excellent credit score to qualify for a lender’s lowest interest rates. Your credit score is also a key factor in determining the interest rate you receive. If your credit score isn’t great, consider lenders that work with borrowers with poor credit. But be careful: These lenders may charge you interest rates that exceed typical credit card rates.

2. Research lenders. Compare lenders to find the best interest rate for your personal loan. Many lenders allow you to pre-qualify to see interest rates without hurting your credit. Also consider the fees charged, minimum and maximum loan amounts, repayment terms, and extra features that individual lenders offer.

3. Submit your application. Once you have chosen a lender, you submit a formal application, including identity verification documents such as ID, W2, pay stubs, etc. If you are approved, the next step is to sign the agreement, receive the funds, and start repaying the loan in monthly installments.

How has inflation affected travel costs?

The U.S. economy has been plagued by persistent inflation for the past few years, but inflation rates are finally starting to stabilize. According to the Bureau of Labor Statistics, the Consumer Price Index for airfares fell 5% year-on-year as of June 2024.

“Inflation is generally easing, with travel-related goods and services at the forefront,” according to the U.S. Travel Association’s June 2024 Travel Price Index. June marked the second consecutive month that travel prices fell more sharply than the overall economy, according to the TPI. Hotel, airline and gasoline prices all fell, according to the index.

Still, some travel-related costs will remain high, Statista’s research found. For example, recreation-related costs will rise 4.1% between 2023 and 2024, while food and beverage costs will rise 4% over the same period.

Nearly two-thirds (65%) of Americans who plan to skip a summer vacation this year cited a tight budget as their main reason, according to Bankrate’s Summer Vacation Survey.

The top 4 vacation loan providers

Thrive

Prosper loans have annual percentage rates (APRs) as low as 8.99 percent. Loan amounts range from $2,000 to $50,000. The lender was named Best Personal Loans for Moderate Credit Borrowers by Bankrate in 2024. Plus, you could get a lower interest rate if you add a creditworthy travel buddy as a co-applicant.

Avant

Avant’s interest rates and fees are on the higher side, but it’s worth considering for borrowers with credit scores as low as 580. You can borrow between $2,000 and $35,000 from Avant for your vacation. Interest rates range from 9.95 to 35.99 percent, and loan terms range from two to five years. Note that Avant charges an administration fee of up to 9.99 percent, as well as late payment and dishonor fees.

Light Stream

If you have good to excellent credit and are planning a big-ticket vacation, check out LightStream. LightStream’s interest rates are among the lowest in the industry, ranging from 7.49 percent to 25.49 percent, and they don’t charge fees. You can lower your interest rate by up to 0.50 percent by signing up for autopayments, on amounts from $5,000 to $100,000. But pre-qualification isn’t an option with LightStream, so check out rates with other lenders first.

Sophie

SoFi loans start at $5,000. Like Lightstream, repayment terms range from 2 to 7 years, making this loan ideal for larger, more expensive trips. With SoFi, you can get your funds the same day you’re approved.

What are the alternatives to vacation loans?

Before taking out a vacation loan, check out these alternatives.

• Make a budget and save. Well before your trip, take the time to research the cheapest travel and accommodation options, as well as tips and tricks for traveling cheap in certain areas. Add up the expected expenses. Then, start saving money from your paycheck each month until you have enough saved up for the trip.
• Travel cards and loyalty cards. Many credit card companies offer travel rewards or points programs, which can help you cut down on travel costs. Some cards even give you airline miles based on how much you spend on your card. Some cards may also offer cancellation insurance or no-fee international transactions. Be aware, however, that credit card debt can add up quickly.
• Travel in a large group and share the costs. Sharing accommodation can reduce costs significantly.
• Look for discounts. Discounts can often be found if you search, so do your research to find the cheapest flights, hotel rooms, etc. You can almost always find great deals online.
• Choose a less expensive vacation. If your planned vacation is going to exceed your budget, consider shortening your trip or switching to a cheaper destination.
• Wait until the off-season. Prices are higher in certain areas at certain times of the year. For example, a trip to the Bahamas costs more to travel to in the summer than it does to travel in the fall or winter. To take advantage of lower rates and less crowded destinations, consider visiting your chosen location during the off-season.

Conclusion

While vacations offer a wonderful opportunity to relax, spend time with loved ones, and explore new cultures and places, they are not a must-have expense, nor should they require you to go into heavy debt to pay for them.

If you can’t wait to save up to cover the costs of a vacation and are confident that you can pay off your debts, a vacation loan can help you fund your upcoming trip. However, you should research and compare your financing options before deciding. Saving and finding a good deal is always a better choice than going into debt.