Using Personal Loans for Vacations: Pros & Cons

Longing for a vacation but no funds in your pocket? Personal loans can help you take that bucket list trip. Read on to see if it’s a good idea.

As more and more people are getting vaccinated from the coronavirus, they’re becoming more comfortable with travel. I don’t know about you, but we’ve been dreaming of a family vacation or at least a weekend getaway with friends. But the pandemic has left many drained—mentally, physically, and financially. But this is where personal loans can come in handy. Funding vacations through personal loans can help cover everything from accommodation costs to transportation and food. But the reality of these loans is much more sobering. Personal loans usually come with high interest rates and necessitate monthly payments long after the trip is over. To help you understand the realities of using personal loans for vacations, we’ve outlined some of the key benefits and shortcomings of these loans. These can help you make an informed decision when you’re planning (and paying) for your trip.

Start planning your dream vacation. Photo courtesy Adobe Stock

What Is a Personal Loan?

Personal loans are instant, short-term advances generally for small amounts of money that don’t mandate a credit check. These loans can be used for anything from vacations, to home or car repairs, and more.

Everyone wants to travel, but where do you get the money to see your bucket list destinations? Photo courtesy iStock by Getty Images

Many lenders advertise personal loans targeting travelers as “vacations loans”. Even if someone doesn’t, you can use the proceeds of most personal loans to pay for hotels, transportation, food, rental cars, and other travel-related expenses. These loans are unsecured, which means no collateral is necessary. However, this means you might have to pay higher interest rates in less favorable terms than alternatives, such as 0% credit cards.

Pros of Using Personal Loans for Vacations

They can help fund emergency travel – Generally, you have the time to plan ahead for travel expenditures. But in case you face an emergency and have to book travel accommodations at the last minute, a personal loan can make it possible.
Allows fixed payments over time – Personal loans let you access cash when you need it most and enable you to make fixed payments over time. Meaning, you won’t have to pay for the expenses upfront.
Offers flexibility – Funding vacations through personal loans means you can take advantage of the lowest travel prices despite not having any cash on hand. Moreover, they are very simple to apply to and don’t require any collateral. For instance, getting approved for a loan on Centrelink can be done in only three simple steps.
Lower interest rate potential – Credit cardholders pay roughly 18 percent for new offers and 15 percent for existing accounts. Based on your credit score and other factors, a personal loan might allow you to borrow funds at lower interest rates.

Take time to create a budget. Photo by InspirationGP via iStock by Getty Images

Cons of Using Personal Loans for Vacations

Taking a personal loan for a vacation can increase the overall cost of the trip due to the interest payments.
Apart from interest, several personal loan lenders charge additional fees such as prepayment penalties and origination fees, increasing the overall cost of borrowing.
Personal loans can also negatively impact your credit score. Hence, consider all factors before making a final decision.
Lenders usually offer short repayment terms, which may lead to stress later on.

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Closing Note About Using Funding Vacations

As personal loans come with high interest rates and short repayment terms, they might not be an ideal vacation funding choice for everybody, especially those who try to avoid big expenses. But if you can deal with the lender requirements, vacation loans can be just the thing you need.

If you feel personal loans aren’t the right option for you, don’t worry. There are several other ways to fund a vacation, including a 0% credit card, travel reward credit cards, and more. Be sure to check out Wander for more travel tips—and some great destinations when you are ready to explore the world.

Using Personal Loans for Vacations: Pros & Cons

Written by EJ Ray

EJ Ray is a traveler at heart. It is part of her soul and she loves to share her travels through her words. She has traveled the world, seeking great food, wine, and experiences. EJ was born in the Eastern US but has lived across the country and in Europe and Mexico. She also took to the road for a while, exploring from her RV. EJ always seeks the next great sip, bite, and adventure.