Taking a vacation doesn’t just give you the opportunity to explore new places and cross things off your bucket list.
It also allows you to refocus on your work when you return, helps to keep stress levels low, and allows you to tap into your creative side.
You’ve been in desperate need of a vacation for a while now. However, your budget doesn’t currently allow for one.
So, what’s the solution?
For many, it’s taking out a personal loan to travel.
Read on to learn more about what a personal loan is, and discover if applying for one is the right way to finance your vacation.
What Is a Personal Loan?
Before we talk about the process of taking out a personal loan, let’s discuss how it’s different from other types of loans.
Perhaps the biggest advantage of a personal loan is that the lender does not have to “approve” what you’re planning to spend the loan money on. This means you don’t have to present a business plan, a letter of financial hardship, or let the lender know when you expect to make a profit.
Instead, you only have to provide a bank statement, proof of income, and proof of residence. In many cases, lenders won’t even perform a credit check. They rely on your current income level to determine your ability to repay the loan.
In general, you can take out a personal loan in an amount of up to $50,000 — though you shouldn’t need that much to plan your vacation.
You’ll make a fixed monthly payment of principal and interest on your loan. Knowing the exact amount you need to pay each month makes budgeting much easier.
Be aware that a personal loan often carries a much higher interest rate than other kinds of loans. Just be certain that paying the interest rate over time doesn’t make the loan cost more than you can afford.
Also, carefully examine the loan term.
Be certain that you can pay back the loan in full by the date that it’s due, whether it be in one year, five, or ten.
The Benefits of Using a Personal Loan for Vacation
Personal loans are most often used to cover unexpected expenses like sudden medical bills, funeral costs, and auto repair bills. But remember, you can use the money in any way you want.
This includes putting it towards your vacation.
One of the most popular reasons why people opt to fund their travel with a personal loan is that, in most cases, personal loans carry lower interest rates than credit cards.
This means that, even though you’re taking on debt, it won’t be as costly as charging your plane ticket and hotel room on your credit card would be.
Additionally, applying for a personal loan allows you to rebuild your credit score.
Proving to lenders that you’re able to pay back the loan on time and in the full amount means you’re much more likely to be approved for another loan in the future. (Keep in mind, however, that you usually aren’t able to take out more than one personal loan at once.)
Finally, using a loan for travel means that you can take advantage of amazing deals from hotels and airlines that you might otherwise have missed out on.
You’ll be able to book hotels at the best rate, rent a car for a great price, or even save hundreds of dollars on your flight if you have money on hand when deals are available.
Tips for Using a Personal Loan for Traveling
The “golden rule” of using a travel loan is to borrow the least possible amount of money.
Use what you’re able to out of your savings account, have a garage sale to earn a bit of extra income, and even ask family members if you’re able to borrow some money from them interest-free.
If possible, don’t use the loan to pay for your entire vacation — just the parts of it you can’t afford out-of-pocket.
Make sure you do plenty of research on the lender themselves. Ask for referrals, check out their rating on the Better Business Bureau website, and never be afraid to negotiate for a lower interest rate.
Unless you’re using them to consolidate/cancel any debt you’re already carrying, the answer is generally “no.”
However, there are a few exceptions to this rule. Speak with your lender directly and make sure you understand the potential tax implications of your personal loan.
Finally, avoid using the loan for purchases that aren’t truly “necessary” or a part of the trip experience you’d originally planned.
Using the loan money to pay for your meals, train tickets, rental cars, and more is normal.
Using them to buy $5,000 worth of souvenirs and designer clothing?
Not so much.
Want More Tips on How to Save When Traveling?
Taking out a personal loan to travel can help you to save on interest rates and allow you to take advantage of once-in-a-lifetime deals.
Just make sure you research the lender, check the interest rates, and use the money as wisely as you can.
Looking for more advice on how to save money when you’re traveling? Our blog is full of hacks when it comes to lowering your luggage weight, saving on museum entry tickets, and giving you tips on cheap eats in expensive cities.
We’ve also compiled lists of reviews of the top hotels in some of the most popular travel destinations.
Be sure to check out these guides to find out which boutique resort or hotel offers the kind of experience you’re looking for.