Best Travel Loans: All You Need to Know

What Is a Vacation Loan?

Do you need a vacation, but can’t seem to manage a vacation-saving budget? Or, maybe you have other worrisome debts such as student loans, previous business loans, or an auto loan? If that is the case, there is an easy solution. Search through the best travel loan companies and see what they have to offer.

A travel loan is, in fact, just a personal loan that you can use toward paying for your travels or vacation. You can spend the money to pay for flights or other aspects of your trip, such as car rental, activities, food, and hotel reservations. In some cases, a lump sum amount, credited into your bank account, can be spent as you wish. You pay installments (with interest) for the amount you borrow. The loan company of your choice predetermines the rates. 

Mostly, this type of loan will be an unsecured loan, meaning that they look only at your credit score. It does not include collateral: your personal belongings and assets. In other cases, where the lender has a low credit score, there is the option to get the loan with the help of a co-applicant.

A travel loan is a good option if you have the financial means to pay monthly installments, but lack the dedication of saving. With a personal loan, you can schedule your down payments to be automatically deducted each month, making it more of a routine than a chore.

Reasons to Secure a Travel Loan

Are you struggling to save money for your trip? If that is the case, you can finance your dream vacation by taking out a personal loan and paying it back over some time. 

You can use the vacation loan to take a trip for reasons such as unforeseen emergencies, weddings, honeymoons, or any instances where the dates cannot be changed.  

What Is the Cost of Getting a Loan?

Obtaining a personal loan depends mostly on your credit score. A better score qualifies you for lower personal loan rates and less interest. Your monthly installments and the loan payments are affected by the interest rate. If, for example, you choose to pay over an extended time, you will have lower monthly payments, but higher interest rates. It is beneficial to figure some prior calculations of your debt-to-income ratio. Thus, you will know what the minimum loan is that you can receive.

In short, your credit score determines the interest rates you will get, the loan amounts, and the length of the repayment period.

Besides the monthly payments and interest rates, something to investigate is modification or cancellation fees. Some loan providers might also charge origination (processing) fees and early payment fees depending on the company. These additional fees make the total repayment cost of the loan much higher than expected.

Eyes Wide Open – Think About Your Situation

When it comes to travel loans, be careful not to act on impulse. You need to think about whether it’s a luxury or a need. Also, think of your financial situation. It might seem like an easy way to go on that trip, but will you be able to pay back the installments as scheduled? If the answer is no, then consider last-minute deals that offer meager prices. 

Let’s Look a Little Closer at the Pros and Cons of Taking Out a Personal Travel Loan  

Pros

• You know what your monthly payback installments will be. You can plan accordingly and pay off the debt over a time that suits your budget.
• If you have a good credit score, a personal travel loan might supply you with lower interest rates than your existing credit card account. Find more about this in the section below.
• If you offer collateral as a term in the loan agreement, your interest rates are often lower.
• You can build a good credit record by paying off your loan on/or before time.

Cons

• In most cases, though, a vacation is a luxury, and you should save for it. Taking out a travel loan could leave you with risky debt. It could add unnecessary financial stress if you have existing debt that you are still paying off or have difficulty managing your credit.  
• Not being able to pay your loan installments on time can add interest to the loan.
• Failure to pay the installments on time (or at all) can result in losing your collateral. Imagine, for example, losing your house or your car because you just had to go on that vacation. It’s simply not worth it.
• Depending on the loan, the payback period might stretch over a term of up to five years. You need to decide whether the trip is worth the long-term commitment of payments.
• Read the fine print. The loan might include origination fees, which could range between 1% to 8% of the total loan amount. Lenders add this fee to the loan amount.
• More fine print: Some loan companies also have an early payment fee. They charge you extra for paying back your loan earlier than agreed upon. Make sure to take a close look at the company policies with regards to additional fees as it might not be cheaper paying your loan back earlier.

Suggested Reading: The Top 5 Mortgage Mistakes to Avoid

Too Much Terminology? Here’s a Quick Break-Down of What They All Mean

Personal Loan With Collateral

You are offering a valuable, personal item to the loan company to secure the loan. Offering collateral might result in receiving a higher loan amount with lower interest rates. The collateral’s value must, however, be higher than the applied loan amount. 

