’’Whether it’s a solo adventure to curb your wanderlust or a trip celebrating a monumental life achievement, travelling is a goal on most people’s bucket lists. However, you might not always have the funds to make those travel dreams come true at a certain point.
Here’s the silver lining to all of it. Vacation loans are a possibility, and they can help you cover everything from food and accommodation to transportation. Again, making an informed decision requires you to understand these loans and the way they work. Hence, here’s an attempt to walk you through them.
What Are Vacation Loans?
While a lender never advertises it as such, a vacation loan is basically a personal loan you can use for travel expenses. The proceeds of these loans allow you to pay for rental cars, hotels, transportation and additional travel-related costs.
Moreover, since they are typically unsecured, you won’t have to go through the hassle of keeping something as collateral. On the other hand, the downside to such a deal could be higher interest rates and unfavourable terms overall. To learn more, here’s a detailed outlook of what City Finance Loans offer.
How Do They Work?
Vacation loans are very similar to personal loans in many ways. The range of the loan amount typically depends on the lender, and the terms can be expected to extend from 2 to 7 years. However, again, based on the lender, you can have long or short repayment periods.
In the same way, the interest rate you qualify for also depends on the lender, but for the most part, it’s about your credit scores. The higher your score, the lower you can expect the interest rate to be.
In any given range of interest rate percentages, the lower end is usually reserved for those with higher credit scores and the higher end is reserved for those with lower credit scores. This means that by the time you plan your vacation, you should have your credit score strategy sorted out to help you qualify the instant you apply for vacation loans.
Are They Right For You?
Vacation loans, just like any other loan, require you to make payments over a certain period of time once your trip is over. However, your ability to pay them back highly relies on the interest rate you landed at the time of application.
While you may have had the time of your life during the much-awaited vacation you were finally able to pay for using this type of loan; the reality does set in at some point. Your overall cost of the trip ends up increasing, and your inability to pay it off means a negative impact on your credit score. This, in turn, further hinders your ability to get a loan in the near future since you will most likely fall behind on payments unless you have your strategy sorted out.
Again, a vacation loan can either be your best or worst bet, and it all comes down to t he fohillowing question, what is your plan to pay it off? Even if a vacation loan is an option you don’t necessarily wish to explore at the moment, you can be faced with any emergency situation that may require you to travel and take care of accommodation and transportation expenses.
In the end, you should carefully consider whether it’s the right choice for you because unplanned finances can land you in trouble later. Any loan should be worth applying for if you have the room in your budget to make payments on time.
Pros and Cons of Personal Loans
Possibility of a Lower Interest Rate
If compared to the standard interest rates on credit cards, a personal loan is a great alternative that may land you a lower rate, depending on your credit score and other factors.
Room For Flexibility
Many times, we miss out on low travel prices due to no cash on hand. However, having a vacation loan is a reasonable alternative to it unless you’re okay with giving up on discounts and offers you can really use to make your trip worthwhile.
Fixed Payments Every Month
Personal loans are a way for you to access cash when you need it the most. Following this, there’s also a fixed plan that allows you to pay that loan amount over time. This means that you can save yourself from paying for vacation expenses up front, but it also means that you will be paying the loan off with interest.
Emergency Travel Fund
There’s nothing worse than a situation that demands you to travel but without any funding at hand. While vacation loans typically sound like loans you would take ahead of a planned trip, it also comes in handy when you have to travel out of need.
Higher Overall Payment
Getting a personal loan for a trip is all great until the time to repay comes. The interest rate does add to the overall cost, making your entire trip more expensive than you may have anticipated.
Increased Cost of Borrowing
Apart from interest, there’s also a fee that some lenders tend to charge on personal loans. These fees can consist of prepayment penalties and origination costs, increasing the cost of borrowing.
The Added Stress of Repayment
While vacations are meant to provide a break from life and relieve stress, the hassle of paying a loan back can very well take it all away. Therefore, sometimes, if you don’t have your finances figured out, applying for a travel loan can bring added stress.
Negative Impact On Your Credit Score
Hard inquiries on your credit report may end up causing a temporary dip in the score. However, even if it’s recovered later down the line, vacation financing can also cause your credit score to fall. This means that by the time you’re done with your vacation, you must have a solid plan to make on-time payments to prevent any further downfall.
In the end, vacation loans can help you take that much-needed vacation and rejuvenate before returning to the hard realities of life. However, make sure to do your research and read the terms and conditions carefully before proceeding with it.