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Vacations Loans and How To Get One

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There are so many reasons to vacation and even more places to go. You could travel your whole life and never see every patch of land and every marvel this world has to offer. 

Unless you’re planning on visiting these wonderful places on foot or by bike and sleeping under the stars, traveling can come with a few inevitable expenses. If it’s one of those all-inclusive fancy-schmancy, faraway trips, the cost of your dream vacation could feel like a financial nightmare.  

Vacation loans could be just the thing you need to finance your wanderlust.

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Vacation Loans, Explained 

A vacation loan (aka holiday loan, travel loan or vacation financing) is a type of unsecured personal loan

Unsecured personal loans:

  • Don’t require collateral (unlike an auto loan or a home mortgage loan) 
  • Are usually available through banks, credit unions and online lenders
  • Let you borrow anywhere from $1,000 – $100,000
  • Are considered an installment loan
  • Are repaid monthly at a fixed interest rate over 12 – 84 months (1 – 7 years)
  • Have a relatively quick approval process that can get you money in 7 – 10 business days 
  • Come with an interest rate based on your credit history, credit score and creditworthiness

Reasons To Take Advantage of a Vacation Loan

Whether you’re planning a destination wedding, an extravagant honeymoon, a cross-country family road trip or an overseas trip, there are lots of reasons when you might want to consider an unsecured personal loan to cover your vacation costs.

You need a lot of money upfront

Let’s say you’re buying cruise tickets or booking a stay at an all-inclusive resort or renting a luxury RV, you may need to make a large upfront payment of several thousand dollars. If you’re planning a destination wedding, you may need the cash to pay your wedding vendors.

You don’t have a high credit limit

Personal loans are a solid option if you’re worried about using credit cards to fund your travel or your tourist-market shopping. But remember, personal loan rates are usually based on your creditworthiness, so if you aren’t able to secure a credit card or are already carrying high balances, you may not be able to qualify for favorable personal loan terms.

You’re going somewhere that doesn’t take credit card

Hey, I know. Who doesn’t take plastic, right?! But, alas, some vacation destinations are less credit card friendly than others. If you don’t have the cash in the bank, taking a small vacation loan out can supply the cash you’ll want to spend during your travels. 

You’re making a vacation investment

If you’re interested in a longer-term luxury rental or buying a timeshare, you can use a personal loan to cover the deposit or upfront purchase price.

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Vacation Loan Pros 

When you compare a vacation loan to credit cards, vacation loans have some benefits that credit cards don’t, such as:

  • Lower interest rates: The interest rates on vacation loans are usually lower than standard credit card interest rates.
  • Fixed monthly payments: The fixed monthly payments over the loan’s term (or length) make repaying the loan predictable. Because you know what to expect each month, you’ll be able to create a plan to pay it off. 
  • Easier to budget: To figure out how much vacation you can afford, you’ll need to figure out how much you can afford to borrow. Use that number to create a vacation that fits your budget.

Vacation Loan Cons

Just because you qualify for a vacation loan doesn’t mean you need one. Your vacation loan is still a loan. It should think about it and treat it with the same seriousness you would any other debt. 

  • Increased cost: The interest on the loan will hike up the cost of your vacation. In the end, you’ll pay more than what the vacation cost. 
  • Lower credit score: When you take out a new loan, a lender performs a “hard pull” on your credit report. That pull (or hard check) can lower your credit score. And, like any other loan, if you miss a payment, your credit score could be affected, and you might get hit with late fees.
  • Long-term obligation: Your vacation may last a week, but your loan will likely be with you for much longer. This is a debt you may be repaying for months or years. 

And if you’re planning on getting another loan, it might make it harder for you to qualify because you’ll have more debt in your name, which affects your debt-to-income (DTI) ratio. 

How To Get a Vacation Loan

You can apply for a vacation loan through a bank, a credit union or an online lender to help cover vacation expenses. Here’s what the application process looks like for most borrowers: 

  • Check your credit score: Most lenders prefer a credit score in the high 600s. They’ll also want to see a DTI ratio that’s no higher than 50%. If your credit score is too low or your DTI is too high, you may want to hit pause on getting a loan. It may be harder to qualify, or you’ll be offered a higher interest rate.
  • Compare different lenders: Different lenders will offer different rates. Compare loan offers by their annual percentage rates (APRs). The APR is the total cost of borrowing, including interest and fees. Keep in mind that a lender’s advertised APRs are usually reserved for borrowers with excellent credit.
  • Get prequalified: Once you find a lender you want to work with, you can apply online. The lender will usually ask a few questions and do a “soft pull” of your credit score to see how much money you’re qualified to borrow.
  • Gather necessary financial documents: Lenders may want to see proof of income, including pay stubs, W-2s or 1099s. They may also request recent bank statements to see how much money you’ve got saved. 

Submit your loan application: Once you’ve gotten your paperwork together, you can submit your application to the lender. The lender may make additional document requests or have questions that need to be answered, so be prepared. If you get approved, you’ll be able to pocket your vacation money in a week or two.

Budget for Your Monthly Payment

Like any loan, vacation loans must be repaid. Because you’ll be making fixed monthly payments, that should make it easier to plan out your budget throughout the loan term.  

Pay close attention to the loan’s interest rate and terms and check for any prepayment penalties or late fees. Keep some wiggle room in your budget in case you trigger a late fee or a prepayment charge.   

Pro tip: Budgeting will be a lot less stressful if you can afford the loan and feel confident about paying it back.

Trust us, we know how easy it might be to lull yourself into thinking that the loan you used to fund your fun times in a faraway place isn’t as big of a financial move as, let’s say, a home loan. But while the loan amount may not be as high, it can still impact your financial future.  

Alternatives to Vacation Loans

If you aren’t interested in taking out a loan, there are other ways to finance your dream vacation. 

  • Start saving now: Create a budget. Stick to that budget. Stash some vacay money in your savings account each month. 
  • Take advantage of reward points: If you have a travel credit card (or a credit card with travel rewards), check out the perks that come with it. Apply the points you’ve earned and miles you’ve saved to your vacation. Travel reward cards may also give you access to exclusive discounts and other offers.

Start Planning Your Dream Vacation

Whether you choose to save, take out a vacation loan or use a travel card or travel rewards, your dream vacation is within reach. 

But remember, no matter how fun or well deserved the trip is, the only travel hangover you want to suffer from is a week of jet lag, not months or years of paying off an unaffordable loan. 

If it’s right for you, start researching your options, and paring down your hotel options. 

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The Short Version

  • A vacation loan is an unsecured personal loan that can pay for the vacation of your dreams – but it’s always wise to budget and plan accordingly for any big trips
  • There are advantages and disadvantages to using a vacation loan to fund your travels
  • Before applying for a vacation loan, consider other ways to pay for your vacation
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