Vacation Loans: How to Finance Your Travel

Traveling is about more than just a vacation; it’s an investment that can enrich your life years after you return. But how do you pay for that investment? In 2023 alone, Americans spent a collective $1.3 trillion on travel. 

Vacation loans can give you the funding you need for the trip of your dreams. Here are some of the best options available, including personal loans for maximum flexibility.

MoneyLion offers a service to help you find personal loan offers. Based on the information you provide, you can get matched with offers for up to $50,000 from our top providers. You can compare rates, terms, and fees from different lenders and choose the best offer for you.

What is a vacation loan?

Vacation loans are designed to cover all the costs associated with traveling. These lump-sum payments can be used on anything from airfare and meals to accommodations, entertainment, and beyond. 

Typically, vacation loans are unsecured, which means you won’t be required to put down any collateral. However, you will need to repay the loan in installments, and this includes interest.

Get a personal loan to finance your vacation

Why not use a personal loan to pay for travel? This flexible loan option gives you a lump-sum payment with no collateral required. If you have excellent credit (800 or above), you may qualify for a personal loan with an interest rate as low as 5.91%.

However, even if your credit score is lower, many lenders will still work with you. Just be aware that some personal loans carry an interest rate as high as 36%. Thus, the true advantage of these loans depends on the rates and terms your lender extends.

Pros

Personal loans offer benefits such as:

• Can be used for almost any personal purpose
• Don’t require any collateral
• Come with competitive interest rates from some lenders

Cons

However, personal loans carry potential drawbacks as well, including:

• Requiring strong credit to secure favorable rates
• Adding to your monthly debt until the loan is paid off
• Lowering your credit score with late or missed payments

Alternatives to vacation loans

Should you choose not to consider personal loans to fund your trip, you might think about one of several alternative financing options.

1. In-store financing

In this context, “in-store” means a travel agency or transportation company. Some agencies offer financing options and payment plans to make travel more affordable. 

They may also conduct a credit check, though the exact eligibility requirements can vary by provider. You’ll apply directly through the agency, with no need to use a third-party lender.

Pros

In-store financing provides benefits such as:

• Simple, direct payment options
• Flexible eligibility requirements
• Flexible payment plans

Cons

Conversely, in-store financing may bring disadvantages such as:

• Pressure to spend more money
• Not offered by all travel agencies
• Reduced credit score with missed or late payments

2. Credit card

Consumer credit cards can be a great option for travel since you can use them for upfront costs as well as ongoing expenses along the way. Many credit card companies offer promotional rates, including 0% APR. If you pay your balance within the promotional period, you won’t pay a dime in interest. Some cards even offer reward points that can be applied to your next purchase or vacation.

Pros

Travelers might appreciate the following benefits of credit cards:

• Convenient, revolving access to funds
• Promotional rates may minimize or eliminate interest charges
• Reward points that can be applied to future purchases and trips

Cons

Despite these advantages, there are still some drawbacks to paying for vacations with a credit card:

• Not all card types are accepted when traveling abroad.
• After the promotional period, interest rates can rise dramatically.
• Users may be tempted to overspend and get into more debt than needed.

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3. Buy now, pay later

Buy now, pay later (BNPL) options allow you to complete a purchase without paying for the entire thing. Instead, you’ll buy the item (or service) before spreading your payments out over installments over a few months. 

You can now book flights and hotels, as well as pay for other expenses through this option. This can make it easier to afford the cost of your next vacation. Depending on the BNPL provider, there may be a credit check, too, but eligibility requirements are usually flexible.

Pros

What are the benefits of BNPL plans for travel?

• No-interest options from many providers
• Payments spread out over only a few months
• Flexible eligibility requirements

Cons

On the other hand, BNPL plans come with drawbacks like:

• Might include interest charges 
• Can lead to impulsive spending choices
• Payment plans may make it harder to change your travel itinerary 

4. Line of credit

A line of credit works like a consumer credit card but comes from a different lending source. For example, a home equity line of credit (HELOC) allows you to convert the equity in your home into a revolving credit line. 

You can borrow up to your credit limit and pay interest only on what you owe. If you can keep repaying the balance, you can use the line of credit as often as you need during the withdrawal period.

Pros

The advantages of a line of credit include:

• Low interest rates
• Interest is paid only on what you borrow
• Credit limits may be higher than a consumer credit card

Cons

Just be aware that a line of credit has drawbacks like:

• High credit scores are needed to qualify, and you need sufficient equity in your home 
• Transaction fees may apply
• Few (if any) benefits or rewards

5. Save up

If travel is in your future, never doubt the power of your ability to save. Saving for your next vacation will eliminate any need for a loan, which likewise eliminates any possibility for added debt or interest charges. 

Furthermore, the act of saving for a trip can reinforce good financial habits. In turn, it can encourage you to be more disciplined in your spending overall.

Pros

Paying for a trip with cash offers benefits that include:

• No need for a third-party loan or credit check
• No potential for interest charges
• Potential to learn sound financial discipline

Cons

Saving up cash has its downsides, which include:

• Saving can take time, reducing your ability to seize limited-time travel deals.
• Paying in cash won’t help you build your credit.
• Other financing options allow you to accrue reward points for future use.

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Aligning Your Budget With Your Vacation Itinerary

Vacation loans reduce the immediate financial burden of travel, helping you visit more places without breaking the bank. Just be aware that they create a future financial burden since you’ll need to eventually pay off the loan. That’s why other financing options can make travel more affordable without incurring more debt — including cash advance apps like Instacash. 

In the end, you’ll need to compare options before landing on a financing choice that matches your itinerary.

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