Can You Use a Personal Loan To Travel?

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"All work and no play makes Jack a dull boy." That's what running a business or a career is. Too much work! At times, you need time off to reflect on your achievements and refocus on your future business or career goals. That’s what holidays are meant for. A refreshing holiday or trip is a great way to unwind and rejuvenate.

But traveling locally or abroad is a major expense. Not so many people can cover such traveling costs out of pocket. It leaves many asking, "Can I use a personal loan to travel?"

Good news: you can use a loan for anything, including traveling, starting a business, consolidating debt, or improving your home. So if you don't have enough savings, a loan is a handy way to fund your dream vacation or country-wide trip. When you take out a loan to travel, it's called a vacation loan.

Here’s a step-by-step guide on how to get a personal loan.

This article focuses on what a vacation loan is, how it works, and its pros and cons. Thus, you can make an informed decision before you jump in. Let’s dive right in!

What Is a Vacation Loan?

A vacation loan is an unsecured loan used to cover traveling expenses, including flights, hotels, food, among others. Your lender advances to you a one-time lump sum that you repay at a fixed interest rate in equal monthly installments.

Loan limits range from $250 to $100,000. Depending on the loan size, repayment periods can be anywhere between 2 to 7 years, with APRs ranging from 6%!t(MISSING)o 36%! (MISSING)The terms you’re approved depend on your credit score, income, debt-to-income ratio(DTI), and the reason for the loan.

The most favorable terms, such as larger loan limits and low interest rates, are reserved for those with excellent credit scores and low debt-to-income ratios.

When To Use a Loan to Travel

Financial experts have pronounced themselves, times without number, that it isn't a wise discretion to incur debt for discretionary spending like traveling or vacationing. But there are unique situations when taking out a loan to travel may make sense.

•Urgent travel: Maybe a business trip or conference is around the corner, but you don't have enough savings to cover the cost. Getting a loan may make sense.

•Cheaper borrowing option: Compared with credit cards, loans may provide the most affordable borrowing option. The interest rate charged is a lot lower than credit card APRs.

Pros and cons of using a personal loan to travel

Like any other form of borrowing, taking out a loan to travel has its ups and downs.

Pros

•Better rates: loans usually have lower APRs than credit cards. If you have an excellent credit score, financing your trip with this type of financing is a lot cheaper than using a credit card.

•Predictable repayment schedule: Fixed monthly repayments help you plan and factor in your budget. With a set term, you know exactly how long it'll take to be debt-free, helping you stay focused and motivated towards your repayments.

•Easier to budget a lump sum: With a one-time lump sum, you can easily plan and stick to your travel budget. You could avoid overspending with a credit card where you borrow money on the go.

Cons

•Risk of a debt trap: If you take more than you can afford or face financial hardships afterward, you'll struggle to repay the loan. Any missed payments will damage your credit score.

•You'll be stuck with a monthly payment: You'll still be paying monthly installments two to seven years after returning home.

•Your vacations will cost more: It’s more expensive than other options like using savings or creating a travel budget.

•No rewards: A personal loan doesn't carry the benefits of travel credit cards like reward points, cashback on travel miles, purchase protection, and warranties.

Should You Take a Vacation Loan?

Well, that’s up to you. As you can see, it can be a boon and a bane depending on how you use it. If you use it wisely, you can reap its benefits without sinking into crippling debt. To maximize the benefits, shop around for the best loan terms, borrow only what you can repay comfortably, and read the fine print carefully to avoid surprise fees. Finally, travel productively!

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