Saving up the cash to take a well-deserved vacation can sometimes prove challenging. Working families often find themselves pulling out cash to deal with unexpected expenses, making it difficult to set aside the funds to travel to a tropical island, ski resort, or adventure in foreign lands. That may be why TransUnion estimates nearly 23 million Americans had a personal loan in 2023. That figure was an 8.8 percent increase over the previous year. Rather than resign yourself to yet another “stay-cation,” there are vacation loans available to finance the extended holiday you deserve.
Understanding Vacation Loans
The term “vacation loans” does not necessarily speak to a unique class of borrowing products. Vacation loans are simply what industry insiders call borrowing an unsecured lump sum used for travel. Local lenders typically offer a variety of fixed-interest personal loans for qualified community members based on their credit score, repayment history, and income. Because borrowers do not usually use collateral to secure vacation loans, the interest rates are generally higher than home mortgages and automobile loans. However, you can enjoy reasonable rates and favorable repayment terms by working with a local lender.
Criteria for Selecting the Best Vacation Loans
If you are considering applying for a personal loan to pay for a dream vacation, it’s essential to do your homework before filling out any application. When lenders process a loan or credit card application, they request information from the three major credit bureaus. This constitutes what is known as a “hard pull” which typically drops your credit score by a few points. Applying to multiple lenders can impact your score more than needed. That’s why it’s crucial to research the following vacation loan criteria and limit your applications.
- Interest Rates: The range of interest rates can differ greatly among lenders. Take your time and review the lows and highs being offered for vacation loans. Keep in mind that your credit score, debt-to-income ratio, and other factors will play a part in the interest rate you receive.
- Fees: It’s not uncommon for some lenders to promote enticingly low interest rates and load personal loans with hidden fees. As you narrow your search based on interest rates, start to nix companies that charge excessive fees. The cost of onerous fees generally offsets the benefit of a seemingly low rate. You may discover that for-profit corporations are more likely to add these and other costs to pay their shareholders.
- Application Cost: Charging a nominal processing fee is not unusual or unethical. When you apply for a loan, professional time and energy are required to check the information, pull your credit history, and make a determination. A reasonably small charge is considered standard. Getting hit with a hefty fee is a telltale sign you may be working with the wrong corporation.
- Repayment Terms: Vacation loans tend to come with relatively flexible repayment terms. Loan professionals may offer you multiple fixed-interest repayment options that don’t change. A lower monthly payment may be ideal for fitting into a monthly budget. But, you will pay more in interest over the life of the loan. This is a good point to discuss with an experienced local lender.
- Approval Time: Getting an answer about vacation loan approvals should take little time. Some organizations allow you to start the process online and get pre-approval the same day. Most can have a definitive answer in a day or two. If you are told vacation loans take more than a week, that may be a bad sign.
As part of your due diligence, request a credit report from one of the three major bureaus — Equifax, Experian, and TransUnion. You can order a free copy every 12 months online or by U.S. mail. Review the information carefully and have them correct any errors or omissions. Consider using the information to resolve minor issues and strategically pay off credit card balances, where they make sense. These efforts could earn you additional credit score points before applying for a personal loan.
Top Vacation Loans for Your Ultimate Escape
Although personal loans are often the go-to resource to pay for memorable family vacations, there are other options available to qualified borrowers. While each funding solution provides the cash needed to get away, there are inherent pros and cons associated with each product. If you are unsure about the best way to afford a vacation, weigh the following benefits and challenges.
Personal Loans
Unsecured personal loan options are readily available. Qualified borrowers usually need a credit score above 560, depending on where you apply. The process is relatively straightforward. People with solid credit histories and reasonable incomes can get approved quickly for a lump sum at a fixed rate that never changes. Most people enjoy the set time frame for repayment along with the solid end date when payments will be complete. The downside of personal loans is they usually have higher interest rates than those loans backed by collateral such as a home equity line of credit.
HELOC
A home equity line of credit (HELOC) is a type of secured loan that homeowners can utilize. Property owners borrow against the difference between their mortgage balance and the value of the home. This option acts much like a credit card because borrowers can draw down funds as they need them. Interest rates are generally low because the line of credit is backed by collateral (the home itself) however they are not fixed and do fluctuate. In addition to the adjustable rate, another reason homeowners shy away from HELOCs stems from the fact it’s much like a second mortgage. If you lose your job or encounter financial challenges, a borrower’s home could be at risk.
Credit Card
Plenty of hard-working community members simply swipe their plastic and pay the credit card balance over time. If you have the bandwidth to use existing credit to take a vacation, it’s a convenient way to move forward. Unfortunately, credit card interest rates tend to run higher than personal loans and HELOCs. That means you could end up paying far more by using your credit card.
Fast Cash Loan
Fast Cash loans can be a go-to resource when people are required to make last-minute business trips or just need to get away from life’s hustle and bustle. These borrowing options can be secured by working with an experienced local lender and are primarily based on the standing of your credit union membership and deposit history. Qualified borrowers receive prompt approval, and the money can be deposited in minutes once the application has been processed.
Community members who need to catch flights or hop on a train can expect an almost immediate answer, allowing them to travel on the same day in many cases. It’s essential to keep in mind that fast cash loans typically have short repayment windows. They are best suited for people who are low on cash and between paychecks.
As an experienced local lender, we understand that every community member’s financial health differs. Leveraging credit cards, Fast Cash, or acquiring a low interest HELOC to pay for a vacation may be the best solution for you. However, a low-interest, unsecured personal loan tends to be the more predictable way to fund a once-in-a-lifetime vacation without putting up the family home as collateral.
Allegiance Can Help Oklahomans Explore
If you plan to travel abroad or within the U.S., Allegiance Credit Union offers a variety of programs to help you maximize your experience without breaking the bank. We offer credit cards, HELOCs, Fast Cash, and low-interest personal loans for qualified borrowers. Contact us today to discuss ways to finance the vacation you and your loved ones deserve.