4 Questions to Consider Before Taking a Vacation Loan

Asking these four questions will ensure that you don’t regret taking a vacation loan.

Nearly a year back, it was almost impossible for people to travel, and now this summer, Americans are ready to hit the road. Hence, if you plan a vacation, you need to figure out how to pay for it. For many, it might mean taking up a vacation loan.

A vacation loan is a kind of personal loan used to cover the cost of a trip. Most of these loans are exclusively targeted towards travelers. However, before choosing to take up a vacation loan, ask yourself these four questions to make sure you are making the right choice for yourself. Here are the questions to consider: 

1. Is There Any Other Option to Avoid a Loan?

Borrowing money gives you an instant lump-sum amount, and it is a good option, but the interest over it makes your vacation costlier. Hence, it is wise to look for an alternate option rather than getting a vacation loan. Few possibilities might include: 

• Try paying for your vacation in cash by revising your budget 
• Utilizing money from your stimulus check
• Avail credit card with a 0% promotional rate
• Funding part of your trip through points earned from your rewards credit card 
• Funds gathered from the selling of unwanted items
• Shrinking your vacation plans or consider a staycation plan

2. What Will Be My Monthly Payments?

Once you decide that a vacation loan is the best option for you, your next task should be to figure out what amount of vacation loan you could afford. In this way, your monthly payments will be affordable. But, first, you need to make a budget that will assist you in planning. 

You need to make sure that your paycheck can easily cover your monthly loan payments along with your other commitments and bills. If you are unsure whether you can afford the monthly loan payments without affecting other priorities, you need to consider taking up a loan. Or else you might regret your choice once your vacation ends.

3. How Much Time Will It Takes to Pay off My Loan?

The time it will take to pay off the entire vacation loan is also crucial to consider. You can choose to take up a vacation loan with a longer time period of repayment. Thus, it will make your monthly repayments even more affordable. For instance, you take up a vacation loan to pay off within five years, then your monthly payments will be quite small and will fit in your budget. 

But then again ask yourself, if you want to keep paying for the vacation loan for the next five years. If it’s a no, consider a similar loan with a shorter repayment period and think if you can repay the loan in that shorter time. 

4. What Will Be the Total Cost I’ll Pay?

The amount you borrow is different from the total cost you have to pay to the lender. Hence, before taking up a vacation loan, ask your lender what the total cost will be to pay over time. Three factors determine it:

• Amount of loan
• Interest rate
• Repayment period

For example, consider borrowing $5,000 for a trip of your life. If you pay off the loan in two years at an interest rate of 10%, it makes around $5,537, which is your total cost over time. It means you are paying $537 extra for your vacation borrowings. 

Taking up a vacation loan is a good choice because you make the best memories of your lifetime. But before making a decision, it is crucial to have an idea about the total cost of the loan.