The itch to travel has come back for Americans and they want to go anywhere and everywhere all year round. Whether it’s the summer holidays and want to go to exotic places or venture out in the off-season to explore the unknown.
Yet a major issue behind it is how to pay for it.
With so many people wanting to travel and other factors such as inflationary issues also raising the price, the cost of travel seems to be, at the minimum, a couple of thousand dollars. That exponentially grows when you factor in a family with children going on holiday.
So what are some actual solutions so travelers ready to get on the next flight out can, and is it a good idea?
“Traveling for vacation is all about a positive experience.” Says Adrienne Sasson, who works at Rubinsohn Travel as a travel specialist. “With that in mind borrowing funds for such an occasion, within their means, is actually becoming quite common.”
She says the most common reason for borrowing funds through a personal loan or low-rate credit cards is for destination weddings. Yet it’s also important to note that these are generic personal loans that can come with different rates and terms.
The credit score of the borrower primarily determines these rates and overall terms and could have a future impact on the score after such a loan is taken out, which can affect overall future personal finances. Yet, if you’ve worked hard on your credit score, you’ll typically get larger amounts (remember to only borrow what you need) at the best possible rates.
Those with a lower credit score may not qualify for all available options or the best options. It could also push their credit score down further and may not be the most viable option in those scenarios. You’ll also typically end up paying much more for the initially borrowed money.
Sasson stated, “Clients of mine who are planning their destination weddings in tropical paradises nearby the States come at a lower price, and thus a low-interest credit card is enough. Yet if they expand their reach to places in Europe, a personal loan becomes a much better option based on the increased pricing and better rates typically.”
Tour operators have filled in the gap by providing loans and options for travel-specific reasons. That enables people to travel, enjoy their journey immediately, and pay later. “Operators such as these will require a minimum deposit and an extended repayment plan, sometimes up to two years, to pay off the debt; that’s akin to what big box electronic and furniture stores do,” Sasson said.
Weighing up the benefits and cons of using a personal loan for travel
Let’s take a look at both sides before considering whether a personal loan is the right option for your next big journey.
Benefits of a personal loan
It’s a flexible option: First of all, a personal loan doesn’t need to be dedicated to travel. For example, if you get the funding for your journey but it gets disrupted, that loan can be utilized as needed for even another type of trip. Martina Roasado, who founded Happy Travel Mag, did add, “Just make sure you have a plan to repay back the debt.”
Usually, a better interest rate
When compared to credit cards, especially cash advances on credit cards, the rate on a personal loan will typically be better. Rosado added, “With a personal loan, rates will usually be lower than credit cards.”
The negatives of using a personal loan
It’s more debt that needs to be paid back
The vacation will eventually end, and you’ll come back to the debt you owe. “If too much was taken out, it might be difficult for you to afford the repayments,” adds Rosado.
There’s a cost to the debt
“No matter what your loan has interest on it and that means it’s going to be more expensive than what it was originally going to cost.” says Rosado. It doesn’t matter how excellent a credit score one has. This is how the personal loan makes money.
The final pieces of advice in regards to personal loans and travel
It all comes down to your own financial situation and whether your personal finances can handle the costs of a personal loan.
Mikaela Anne Ferguson, who created the travel site Voyageur Tripper had this to say, “A personal loan is not based on your travel desires but whether you can afford to pay it back. What other debts do you already have, and how will this new debt burden you? Is there enough income when the trip is over to handle repayments? Know the answers before getting a personal loan for travel.”
She herself has used personal loans for travel but never just on a whim.
“One of my first personal loans for travel, I was in the financial position to do so, with no dependants and no large debts such as a mortgage to repay. There was also work for me when I got back, so I was sure I could pay it back. Just be sure a personal loan doesn’t put too much of a burden on yourself.”
She goes on to state that it’s best to have complete control over your finances and eventually knowing your options can give you the best opportunities going forward.
“These days I no longer use a personal loan and have a revolving line of credit that’s at a preferred rate over other types of loans. I only borrow what is needed for the trip and then pay automatically each month to ensure the debt is zeroed out.” Ferguson adds.
“It’s a better discipline for my situation as I know I have to pay back the debt. Others may instead opt-in to have the discipline to save for a trip instead. Know your own way and what your own financial strategies and goals are.” She ends with.