Key Takeaways
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Using a personal loan to cover travel expenses is rarely a good idea.
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If you’re using a loan to travel, consider a low-cost loan, such as a small-dollar loan.
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Set aside a certain amount for each paycheck to save for travel expenses well in advance.
We have entered the Ber months – October, November and December – and with the chill in the air comes the anticipation of the holidays. As millions of Americans begin planning their vacation trips, costs are at the top of the agenda as inflation continues to impact prices.
If you don’t have enough money this year but travel is a top priority, it can be tempting to use the money you have at your disposal to cover costs, for example by dipping into your savings or taking out a personal loan .
In almost any scenario, taking out a personal loan for travel expenses is not a good idea, especially in an environment with such high rates. Fortunately, there are steps you can take to soften the blow to your savings by reducing travel costs if the holidays let you down or your plans change at the last minute.
When should you use a personal loan for travel?
Taking out a personal loan shouldn’t be your first instinct when it comes to financing travel expenses. However, due to demand and inflation, travel prices still remain stable predicted high for 2023, so paying out of pocket may not be in the cards.
There are few reasons to take out a loan for leisure travel. Personal loan rates are at record highs with an average of 11.43 percent. If you were to take out a loan only for holiday travel, you would probably pay interest for the trip alone in the coming years.
How to reduce your overall loan costs
If travel is a necessity for the upcoming holidays and you don’t have enough savings, you can technically use a personal loan to finance the expenses. If you do take out a loan, there are ways to reduce the overall cost of borrowing.
For example, choose a budget airline and choose economy over business. Pack light, don’t check a bag, bring your own snacks and a bottle of water to refill after going through TSA. While these may seem like simple factors that don’t matter, taking these few steps can reduce your overall travel costs by hundreds of dollars.
How do you take out a loan for holiday travel?
Calculate exactly how much you need, down to the cent. Borrow up to this amount and pre-qualify with at least three lenders to get the most competitive rate.
If you have less than stellar credit and absolutely no other options within reach, consider a small dollar loan. A small dollar loan may not require a credit check and is intended for people who would not otherwise be accepted for a loan.
Small dollar loans are offered by select banks and credit unions and have a maximum amount of $2,500. Although some banks have caps below this amount, the loans are regulated on a federal and state-wide basis and have a maximum rate of 36 percent.
When should you use savings for travel?
It is always a better option to plan your holiday trips well in advance and set aside some money from each paycheck than taking a loan. Firstly, there is no interest attached to using your savings and you are not subject to a hard credit check like you would with a loan.
How to Save for Vacation Travel
It is advisable to book your trip well in advance to get the cheapest prices, especially when it comes to airline tickets. However, plans change and you can’t always plan your vacation months in advance. If this is the case and you are unable to save slowly, implement an aggressive short-term savings strategy.
Until you have saved the exact amount you need, you can cut out most additional expenses. Temporarily suspend gym and health club memberships, pause subscriptions, reduce dining out, and pause any mobile apps that charge a monthly fee.
Everyone’s financial situation is not the same and this is not a foolproof method. Cutting out these expenses isn’t guaranteed to cover the entire cost of a plane ticket or a few nights in a hotel, but it can certainly help.
Final thoughts
Under almost all circumstances, it’s not a good idea to use a personal loan to pay for travel-related purchases. It’s likely that you’ll have to pay off the vacation with interest alone well into the future. Additionally, you undergo a hard credit check when you apply for a loan, which lowers your score a few notches.
If possible, always use your savings to cover travel expenses or consider a low-interest or small-dollar loan if necessary.
