5 Best Ways to Finance a Vacation

Vacation money jar on the world map with shells, hat, and goggles.Taking some well-deserved time away from the normal work or life grind is a necessity for most people at least once each year. Whether solo, with a friend, significant other, or the entire family, simply thinking about a vacation can be relaxing. However, it can also be stressful for many of us when it comes down to figuring out the dollars and cents.

Adding up the costs for airfare, hotel stays, food, and activities for yourself and others can lead to a fairly large number. This can be overwhelming when there’s little to no money set aside for the next big adventure out of town. If you’re light on cash but in desperate need of an excursion, here are a few tips for financing a vacation in the near or distant future.

1. Obtain a Personal Loan to Pay for Vacation

A personal vacation loan can be a viable option for financing an inexpensive or expensive vacation. Credit unions, banks, and online lenders offer the best personal loans for a vacation to individuals without imposing many restrictions on how the funds may be used. You can use the money borrowed to pay for travel expenses, lodging, food, entertainment, and other activities.

Most lenders allow you to obtain a personal loan for vacation for up to $50,000 at a lower interest rate than a credit card depending on your current income, debt, and credit situation. However, you can expect to pay an origination fee of 1-10% of the loan amount to cover the cost of originating it.

Taking out a personal vacation loan does not require a down payment or collateral, and repayment can typically be extended for two to seven years, depending on the lender, the amount financed, your debt, and your needs.

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2. Pay for a Vacation Using Credit Cards

Credit cards may also be used to finance a vacation. This strategy is particularly valuable when you utilize a travel credit card that rewards you with points, miles, or cash back for using the card. It’s even better when you can take advantage of a 0% APR for twelve months or more by utilizing a balance transfer promotion or applying for a new credit card with an introductory period.

Most travel credit cards will reward you for all your regular purchases and provide you with a higher reward rate for travel-related purchases. Oftentimes, travel purchases will be rewarded at double, triple, or many times more than the standard reward rate.

When using a travel credit card for vacation you may have the opportunity to take advantage of additional perks as well, such as rental car insurance, no foreign transaction fees, complimentary food and drinks, hotel room upgrades, free checked bags, lost baggage insurance, reimbursement for canceled flights, upgrades to first class, premium airport lounges and more.

Another benefit to paying for vacation with a credit card is that you have the flexibility to pay over as much or as little time as you need in an amount that fits your monthly budget. However, you must pay at least the minimum amount due every month, which will be about 2% of your total credit card balance.

One major downside to paying for a vacation with a credit card is the average interest rate is more than 20% APR right now, so a personal loan may offer a more affordable method to finance your next vacation. Especially if you can’t take advantage of a promotional offer and need to pay it back over several months or years.

3. Utilize Vacation Payment Plan Financing

In recent years, travel layaway payment plans (also known as point-of-sale loans or ‘buy now, pay later’) have grown in popularity given the desire of more people to take a vacation on a tight budget. Travel payment plans are offered through an independent travel agent, directly through a vacation provider like a cruise line, airline, or resort, or through some online providers.

Individuals utilizing a vacation payment plan simply book their trip many months in advance and pay the balance due over time. While there may be a fee for spreading out payments for the vacation package, interest rates can be as low as 0% APR and don’t always require a credit check.

On the negative side, vacation payment plans may only include some accommodations and activities leaving you to pick up the full cost of airfare and other items upfront. However, that will depend on the channel you use to secure the plan, and you can also utilize multiple book-now, pay-later channels to include more components of your vacation’s total costs if needed.

4. Borrow From Home Equity to Pay for Vacation

If you own real estate outright or are buying a home and owe significantly less to the lender than what your property is worth, you can consider taking out a new home equity line of credit (HELOC), borrow from an existing one, or obtain a home equity loan to pay for a vacation.

Home Equity Line of Credit

If you have an existing HELOC open and can withdraw money from it still, that’s going to be one of your better options for borrowing money for vacation. The interest rate will likely be lower than what you will get with a credit card or personal loan, you won’t have to pay additional fees to retrieve the funds, and you’ll have the freedom to use the money however you want.

If you have a decent credit history and score you can also establish a new home equity line of credit, but you may have to pay closing costs and an annual fee. That can still be significantly lower than the interest you’ll pay on a credit card depending on how long you take to pay it back. Some lenders allow you to open a HELOC for little to no fees.

With a home equity line of credit, you only pay interest on the monies withdrawn and not the total line available to you. HELOCs are typically variable interest rate financial products that can be used like a credit card during the draw period. You can reuse the available funds repeatedly until so many years have passed.

Home Equity Loan

A home equity loan is like a personal loan except you use your home as collateral to acquire it. Once approved, you will receive the full amount of the loan to be repaid in fixed monthly installments over time. The credit requirements are less stringent, and the interest rate will likely be lower than what is offered by personal loan lenders because the risk of them getting their money back is lower.

Home equity loans may also be used for whatever expense you want, and repayment can be stretched out for five, ten, or more years. Lenders typically require an origination fee and other closing costs that can be paid upfront or worked into the loan. That’s roughly 2-5% of the total loan amount.

Your credit score and ability to repay the loan are reviewed to determine the loan terms such as how much the lender will charge and the interest rate. A lower credit score often leads to a higher cost of borrowing.

Here’s more about the differences between a home equity loan and a line of credit.

5. Save Money for Vacation

The best way to pay for a vacation is to finance it yourself by setting aside money for the trip. However, that’s not always possible and sometimes you just need to get away quickly. If you do have time to plan and save for a vacation that will be the least expensive way to travel.

Siphoning off a portion of your paycheck each pay period into an account that is not easily accessible, like an online high-yield savings account or short-term certificate of deposit, is a simple way to have the cash on hand when vacation time rolls around.

These technology-based savings applications which can link to your checking account, savings account, paycheck, or otherwise, can help you achieve your travel goals well in advance. While not a true financing option, creating a vacation fund and saving ahead of time is our top way to financially prepare for your next vacation.

Final Thoughts on How to Finance a Vacation

Before choosing a vacation financing option, it’s best to fully understand the total cost and budget to determine if an extended repayment is necessary. Then you will be prepared to explore how to finance the vacation entirely and make a choice.

Both unsecured personal loans and credit cards offer a convenience factor that is hard to beat when it comes to financing a vacation without a lot of planning. A home equity line of credit or home equity loan can also be a valuable borrowing tool for homeowners with good credit.

The addition of travel payment plans through travel agents, resorts, or other companies, offers an alternative way to pay for a vacation upfront and over time as opposed to a significant, one-time payment or lengthy loan.

However, saving and paying for vacation with your own money is the best way to go if you can swing it. Even better if you pay for vacation with a credit card to get the points and pay the balance off before interest accrues.

I hope you found this article discussing the “best ways to finance a vacation” helpful. If you have a question, personal tip, or another comment, please don’t hesitate to use the Comments section below. Happy vacationing!

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Posted on May 30, 2023 by in Vacation Loans

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