Should you use vacation loans to cover travel expenses?

Yahoo

09-04-2025

Vacation loans can help pay for a trip's expenses, but they should only be used if you have a clear plan to pay back the loan on time.
Loans used to cover vacation costs offer fixed monthly payments and potentially lower interest rates than credit cards.
The proceeds from a vacation loan can be used to cover all types of travel expenses, including transportation, lodging, food and entertainment.
Prices on nearly everything are rising, and vacations are no exception. The average cost for one person to go on a weeklong vacation in the U.S. is $2,268, according to Budget Your Trip — that's up from $1,993 in 2024. Some travelers turn to vacation loans to make trips possible.
But paying for a getaway by borrowing money is a risky financial choice. If you're considering this type of borrowing, it's important to know how vacation loans work and weigh their pros and cons.
Vacation loan statistics
More than 1 in 3 (36%) of those who plan to travel this summer are willing to go into debt to pay for it, according to Bankrate's Summer Vacation Survey.
The top trending U.S. destinations for the first half of 2024 include Hyannis, Massachusetts; Cody, Wyoming; Bar Harbor, Maine; Sitka, Alaska and San Francisco, California.
The average domestic traveler in the U.S. spends $2,268 per person on a weeklong vacation, which translates to about $324 per day.
According to American Express, 79% of millennials and Gen Z travelers care more about the right travel experience than the cost of the trip, followed by 75% of Gen X and 72% of baby boomers.
Vacation loans can help you take the trip of your dreams, but we recommend against using them. Before considering a vacation loan, you should try to save up and budget for a trip so that you can afford to pay for it in cash.
'Travel can offer enriching experiences and potential personal and professional growth experiences, making it a wise investment in certain circumstances. However, taking on debt for leisure travel without a clear financial plan could lead to unnecessary financial strain in the long run,' says Annette Harris, an accredited financial counselor and certified financial fitness coach with Harris Financial Coaching.
Taking a loan for a non-essential expense like a vacation can strain your budget and limit your future financial opportunities, says Harris.
Vacation loans may be justified in two circumstances:
When you're taking a trip for unavoidable, emergency reasons (such as to care for a sick loved one).
When you're taking a once-in-a-lifetime trip, like a honeymoon, and are confident you can repay the loan without missing payments, tapping into your emergency fund or delaying more important financial goals.
If you are considering taking out a vacation loan, take a hard look at your budget and consider the pros and cons first.
Fixed monthly payments: Because payments are fixed, you'll pay the same amount each month, making it easy to plan ahead.
Potential for lower interest rate: Depending on your credit, personal loans often have lower interest rates than alternatives like credit cards. If you were planning to use a credit card to pay for your trip, a vacation loan could be a lower-cost alternative.
Help fund emergency travel (or higher cost travel): If you're taking a trip out of necessity rather than pleasure and it is time-sensitive, a vacation loan could be a great option to make your travel plans possible.
Interest increases the cost of the trip: If you take out a loan, you'll pay interest on top of the expenses of the trip itself, adding to the overall cost. If you have great credit, interest charges can be low — but borrowers with bad credit can see rates as high as 36 percent, making vacation loans an expensive option.
Fees can decrease your loan's value: Many lenders charge origination fees, which are deducted from the loan proceeds before you receive them. As a result, you may have to borrow more than intended to cover the fees.
Monthly payments: A loan is long-term debt. You could be paying off your trip for months or years after the fact.
Can negatively impact your credit score: If you make late payments or default on your loan, your credit could take a serious hit — and the lender may even take you to court.
A vacation loan is an unsecured personal loan used to cover travel or vacation-related expenses. Vacation loans can be used to cover any and all travel expenses, including transportation, lodging, food and entertainment. You can get a vacation loan from any lender that offers personal loans, which include banks, credit unions and online lenders.
'An aspiring vacationer can borrow a lump sum of money and then repay the amount they borrowed plus interest through fixed monthly payments over a set period of time,' says Dani Pascarella, founder and CEO of OneEleven Financial Wellness. 'It is no different than a personal loan used for another reason.' As Pascarella points out, using a vacation loan means your vacation will inherently be more expensive because you'll need to pay interest.
'You will also spend months or even years paying off the loan, which means you can't use that money for other things you may need in the future,' adds Pascarella.
1. Check your credit score. Different lenders have different minimum credit score requirements, but you generally need good to excellent credit to qualify for a lender's lowest rates. Your credit score is also an important factor in determining the rates you'll receive. If your credit is less than stellar, look into lenders that work with bad credit borrowers. But beware: These lenders may charge interest rates that exceed typical credit card interest rates.
