A Complete Guide to Vacation Loans

Everything you need to know about vacation loans and how to get the best deal possible.

U.S. workers have left 54% of their paid vacation time on the table in the last 12 months, according to a survey by Glassdoor.

people go into debt to finance their vacation

While many people reason that they would get behind while they’re gone or that no one else can do their work while they’re gone, studies show that taking an extended break is a great way to keep you rejuvenated and happy on the job.

Another reason some people may choose not to take a vacation is that it’s too expensive. Roughly three-quarters of vacationers go into debt to finance their trip, with people borrowing $1,108, on average.

Depending on your situation, it may or may not be a good idea to take out a vacation loan to finance your trip.

“Few things are less relaxing than coming home from a vacation, going back to work, and facing a pile of bills you cannot pay,” says Joe Toms, president of online lender FreedomPlus.

“Those with other unsecured debt obligations – such as credit card debt – should not borrow more money for something that is a ‘want’ rather than a ‘need.'”

Here’s what you need to know before applying.

The average cost of a vacation

It’s hard to say exactly how much to expect your trip to cost because it can vary depending on where you go, how you get there, and how long you stay. For example, a road trip for a family of four will generally cost significantly less than a flight to the same destination.

Here are some ballpark figures on the cost of a 4-day trip within the U.S. and a 12-day trip abroad:

How vacation loans work

There are two primary ways you can finance your vacation: personal loans and credit cards. Here’s what you need to know about each option.

Personal loans

With an unsecured personal loan, you can typically borrow as much as you need without putting up collateral to secure the loan. That unsecured nature makes personal loans easier to get.

With a personal loan, your monthly payment and repayment term are set, so you don’t have to worry about extending your debt sentence because of a low minimum payment.

The problem is that many personal loan companies have high minimum borrowing amounts, often starting at $5,000. Not many people spend that much on vacation, so you could feel like you have to borrow more than you need.

A couple of exceptions are LendingClub and Upgrade, both of which have $1,000 minimums and offer decent interest rates.

Find out what rates you qualify for without hurting your credit score

Credit cards

Like personal loans, credit cards typically don’t require collateral to open an account. What’s more, some credit cards offer various benefits when you use them, such as rewards and other perks.

What’s more, some credit cards offer 0% introductory APR promotions, which can allow you to finance your vacation with no interest. But if you don’t pay it off before the end of the promotional period, you’re stuck with a high interest rate.

In general, credit cards charge a 15.32% interest rate, on average, according to the Federal Reserve.

Compare rates, fees, and benefits of various credit cards today

What to look for in a vacation loan

In an ideal situation, you’d pay cash for your vacation to avoid taking out a loan. But if you need a break but can’t afford one anytime soon, here are a handful of things to consider as you compare personal loans for your vacation:

Interest rate

Different lenders charge various interest rate ranges on their personal loans, so it’s important to shop around. Interest rates also depend on your creditworthiness.

So, if you have poor credit, you may be stuck with a high interest rate, and it may not be worth borrowing to fund your vacation. The average interest rate on a 2-year personal loan is 10.22%, according to the Federal Reserve.

Fees

Personal loans typically don’t come with a lot of fees, although some lenders charge an origination fee, which can be anywhere between 1% and 8% of the loan amount. Most lenders also charge late fees, which you can avoid by making your payments on time.

Loan amount and term

It’s important only to borrow what you need, so avoid working with a lender with a high minimum. Also, consider how flexible the lender is with its repayment terms. Some loans for bad credit will only give you weeks to repay the debt, whereas legitimate personal loan companies will offer up to a few years.

Other features

Some personal loan companies offer extra perks to entice you to apply. For example, you may get a reduction of your interest rate if you sign up for automatic payments, or you could get unemployment protection if you lose your job through no fault of your own.

Average personal loan rates by credit score

3 tips to avoid overborrowing for your vacation

Since both credit cards and personal loans charge relatively high interest rates, it’s important to have a plan for your trip before you apply. Here are three things you can do.

