How to get a vacation loan
What is a vacation loan?
Vacation loans are generally unsecured personal loans (no collateral required). They are intended to cover your travel costs. Vacation loans are available from most personal lenders, although they are not labeled as vacation loans.
The reality is that the best personal loans can be used however you want, including travel.
Advantages and disadvantages of vacation loans
Before shopping for a vacation loan to pay for your dream vacation, make sure it is right for you. Here are some advantages and disadvantages of a travel loan.
- Having to make long-term monthly payments to reimburse the cost of the trip
- Interest charges over the life of the loan will add up, making your trip more expensive
- High interest rates, if you are a borrower with bad credit
- Having new debt and a new loan repayment could make it harder to qualify for another loan if you need it
How to get a vacation loan
If you decide that a vacation loan is the perfect way to pay for a trip, the entire process – from applying for a loan to offering the loan to financing – is relatively straightforward with these six steps.
Step 1: Decide how much to borrow
What personal loan can you get? The minimum and maximum loan amounts vary depending on the lender. For example, some offer small loans (from $ 1,000 to $ 10,000). Others offer larger loans (from $ 5,000 to $ 100,000).
Decide how much you want to borrow. This achieves two goals: it helps you determine which lenders best suit your needs, and it gives you a budget to work on.
Step 2: Find a lender
The right lender offers more than the cheapest interest rate (although the interest rate you pay is important). It’s the annual percentage rate (APR) that really matters. The APR reflects the interest rate, points, and fees charged by the lender.
Because the APR provides a true picture of how much you will pay on a loan, this is the percentage you need to keep an eye on.
A great loan offer comes with the lowest competitive rate and a repayment term that suits you. Ideally, a lender charges low (or no) fees, including no set-up fees, prepayment penalties, or late fees. If you have a great credit rating, you may be able to negotiate your loan costs down (or completely). Don’t just agree that you have to pay all the fees charged by the lender.
Step 3: Submit a loan application
Applying for a personal loan is quite simple. A personal loan application asks for basic information including your name, social security number, location of work, and how much you earn.
Once you have submitted the application, most lenders perform a gentle credit check that does not affect your credit score.
Once they have checked your credit history to determine your creditworthiness, the lender will either approve or deny your application. This is when they will tell you how much your personal APR will be, including the interest rate and all charges.
Step 4: Proceed with your lender of choice
When you have chosen a lender, let them know that you are ready to make the loan.
At this point, the lender will perform a rigorous credit check. This credit check will affect your credit score, but not by much. And making your regular monthly payment on the vacation loan should result in a relatively quick rebound in your score.
Step 5: Provide additional documents as needed
When a lender performs a final credit check to verify your financial information, they may request additional documents. For example, if you are self-employed, the lender may want two or three years of tax returns.
The faster you get the documentation from the lender, the faster they can fund your personal loan. The time frame for getting a personal loan depends in part on the lender and in part on how quickly you submit the documents when requested.
Step 6: Wait for funding
From the time of loan approval, it usually takes one to 14 days for the lender to deposit the funds into your bank account.
Alternatives to the holiday loan
A vacation loan is not the only way to finance a trip. Here are some alternative ideas that are worth exploring.
Sometimes planning is as much fun as the actual trip (or almost as much fun). Consider how much you can afford to set aside each month and plan a trip around that amount. For example, if you can manage $ 300 more per month, you will have $ 1,800 for a nice road trip in six months or $ 3,600 in a year.
Credit card with 0% promotional rate
If you have good credit, consider applying for a credit card with a 0% promotional rate. These credit cards generally give you 12 to 18 months interest free. Let’s say your credit card offers 0% APR for 18 months and you spend $ 5,000 on vacation. By making 18 equal payments of $ 278, you will have the trip fully paid for before the promotional period expires.
If you’re still socially distanced, now’s a great time to browse your home – including the garage, basement, and attic – to find everything you no longer need or use. . Take a photo and sell these items online through Facebook or your neighborhood website.
Sometimes waiting to pay cash for a vacation is the best thing to do. And sometimes the funding makes sense. Here are some examples of where to finance instead of paying cash.
- When you travel to be with the people you love when needed
- When you are new to life and intend to use a small vacation loan to build your credit score
- When we offer you a unique trip
There is no such thing as a vacation, and the next ones are likely to be very special. However, when it comes to paying for that trip, consider your options and choose the one that works best for you, even if that means waiting a few more months.