We’re sure in a different place right now than we were last year. Many of us grudgingly accepted FaceTime toasts and gift-opening parties organized via Zoom in 2020, but maybe for you this year screen-mediated cheer just won’t cut it. It’s time to cut loose. You want to hit the road this holiday season, either to see your loved ones, or to escape the work-from-home rat race for some much needed you time.
Just one problem: Your savings account is looking a little bit anemic right now. You know how expensive the holidays can get. Since you can’t debit it, you might think your only chance to enjoy a last-minute trip back to the hometown or a semi-indulgent getaway is to tack it on to your credit card bill. You don’t want to do that, though.
That’s where a so-called “vacation loan” comes in. If you want to rent a boss 4WD Jeep to tackle the Rockies and visit your baby niece in Colorado, or you’re suddenly convinced that you need to get your Aloha on this Christmas to reset your headspace, a vacation loan might help you cover the cost of holiday travel in a manageable way. But they’re not for everyone, or every vacation.
Read on for our guide to taking out a personal loan to pay for your holiday travel fun-time.
What is a vacation loan?
First thing’s first: What are we talking about when we say “vacation loan”? You probably haven’t heard of a loan specifically for holiday travel. You know what an auto loan is, you know what a student loan is, but what’s a vacation loan?
It’s not very complicated. A vacation loan (or holiday loan) simply means a personal loan you take out to pay for costs related to travel. That’s a broad category, including airline tickets, rentals, hotels and Airbnb’s, more than a few restaurant meals, and tourist activities at your destination.
Unlike your auto loan, which requires collateral (your car), a vacation loan is an unsecured loan, which isn’t backed up by any assets. (Your killer vacation photos and ironic tourist t-shirt don’t count as collateral for a vacation loan, unfortunately.)
What are the advantages to using a personal loan for holiday travel?
Now let’s ask a bigger question: Why would you use a personal loan to finance travel? Should you take out a loan for travel-related holiday expenses instead of using your savings, or putting travel expenses on a credit card?
This is a little tricky to answer. Generally speaking, if you can pay for a vacation out of savings — you should. It’s better to budget in advance and live within your means.
Assuming you can’t pay out of pocket for the holiday travel you’re still determined to take, a loan is one way to cover it instead of reaching for your credit card. Let’s consider some moving parts.
Better rates. This is the main reason you might opt to pay for your holiday travel with a loan instead of a card. Credit cards are basically tiny loan machines: When you rack up a charge, you technically take out a loan in that amount, and when your credit card bill comes due, you pay that back, plus interest. You can often get a better interest rate on a personal loan than you’ll have on your credit card, and if you make your loan repayments on time, you could end up spending less money on your holiday getaway by quickly repaying a timely loan rather than spreading all the costs across your credit cards.
Transparency and flexibility. You know that when you’re spending quality time on vacation with friends and family that you don't see often — or when you’re spending quality time on the beach with a daiquiri or three — the last thing you want to do is sweat the day-to-day expenses. You are on vacation, after all. A credit card is good for these “out of sight, out of mind” moments, but can lead to a rude shock once you’re back home and the bill comes due. When you take out a personal loan for holiday travel, you know exactly how much money you’re taking out, exactly how much you’re paying back each month, and exactly when you will finish paying off your loan amount. This can help you plan and budget accordingly, vacation within your means, and avoid retroactive travel sticker shock!
(Pssst... on that note, check out our article on 6 easy ways to save on holiday travel expenses.)
It’s an emergency. You never know what life’s going to throw at you, or when. If you’re hit with a complete curveball and need to drop what you’re doing and travel halfway across the country, for whatever reason, a loan may be your best last-minute option to cover necessary, urgent expenses. It could be a good emergency, too. Once-in-a-lifetime experiences, like the unexpectedly early arrival of your first grandchild, may lead you to suddenly make or change some very important travel plans — and a loan can help make sure you don’t miss out.
What are the disadvantages to using a personal loan for holiday travel?
All that said, vacation loans are not for everyone. What are some possible disadvantages of a holiday loan?
It’s more debt. This might seem like an obvious one, but before taking out a personal loan of any kind, applying for a new credit card, or pursuing any other kind of line of credit, you should make sure you have a good understanding of your overall financial picture. Your debt profile, in particular, should be fairly light. If you’re already struggling to make ends meet with multiple loan repayments and credit card bills every month, tacking on yet more debt that you don't realistically expect to pay off on time will dig you deeper into debt. You don’t want that!
It’s longer-term debt. Personal loans come with a longer repayment timeline than credit cards. This is also called the loan term. A longer loan term has some upsides — it usually translates to lower monthly payments, for example. But as a general rule of thumb, the longer the loan term, the more you’ll end up paying the lender over the whole life of the loan. In other words, if you take out a $2,000 vacation loan and pay it back over 5 years, you’re probably going to end up paying more in interest than if you paid the same amount in credit card transactions back in a shorter time period.
It might dent your credit score. Any time you apply for a loan, a potential lender like a bank or credit union will perform what’s called a “hard inquiry” or “hard pull” on your credit score. This gives the bank or credit union a picture of your riskiness as a borrower. A hard inquiry can sometimes lower your credit score, especially if you apply for multiple loans across a short period of time. Your credit score will also suffer if you take out a loan for holiday travel, but then fail to make your payments on time. Failed loan payments will lower your credit score and add an extra layer of cost to your vacation.
What you need to apply for a holiday travel loan
If you’re already struggling with a bunch of debt, you might want to wait on taking out more to fund holiday travel. Your best bet is to start saving now, and budget for a killer vacation when your bank account is a little happier.
But if you’ve read this far and think a vacation loan just made the top of your wish list, here’s some basic info you’ll need to get started.
The first thing you’ll do is fill out a loan application with your full name, a valid form of ID, and your Social Security number. (Your SSN is used to verify your identity, as well as to give a bank or credit union access to your credit history and current credit score.) You’ll also be asked to give information about your financial future by proving regular income with paystubs.
The other key pieces of information are the amount you’d like to borrow (the loan amount), and the amount of time over which you plan to pay that loan amount back (the loan term, or repayment term).
(A quick word to the wise, since scammers especially love to take advantage of people during the holidays: never give your Social Security number or any other personal information to an unverified online party, like an unsolicited loan offer you get via email or social media. It’s normal, even necessary, for a legitimate lender to request this information before offering you a loan, but be sure you're providing this info to a real financial institution and not a scammer! If a lender is asking you for any other information up front, such as bank account info, or is charging you a “processing” fee of any kind, these are signs of personal loan scams.)
Where to get a vacation loan
A Kasasa Loan® gives you total control over the variables we just covered, and can help you borrow smarter this holiday season instead of racking up more high-interest credit card debt. Our unique Take-Back® feature lets you reclaim extra money you’ve already paid toward your loan, giving you access to funds when you need them most.
Let's say you get that vacation loan to cover some holiday travel expenses, hit the road and clear your head in December, then hit the ground running in 2022. You’re crushing it at work, rake in a bonus, and suddenly can pay your vacation loan off way faster than you thought. But wait – it's spring now, and you're getting itchy feet again... Take-Backs™ are there for your next vacation, too!
If you want to take this to the next step and begin laying the groundwork for the holiday vacation you didn’t know you were going to have, check out the Kasasa Loan today – and bon voyage!
Discover more about the Smartest Way to Borrow in our previous blog post, "Why you should look into auto financing TODAY."