1. Save as much cash as you can

Depending on how long you have before your trip, you could have time to set cash aside to cover most of your trip costs. Take a look at your budget to find areas where you can cut back and funnel that cash into savings instead. If you don’t have a budget, consider how you spend your money and consider cutting back on certain things throughout the month to do the same.

2. Opt for a cheaper destination

If you’re borrowing to take a trip, you don’t need to go to Bali or Hawaii to get a break. Consider a cheaper destination like Florida or Puerto Rico instead. Also, look into doing a cruise that includes accommodations, food, and transportation at a lower price than you might pay if you pay for those things separately.

In other words, reserve a more expensive trip for when you can pay for it in cash.

3. Set a vacation budget

It’s hard to know how much to borrow if you don’t know how much you’re going to spend. As a result, it’s essential that you create a vacation budget. Run the numbers, for example, for the flight, the hotel, the rental car, or whatever other major expense you’ll incur.

Also, don’t forget about food, gratuities, parking, souvenirs, and other minor expenses that could get out of hand if you let them. Set a reasonable budget for each, then borrow based on your overall trip budget. Then stick to that budget.

How to pick the right vacation loan

If you’ve considered all of your options and have decided to take out a personal loan to finance your vacation, it’s important to know how to get the best loan for your needs.

“Independent lenders can use different criteria than a traditional bank or credit union to evaluate how likely a person is to repay a loan,” says Toms. For example, some online lenders may look at your savings and earnings potential.

“This can be extremely important for some borrowers, as traditional credit data is limited in that it doesn’t fully account for
someone’s complete financial profile and ability to pay debts.”

The most important thing you can do is to shop around. Using SuperMoney’s personal loan engine, you can compare offers from several different lenders in one place without officially applying. There will be a soft inquiry on your credit report, which won’t hurt your credit.

To start the process, you’ll need to share your:

  • Reason for borrowing
  • Desired loan amount
  • Credit score
  • Education level
  • Employment status
  • Annual income
  • Payment frequency and method
  • Housing information
  • Address
  • Name, date of birth, email address, and phone number
  • Military status
  • Residency status and Social Security number

Once you submit your information, you’ll see potential offers from SuperMoney’s partner lenders. They’ll include the interest rate, potential fees, your estimated monthly payment, and the total amount you’ll pay over the life of the loan with interest.

With this information, you’ll have an easier time picking the right lender because the offers are personalized.

If you want to improve your chances of getting approved with a lower rate, consider getting someone else with great credit to cosign the application with you. Getting a cosigner isn’t always easy, but it could save you money.

WEIGH THE PROS AND CONS

It might not sound like a big deal to take out a vacation loan for your trip, but it's not a great idea for everyone. Here are some benefits and drawbacks to consider. Compare the pros and cons of vacation loans to make a better decision.

Pros
  • They typically don't require collateral.
  • You can usually get the funds within a few days.
  • You can take up to a few years to repay the debt.
  • Some loans are available to people with poor credit.
  • Can qualify for lower interest rates with good or excellent credit.
Cons
  • Only the best credit gets you the lowest rates lenders offer.
  • Many lenders have high minimum borrowing amounts.
  • Some lenders charge an origination fee of up to 8%.
  • It's not as good as using cash.
  • A monthly payment might not fit in your budget.

What to look for in a vacation loan

In an ideal situation, you'd pay cash for your vacation to avoid taking out a loan. But if you need a break but can't afford one anytime soon, here are a handful of things to consider as you compare personal loans for your vacation:

  • Interest rate
  • Fees
  • Loan amount and term
  • Other features

Some personal loan companies offer extra perks to entice you to apply. For example, you may get a reduction of your interest rate if you sign up for automatic payments.

Using SuperMoney's personal loan engine, you can compare loan offers from several different lenders in one place without hurting your credit.

The bottom line

Vacation loans can be a good way to pay for your vacation when you don't have cash on hand. But depending on your credit situation and aversion to debt, borrowing for your trip might not be a good idea.

The important thing is that you do your research to determine whether a vacation loan is right for you. There's no right or wrong answer, so go with your gut. As you understand your options and the pros and cons of each, you'll have an easier time picking the right one.

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