Vacation loans that can help you take some time off without breaking the bank
If you did not have the chance to save enough money for the well-deserved and long-sought-after vacation this year, do not worry. The year has not ended, so there are plenty of options to choose from. This article provides you with the most valuable insights on vacation loans, what they are, how to choose the best option for you, and what to be cautious about.
Source: Men's Journal
What are vacation loans?
Vacation loans are unsecured personal loans used to cover travel costs (i.e., accommodation, transportation, food, and other travel-related expenses). Unsecured loans are debt instruments that do not require collateral. Banks, credit unions, and online credit companies offer vacation loans.
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If you qualify for a holiday loan, you will often receive the cash in a few days. It will be paid as a single payment, normally through a bank transfer or a cheque. You can spend this money on almost any travel-related cost you need.
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The borrower can select the payback period and have a fixed rate over the term of the loan. The payback schedule is usually done in fixed monthly instalments, meaning that the payment stays the same month after month until the loan maturity.
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Payback normally begins the next month after you get the money. Subject to when you get the cash and your travel dates, you may need to begin paying back your loan before, during, or after your getaway. To avoid missing payments, set up automatic payments (autopay) as soon as you receive the loan.
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Why choose a vacation loan?
Funding your dream vacation for you and your loved one(s), your honeymoon, or your self-discovery solo trip should not be prohibitive or require you to save up for years in advance. Credit instruments like a vacation loan can help you take the trip you kept putting off with fixed rates and a repayment timeframe that meets your needs.
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The eligibility criteria are reasonable and usually refer to age (minimum 18 years old), credit score (only some providers perform credit checks), a minimum household annual income level, and a valid US social security number. No paperwork is required, and the funds will touch your account in 24 hours, or less.
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When selecting the lender, you need to look beyond the lowest interest rate. The annual percentage rate (APR) is what matters. The APR represents the interest rate, charges, and fees levied by the loan provider. Because APR offers an accurate indication of how much you'll pay for the vacation loan, that's the indicator you should focus on. A suitable loan offers a competitive rate and a payback period that works for you. Ideally, a lender will impose modest (or no) costs, such as an application fee, prepayment cost, or a fee for late payment. If you have a great credit score, you may be able to work out lower loan costs (or eliminate them).
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Why not get a personal loan and use it for a vacation?​
In contrast with personal loans, holiday loans may have lower credit lines and shorter repayment timeframes. Personal loans also tend to offer higher amounts, which you may or may not need, depending on the type of vacation you have in mind. This is why it is important to always compare the APRs and seek loan offers before the summer or winter holiday seasons when banks and credit providers will compete to make you the best offer.
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Vacation loans versus point-of-sale loans
Point-of-sale loans, usually marketed as ‘Buy now, pay later’, are usually provided directly on retailers’ websites or via the loan provider’s platform when you want to book accommodation, car rentals, flights, etc. They are not specific for holidays, though. Electronics, gadgets, and many other items can be bought using this type of credit line. Also, point-of-sale loans can offer between 0% and 30% interest rates, although the 0% APR loans may ask for an initial payment when checking out on the platform while the first payment on a vacation loan starts the next month after taking the loan.
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If you can get a loan with 0% APR and make the payments on schedule, a point- of-sale loan may be a viable option for funding a vacation. However, if the monthly payments do not readily fit into your budget, be skeptical of a POS loan and study the small print to discover how much interest you will end up paying.
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The ‘buy now, pay later’ option can be used for booking flight tickets, for instance, from vendors such as Delta Vacations, Priceline, StubHub, and Alternative Airlines, which partner with the credit company Affirm. This means that the money you end up paying on the flight ticket depends on the partnership between the retailer and the credit company and not just on the terms of the credit provider. Vacation loans, on the other hand, are more flexible since they can be sourced from all credit firms available.
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Both point-of-sale loan providers and holiday loan providers conduct credit checks along with other eligibility criteria before lending money, with some exceptions in the case of point-of-sale credit firms.
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Which vacation loan to choose?
After carefully analyzing more than 30 providers and comparing their competitive offers based on criteria including customer rating, APR range, loan amount, loan term, and credit score required, the five best offers in September 2024 include:
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Provider | Customer Rating | APR Range | Loan Amount | Loan Term | Credit Score Required |
|---|---|---|---|---|---|
LendingPoint | 4.0/5 | 7.99% - 35.99% | $1,000- $36,500 | 3 - 5 years | None |
LightStream | 4.0/5 | 6.99% - 25.49% with autopay | $5,000 - $100,000 | 3 - 7 years | None |
Citi | 4.5/5 | 11.49% - 20.49% | $2,000 - $30,000 | 1 - 5 years | 720 |
Discover | 4.9/5 | 7.99% - 24.99% | $2,500 - $40,000 | 2 - 12 years | 660 |
Upstart | 4.0/5 | 7.80% - 35.99% | $1,000 - $50,000 | 2 - 6 years | 600 |
All five selected vacation loan providers offer the funds without any prepayment fees if you make the interest payments on time. In addition, Citi offers a discount of 0.5% on the interest rate if you set up a direct debit for the interest payments or automatic payment. The APR range of LightStream is offered at this level (6.99% - 25.49%) with automatic payment.
Pros
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You don’t have to wait and save up before you go on your dream vacation.
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Ease of access, as you can apply online for most vacation loans.
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The speed with which it becomes available to the eligible borrowers.
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The potentially lower interest rates compared to personal loans or even point-of-sale loans.
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A holiday loan can improve your credit score if you make the payments on time.
Cons
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If you’re late on a payment, your credit score might take a hit.
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With some providers like Citi who conduct hard credit checks, your score will be temporarily affected just by inquiring or applying even if you don’t end up getting the loan.
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If you already have a low score, you may need to face high interest rates.
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You need to pay off the cost of the trip over a long period, so they end up paying significantly more than the cost of the loan. Moreover, you may find it hard or even impossible to qualify for another loan while you’re paying off your vacation.
Steps to Obtain a Vacation Loan
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Verify your credit score as many lenders do require a minimum credit score. Knowing your rating will help guide your research.
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Collect key documents such as tax returns, recent pay slips, and bank statements. Most vacation loan providers will require these, and it will save you time if you have them on hand.
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Do your research. Use our recommendations as the best overall vacation loan providers and compare them with other offers before you decide what suits you best.offer with the lowest APR. Check other terms as they may decide if another provider has better conditions (i.e., loan term, loan amount, etc.).
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Select the best offer that works for you. Most borrowers choose the
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Stay reachable. Even if you’re already busy packing, it is important to check your emails and phone regularly for any additional information that lenders may need from you before or even after granting the loan.​
Conclusion
In summary, a holiday loan is a great option to finance your dream vacation. Instead of waiting and working hard to save a large sum of money that devalues quickly in today’s high inflationary economy, you can go on vacation and worry about making small monthly payments when you come back.
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You do need to study it carefully, though, and compare it with other sources of finance such as savings, a personal loan, a ‘buy now, pay later’ deal or a credit card with a free vacation as a reward in exchange for bonus points. Paying off a vacation for several years is not particularly attractive if you can avoid it or finance it in a less burdensome way.