Typically, approved collateral includes items such as fully paid cars, houses, and even investment accounts or future wages. The option to offer future payments generally is only under the condition of a short-term loan that will be paid off within a couple of weeks.

When applying for collateralized personal loans, it is advised to only do so with your existing financial institution. Equity loans provide more affordable rates and lower the risk of losing your collateral than with unfamiliar institutions.

Securing loans with collateral is a risky option, especially for the sake of taking a vacation.

Also Read: When Are Private Student Loans Right for You?

Interest Rate

An interest rate is a rental or leasing charge that you pay for the loan. Lenders add this percentage to the original loan amount. The credit history you built plays a vital role in the loan amounts and the percentage rate you will be given. If you have an excellent credit score, you will typically pay lower interest rates. If you suffer from a low credit score, your interest rate will be higher.   

APR

Annual Percentage Rate (APR) refers to the actual cost of money when borrowed. In other words, how much would you have paid back in total by the end of the repayment period?

When calculating the APR, the lending company takes the following into account:

• Interest rate
• Repayment schedule (daily, weekly, monthly or yearly)
• Initial processing fees
• Other applicable loan costs

When submitting your loan application, you should always insist that the lender provide you with an APR figure. This figure gives you a better idea of whether it is a good deal or not. APRs should include the percentage of the interest rate and processing (origination) fees. Often the interest rate is low, but the fees are high (or vice versa). Therefore, a higher annual percentage with a lower origination fee might turn out to be a cheaper option over the payback period.

When applying for a personal loan, make sure that you ask if any additional fees do not reflect in the APR.

Similar Article: Important Things to Know About Mortgage Rates

Credit Card vs. Personal Loan

With a personal loan, you get a fixed-interest rate, repayment schedule, and monthly installments. You can also build credit by sticking to the fixed payments, but there might be additional fees in the loan agreement that makes the cost rise considerably.

Credit cards typically have higher interest rates, but you only pay back the amount that you borrowed during your trip.  

Applying for a travel credit card can provide additional benefits such as baggage and cancellation insurance that covers unforeseen circumstances. There are also no foreign transaction fees, plus the possibility to earn travel rewards which you could use toward future trips. But travel credit cards come with higher interest rates which can, in turn, increase the expense drastically. You can even end up with credit card debt instead.

Installment Loan or an RV Loan

Installment loans are very similar to personal loans. Both variations are unsecured loans (you do not offer collateral). The good part is you know exactly what you will be paying each month, regardless of any fluctuations in the market. This is unlike variable-rate loans, where your repayment terms and monthly payments might vary if the market changes.

The RV loan itself is a secured loan: you use your vehicle as collateral. You can use the money you get from an RV loan to finance your vacation. Be sure you can repay it; otherwise, you could lose your car. 

Read More: CD Rates: Learn How to Save Big

How Do I Get a Travel Loan?

Most lenders will perform credit checks to determine whether you are capable of paying back the loan as scheduled. These checks will not affect your credit score. But, if you do not meet the loan repayment schedule, it will reflect negatively on your credit report. Other companies might look beyond your credit score to decide whether you are eligible for the loan. They look at aspects such as your travel loyalty with a specific airline or hotel loyalty membership.

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Who Provides Vacation Loans?

There is an endless range of online companies that offer the option to take out a personal loan to finance your travels or vacation. When choosing a company, remember to look at the interest rate and the additional charges in the agreement. Don’t forget to check the peer-to-peer lending options, which can offer very competitive terms and are considered an alternative way of financing your vacation loan.

Here is some more information on some of the top lending companies for vacation loans:

Marcus by Goldman Sachs

When it comes to the insurance business, Goldman Sachs is one of the leading companies. Since 2016, they have been operating under the name Marcus by Goldman Sachs, and assist clients with unsecured loans. The loans range from $3,500 to $40,000 with interest rates of 5.99% to 28.99% APR. Loan terms vary between 36 to 72 months.