2. Research lenders. Compare lenders to find the best personal loan interest rates. Many lenders allow you to prequalify to view rates without hurting your credit. When comparing options, consider the fees charged, minimum and maximum loan amounts, repayment terms and any additional features offered by each lender.
3. Submit your application. Once you've chosen a lender, submit a formal application, including identifying documents like your ID, W2s and pay stubs. If you're approved, the next step is to sign the loan contract, receive the funds and begin paying back the loan in monthly installments.
Bankrate tip
Many lenders offer fast approval and funding within just a few days. However, we recommend applying for a travel loan at least a month before your planned vacation to help with budget planning.
The U.S. economy has been struggling with stubborn inflation for the past few years, and the rate of inflation remains slightly above the Fed's target. However, the consumer price index for airfares was down 4 percent in February of 2025, according to the U.S. Labor Department's Bureau of Labor Statistics.
According to the U.S. Travel Association's Travel Price Index for March of 2025, there was 'a 0.2% decline in prices for travel-related goods and services on a monthly basis.' Gas and airline prices saw a decrease in cost, while hotels, recreation and food all had a slight increase.
Still, some expenses related to travel remain elevated. Costs associated with recreation, for instance, are up 4.1 percent between 2023 and 2024, while food and beverage costs are up 4 percent during the same time period.
Of Americans planning to skip their summer vacation this year, nearly two-thirds (65 percent) cited affordability as their main reason, according to Bankrate's Summer Vacation Survey.
Prosper loans offer annual percentage rates (APRs) as low as 8.99 percent. Loan amounts range from $2,000 to $50,000. As a peer-to-peer lender, your loan is funded by individual investors in Prosper's network, not a direct lender. You may qualify for a loan with a credit score as low as 600, but you can add a creditworthy travel buddy as a co-applicant for a chance at lower rates.
Despite Avant's higher rates and fees, it's worth a look for borrowers with credit scores as low as 550. You can borrow $2,000 to $35,000 from Avant for vacations. Rates range from 9.95 percent to 35.99 percent with loan terms from two to five years. Note that Avant charges an administration fee of up to 9.99 percent, as well as late and dishonored payment fees.
If you have good or excellent credit and are planning a pricey vacation, check out LightStream. Its rates of 6.49 to 25.29 percent are among the lowest in the business, and it charges no fees — not even for late payments. Plus, if you sign up for autopay, you can receive a rate discount worth 0.5 percentage points. Amounts range from $5,000 to $100,000. But prequalification isn't an option with LightStream, so check your rates with other lenders first.
SoFi loans start at $5,000. Like LightStream, its repayment terms last two to seven years. That makes its loans best suited for major, expensive travel. With SoFi, you could get your funds as soon as the day you're approved.
Before borrowing a vacation loan, investigate these alternatives.
Budget and save: Long before you travel, start putting aside money from each paycheck until you've saved enough to cover your trip, perhaps in a sinking fund. Vacations are a great way to make new memories and escape the daily grind, but going into debt for a leisure trip should be avoided.
Travel cards and reward cards: Many credit card issuers offer perks and reward programs for traveling. This could help you cut travel costs, with some cards even awarding airline miles as you spend and pay off the card. Your card may also offer cancellation insurance or fee-free foreign transactions. But be careful: Credit card debt can grow fast and jeopardize your financial wellness. This can be a good option if you're certain you can repay the balance quickly.
Travel with a bigger group and split expenses: Sharing accommodations can reduce your costs significantly.
Find discounts: Do your research to find the cheapest flights, hotel rooms, etc. There are almost always deals to be found online.
Choose a less costly vacation: If the vacation you're planning will break your budget, consider a shorter trip or switch to a less-pricey destination.
Wait until the offseason: Prices are higher in certain areas during certain times. For example, it is more expensive to go to the Bahamas during the summer than it would be to go during the fall or winter. Consider visiting your chosen location during the offseason to take advantage of lower prices and less crowded destinations.
Before booking your next vacation, read Bankrate's tips and insights for saving money and making the most of your travel plans.
Learn more
Vacations offer a great opportunity to relax, spend time with loved ones and explore new cultures and places, but they aren't an essential expense or something that you should incur substantial debt to pay for.
If you can't wait to save up to cover the costs of a vacation and are confident you will be able to pay back the debt, a vacation loan can offer one way to finance an upcoming trip. Be sure to do your research and compare financing options before making a decision. Saving up and finding deals is always a better option than taking on debt.