It’s summer vacation season, meaning plenty of people are either dream of, or actually, sipping a rosé along the banks of the Seine, ascending the Sydney Harbor Bridge or zip-lining through the rainforests of Costa Rica. Maybe you’ve been saving up vacation days or have decided to backpack your way around a new continent, but, whatever your destination and your choice of exploring it, travel can be expensive. Aside from flights, you’re looking at accommodation, food, transportation and activity fees.
While many people struggle with finding the right budget while they travel for vacation, there are options out there to help. Sometimes, to make these wanderlust dreams come true, that may require getting a travel loan, which is something that many people don’t even know exist. Don’t worry, that’s why we’re here to assist and explain.
What Is A Travel Loan?
A travel loan is simply a personal loan; “unsecured” debt that has fixed repayment terms and, usually, has a fixed interest rate. While banks offer personal loans, many airlines and travel deal sites like Expedia offer them as well. These are aimed at people with low-to-average credit scores who may not be able to get a good travel rewards credit card.
Do I Need A Travel Loan?
Honestly, it’s probably not the best idea. There are a lot of issues involved with borrowing money — like hurting your credit score — particularly since you’ll be on the hook for paying it back with increased interest and other fees. For instance, UpLift, a startup that grants travel loans, charges an APR of between 8.99 to 36 percent, and Affirm, an online lender, also includes a service fee of about 13 percent. That could start to add up. Experts usually only recommend taking out loans for purchases with appreciating value, like a house. A dream vacation, on the other hand, has depreciating value, no matter how tempting it may sound.
If you do plan on getting a travel loan, be smart about it. Understand the repayment terms, and see what interest rates are available. Generally, a travel loan should only be 50 percent of your monthly income to ensure that it’s an amount you can pay back on time. Treat the loan as a means to cover the essentials, rather than an excuse to splurge while you travel.
Are There Any Alternatives?
If you have a better credit score, you could be eligible for credit cards that offer no foreign transaction fees, and also throw in rewards points or even incentivize you through travel insurance. However, interest rates are often higher with credit cards compared to travel loans.
One potential option to try to get the best of both worlds is to use a credit card while overseas, and then consolidate your debt into a travel loan when you’ve returned. However, if you’re planning to use this method, make sure you’ve sorted out your personal loan ahead of time so you know exactly how much you’ve been granted before starting to spend money. If you’re debating between the two, check with your bank about the different interest rates, and then do the math yourself to see which will cost you less in the long-term.
It might sound obvious, but saving, and then utilizing some of our favorite cheap travel hacks, is probably your best bet. You could end up repaying a travel loan for years, and, as much as we love baguettes and Bordeaux, we’re not sold on the idea of facing the costs of a two-week trip to Paris for the next decade.
Lead image via Getty