Some of the Pros

• Fixed-rate and monthly payment
• No additional fees for origination, early payment, or late payment
• Direct payment option to creditors for debt consolidation loans

There Are, Of Course, Some Cons as Well

• They require that you have good credit. A minimum credit score of 660 according to FICO
• There is no option for co-signing

Upstart

An ex-Googlers company, Upstart, is one of the first lending platforms in the artificial intelligence community. They offer loans ranging between $1,000 to $50,000 with interest rates of 7.67% to 35.99% APR. Loan terms vary between three to five years.

Some of the Pros

• You can borrow even if you are new to credit
• Fast funding: You can receive your loan the next day (except for weekends and holidays)
• No penalties on prepayment

Some of the Cons

• A minimum credit score of 620 is required
• Origination and late fees apply
• There is no option for co-signing
• They do not offer secured loans

Lending Club

Since 2007, the Lending Club operates as a marketplace lender with loan investors. Their loans range between $1,000 to $40,000 with interest rates of 6.95% to 35.89% APR. Loan terms vary between 36 to 60 months.

Some of the Pros

• Direct payment option to creditors 
• Option for co-signing
• No penalties on prepayment
• Hardship plan 

Some of the Cons

• A minimum credit score of 600 is required
• They charge an origination fee of 1% to 6% of the total loan value
• Late fees apply
• No discount on rates for auto payments

Best Egg

Best Egg is known for its fast funding and simple application process. Loans range between $2,000 to $35,000 with interest rates of 5.99% to 29.99% APR. Loan terms vary between three to five years, and they offer options for quicker repayment.

Some of the Pros

• Fast funding
• Low starting rates
• Soft credit checks to pre-qualify

Cons

• A minimum credit score of 640 is required
• They charge an origination fee of 0.99% to 5.99% of the total loan value
• $15 late fee
• Stable income and good credit score recommended

Earnest

When it comes to personalized finance, Earnest is one of the top choices. Their loans range between $5,000 to $75,000 with interest rates of 5.99% to 17.24% APR. Loan terms vary between three to five years.

Some of the Pros

• No origination fees
• Flexible loan payment terms
• They look beyond your credit score at aspects such as your saving habits, education, and earning potential

Some of the Cons

• No option for co-signing
• No option for a secured loan
• Permission to scan your checking account is required

Rocket Loans

Focusing solely on the American market, Rocket Loans offers a range of loans to suit your needs. Loans range between $2,000 to $45,000 with interest rates between 6.85% to 28.90% APR. Loan terms vary between three to five years.

Some of the Pros

• Fast funding
• Soft credit check when applying
• Low starting rates

Some of the Cons

• A minimum credit score of 640 is required
• Origination and late fees apply 
• Direct payment to creditors for debt consolidation loans not available
• Co-signing is not an option
• No option for a secured loan 

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Conclusion

Did you do the math but managing your debt situation is still not an option? You might decide that taking out a travel loan is your best option. With so much information and so many companies that offer personal loans, it is difficult to narrow it down to a final decision.

Most lending companies will do a soft credit check before approving you for a loan. This check gives you a better idea of where you stand. But, if you know that you have a poor credit score (see ways to improve your credit score), you might want to opt for Lending Club. They require a minimum of 600. Another company to consider is Earnest because they look beyond the credit score data.

With a credit score of 660+, a company that offers a lower APR is a better option for you. Marcus by Goldman Sachs, as an example, has interest rates starting from 5.99% compared to Lending Club, who offers almost 1% higher rates. 

Suggested Reading: Money Market Account Rates

So, What Is the Alternative?

Do you need a loan to finance your vacation? How about opening another account? You can have funds scheduled for a balance transfer into that account as if you were paying a loan. Before you know it, you save up enough to enjoy the vacation of your dreams! All of that will be without the added risk and pressure of owing money to a financial institution, credit union, or another establishment.  

If it is a vacation you wish to fund, the best way is ultimately to save for it. Aren’t there more crucial things in life than funding your vacation?

Additional Topic: Best Home Mortgage Lenders of August 2020