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Should You Use a Personal Loan for a Vacation?

Budgeting and saving up for a trip in advance is the best way to pay for travel, but personal loans (and credit cards) are borrowing options with unique pros and cons.

Written by Jacqueline DeMarco / September 16, 2022

Quick Bites

  • Personal loans can be used to cover vacation expenses such as hotels and airfare.
  • When you use a personal loan to pay for a vacation, you’re essentially paying more for your trip since you’ll need to pay loan fees and interest.
  • Whenever possible, saving up and paying for a vacation upfront is the best way to not accumulate debt.

Vacations can be expensive, but they are also an important part of life. Taking time off from work to relax and connect with loved ones can help us rest and recharge, making it easier to make progress in all areas of our lives. If you’re struggling to afford a vacation or want to spread out the cost of a major trip, you might be wondering about using a personal loan for vacation expenses.

The good news is—you can. But the better question is whether you should use debt to help pay for your next vacation. Generally, it’s best not to borrow money for unnecessary expenses. While it makes sense to borrow money to buy a car so you have reliable transportation to go to work, it doesn’t benefit you financially to pay interest charges on a vacation.

Let’s take a closer look at how using a personal loan for a vacation works and what the advantages and disadvantages of doing so are.

Inside this article

  1. What is a vacation loan?
  2. Pros, cons of vacation loans
  3. Alternatives to vacation loans
  4. How to shop for a personal loan

What is a vacation loan?

A vacation loan, also known as a travel loan, is a type of personal loan that can be used to finance the cost of a vacation. The funds from the loan can be used for airfare, hotels, rental cars and other travel or personal expenses. 

The lower the interest rate is on a vacation loan, the less you’ll spend in repayment. And the better your credit score is, the more likely you are to qualify for lower interest rates. These interest rates can range from 5% to 36%. 

Vacation loans work just like other types of unsecured personal loans. Your credit score, amongst other factors, determines how much you qualify to borrow and the interest rate you’ll be charged. You borrow a lump sum of money and make monthly installment payments over the life of the loan until the debt is fully paid off. Each monthly payment includes interest charges. 

Usually vacation loans have terms that are as short as 12 months or as long as five years and loan amounts range from $1,000 to five figures. Here are examples of reputable personal loan companies reviewed independently by Sound Dollar:

Company
SoFi personal loans logoVisit
Winner
Winner
Best overall
APRs*
APRs*
7.99% - 23.43%
Minimum credit score
Minimum credit score
680
Visit
Winner
Winner
Editor's pick
APRs*
APRs*
6.74% - 17.99%
Minimum credit score
Minimum credit score
650
Winner
Winner
Best for fair credit
APRs*
APRs*
5.99% - 24.99%
Minimum credit score
Minimum credit score
600
Winner
Winner
Best for good credit
APRs*
APRs*
3.99% - 19.99%
Minimum credit score
Minimum credit score
Not stated
Winner
Winner
Best for debt consolidation
APRs*
APRs*
6.99% - 19.99%
Minimum credit score
Minimum credit score
Not stated

*Rates as of July 8, 2022. Visit lender for most up-to-date APRs.

It’s important to keep the annual percentage rate (APR) in mind when taking out a vacation loan or a personal loan to use for a vacation, as that represents the total amount you’ll spend to borrow money. APR accounts for origination fees, which can be zero to 8% of the loan amount.

Pros and cons of using a personal loan for vacation

“The biggest perk of using a vacation loan is that it can help you finance your dream trip without having to save up for years in advance,” says Jeremy Wagner, a financial analyst at Trading Pedia, an online trading guide. “A loan can also help you take advantage of last-minute deals or special promotions.”

Of course, there are also disadvantages associated with vacation loans. The biggest downside of taking out a vacation loan is that you will have to pay interest on the money you borrow. This can add significantly to the cost of your trip. (You’ll need to confirm that you can afford the monthly payments on your loan, as missed payments can damage your credit score.)

 Now let’s look at some of the pros and cons of using a personal loan for vacation.

Pros

  • Consistent payments: Personal loans and vacation loans usually come with fixed interest rates, which means you will know exactly how much you need to budget for each month.
  • Lower interest rates: For creditworthy borrowers, personal loans often carry lower interest rates than credit cards. So, if you are going to borrow money to pay for your next vacation, this can be a more affordable way to go.
  • Easy to find: Many different financial institutions including banks, credit unions and online lenders offer personal loans.

Cons

  • More expensive vacations: When you use a personal loan to pay for a vacation, you have to pay interest on the amount you borrow, which raises the total cost of your vacation.
  • Ongoing payment commitment: Once you agree to take out a personal loan, you have to make monthly payments or risk hurting your credit score.
  • Increasing your debt-to-income ratio: When you take out a personal loan, you add to your debt and increase your debt-to-income ratio which can make it harder to qualify for other lending products.

Alternatives to personal loans for a vacation

If possible, plan your vacation far in advance so you can adjust your budget months before and save for it slowly over time. Look for areas in your budget where you can cut your expenses. 

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You can only cut back on spending to a certain extent, but when you do spend, you can earn some money back if you use your credit card strategically. “Consider using a rewards credit card to earn points or cash back that you can use towards travel expenses,” says Wagner. Just make sure you have a plan for paying off your balance in full by the end of the month, as interest charges usually outweigh the value of cash back and travel rewards like airline miles.

Some credit cards offer a period where they charge no interest to new cardholders. If you use your credit card to make purchases during this time, you won’t pay any interest if you pay off the balance before that introductory period ends, which means you can use a credit card as a no-interest loan temporarily. 

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How to shop for a vacation loan

On the other hand, if you decide a vacation loan is the right way to pay for your big trip, these are some factors you should keep in mind when shopping for one.

  • Fees: Does the loan come with prepayment fees or other fees you need to be aware of? How high is the origination fee? Fees can greatly impact the overall cost of the loan. 

  • Prequalification: Look for lenders that will allow you to prequalify so you can get an idea of what rates and terms you’d be offered before you officially apply for a personal loan—which temporarily hurts your credit score.

  • Interest rate: The lower the interest rate, the less you’ll pay over the life of the loan. Estimate your monthly dues using a monthly payment calculator (like Calculator.net’s) and see if the amount fits into your budget.

Company
Best for
Best for
Overall
Key benefit
Key benefit
Unemployment protection if you lose your job while in repayment on this no-fee loan
Best for
Best for
Editor's pick
Key benefit
Key benefit
Skip one payment per year if you run into a financial hardship
Best for
Best for
Fair credit
Key benefit
Key benefit
You can qualify with a 600 credit score and three or more years of credit history
Best for
Best for
Good credit
Key benefit
Key benefit
The lowest APRs advertised among national lenders, and a “Rate Beat” program to boot
Best for
Best for
Debt consolidation
Key benefit
Key benefit
Have Marcus disburse loan funds directly to your creditor/s

About the Authors

Jacqueline DeMarco

Jacqueline DeMarco

Jacqueline has worked with more than two dozen financial brands, including LendingTree, Capital One, Bankrate, Student Loan Hero, and Northwestern Mutual, providing thoughtful content to give readers insight into complex topics that they likely didn’t learn in school.

Full bio

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