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Should You Take Out a Personal Loan for Vacation?

Everyone likes the idea of getting away from it all to soak up a new atmosphere, but make sure you understand what you’re signing up for.

April 13, 2022

Life can be hard and sometimes you need a break. If you’ve found yourself dreaming of the sun kissing your skin and the sound of waves lapping in your ears, you might be willing to do whatever it takes to get to a vacation spot. But does that mean that it’s a good idea to take out a personal loan for a vacation? Unfortunately, in most cases, the answer is no.

Still, that doesn’t mean you need to postpone your vacation indefinitely. We’ll run through how personal loans for vacations work, the pros and cons of using them and a few alternatives. 

What to expect from personal loans

A personal loan is a versatile type of loan that you can use for diverse purposes — including cars, debt consolidation and (of course) vacations. They’re installment loans, which means you’d pay back the money you borrow in monthly installments over time. Because of this structure, you’ll sign up for a fixed loan amount and annual percentage rate (APR) upfront, both of which determine the size of your monthly payments. 

For example, you might sign up for a personal loan of $5,000 with a term of 12 months and an APR of 10%, which would result in monthly repayments of $440.

Lenders decide whether to let you borrow from them based on your creditworthiness. If you have bad credit, you might struggle to get approved, whereas those with excellent credit are likely to secure a lower APR.

Assuming you’re approved, you can use the money from a personal loan toward various travel expenses, such as accommodations, flights and food while you’re away.

But is a personal loan for a vacation the right choice for you?

Benefits of vacation loans

Although we’ve said travel loans tend to be a bad idea, let’s quickly outline some potential benefits of personal loans for the sake of fairness.

For one, they tend to offer lower interest rates than other types of loans. The average APR on a personal loan (with a two-year term) is 9.58%, compared to 16.3% for a credit card. 

Plus, the structure of personal loans gives you significant flexibility. You can choose the repayment terms that suit you. For example, if you’d prefer lower monthly payments, you can select a longer loan term. You’ll also have plenty of different loan providers to choose between — from online lenders to banks to credit unions.

Finally, the fixed payments that come with a personal loan mean you’ll know in advance exactly what you’ll have to pay and when. Personal loans have a fixed interest rate that remains the same for the loan’s duration, whereas the APR for a credit card can fluctuate over time.

Drawbacks of vacation loans

Despite the potential advantages personal loans offer, they’re still not a wise choice for funding a vacation. 

Even though personal loans tend to have lower rates than other loan types, the overall cost is still significant. Let’s return to the example of a $5,000 loan with a 12-month term and an APR of 10%. You’d end up paying $274.95 in interest over the life of the loan — and for a longer loan term, this would be even higher.

But it’s not just the payments you need to worry about. There are also additional costs to consider when you take out a personal loan. You may face origination fees (the cost of starting a loan agreement), prepayment penalties if you pay the loan back early or late fees for missing payments. All of this can make the cost of a loan far higher than just the initial loan value and the interest payments.

Most people sign up for personal loans for vacations in the first place because they’re struggling financially, and having to cover additional monthly payments may cause extra stress. Plus, if you miss payments, it can hurt your credit score, making it harder for you to obtain credit in the future — when you may need it more urgently.

Alternatives to a personal loan for a vacation

Based on the analysis above, hopefully, you can now see that taking out a personal loan for a vacation isn’t a great idea for most people despite a few minor benefits.

There are some situations in life when you have practically no choice but to take out a personal loan. For example, you might face a sudden car breakdown or a medical emergency, meaning that taking out debt is the only way to cover your costs.

A vacation doesn’t fit into this category. It’s a luxury rather than a necessity, so it’s not worth taking on the financial stress and risks. 

In some cases, your circumstances might be an exception to this rule — such as needing to travel for a family emergency. Taking out a personal loan may be worth the drawbacks if you’re in this type of extreme situation, but make sure you consider your loan options to ensure you’re making the right decision and getting the best deal. Or, even better, consider some alternatives for funding your travel.


The best option is simply to save up for your adventure, so you don’t have to take out a loan at all. If you put a set amount in your savings account each month, it can add up quickly. Instead of paying $200 in monthly payments for the year after your vacation, you could set aside $200 a month in savings for the year before you set off.

This means you’ll face no fees and no interest. In fact, you could put your money into a savings account that pays interest instead, allowing you to put aside even more.

All this saving might be easier said than done, but consider setting up an automatic transfer into your savings account each month just after you get paid. You might not even notice the money is gone.

Credit cards

At first glance, the prospect of using a credit card for vacation financing might sound crazy. Didn’t we just say they tend to have high interest rates compared to personal loans? 

But if you can get a card that offers an introductory 0% interest rate, it might be worth considering. There’s also the chance of getting points through a rewards credit card that can offer travel rewards or other perks

However, there’s a caveat here. If you don’t think you’ll be able to pay off your loan balance before the introductory period ends, it’s safer to avoid credit cards since you’ll face high interest payments. Plus, bear in mind that you might not meet the eligibility criteria for the best credit card deals if you don’t have a good credit history.

Cheaper vacations

You don’t necessarily have to shell out thousands of dollars to go on vacation. You can travel on a budget instead. Why not ditch the luxury all-inclusive Caribbean vacation for a trip to visit family in a different state?

Plus, there are some ways to travel cheaply or practically free. For instance, you could volunteer in a hostel, couch surf or house-sit to get free accommodations. Admittedly, this may be easier for solo travelers, couples, or groups of adult friends rather than families.


Go chase that sunshine

It might be tempting to throw caution to the wind and complete that personal loan application to fund your vacation, but chances are that you’ll regret it further down the line when you have to pay interest. Instead, consider how you can cut the costs of your vacation or save up in advance.

Want some inspiration for how to save or to make sure you avoid other common financial pitfalls? Sign up for Tally's† newsletter, which is full of personal finance tips sent to your inbox.

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