Prices for hotels and air travel fell dramatically during the peak of the COVID 19 pandemic, but prices rose significantly in the face of inflation over the past year.
Hotel prices have risen due to increased demand for travel as the pandemic subsides. The increase in the price of car rentals, flights and food costs can be attributed to high fuel costs which increase overall transport costs.
Despite having the smallest average travel budget per trip, Gen Z is leading the charge to resume travel in 2022. Compared to other generations, Gen Z expects to increase their travel spending the most this year, with 72% planning to splurge on a big trip in 2022.
What is a vacation loan?
A holiday loan is an unsecured personal loan you can take out to help cover your vacation expenses.
You can get a vacation loan from any lender that offers personal loans. Vacation loans can be used to cover all travel expenses, including transportation, accommodation, food, and entertainment. However, vacation loans should only be used for one-time trips, special occasion trips like honeymoon, or emergency trips due to the effect they can have on your credit score and your finances. Only take out a holiday loan if you are sure you can pay it back on time.
As travel costs continue to rise in the United States, vacation loans are likely to become more common. The cost of domestic travel and overall travel spending in the United States is expected to continue to rise over the next few years.
This year, travel spending in the United States is $932 trillion. By 2025, it is expected to reach $1.06 trillion. This increase in spending is due to a variety of things, including post-pandemic unrest and high inflation.
What are the advantages and disadvantages of a holiday loan?
Although holiday loans can help you take your dream trip as soon as possible, they should be considered a last resort unless the trip is an unavoidable emergency. Before considering a vacation loan, you should try to save up and budget for a trip so you can afford it on your own. If you’re considering taking out a vacation loan, consider the pros and cons first.
- Fixed monthly payments. Since the payments are fixed, you’ll pay the same amount each month, which makes planning easier.
- Potential for lower interest rates. Depending on your credit, personal loans often have lower interest rates than alternatives like credit cards. If you’re considering using a credit card to pay for your trip, a vacation loan could be a low-interest alternative.
- Help fund emergency travel (or higher travel costs). If you’re traveling out of necessity rather than pleasure and time is tight, a vacation loan could be a great option to get you traveling faster.
- Interest increases the cost of the trip. If you take out a loan, you will have to pay interest in addition to the expenses of the trip itself.
- Fees can increase the cost of borrowing. Many lenders charge a variety of fees. Always check the fees charged by a lender before applying.
- Monthly payments. If you take out a holiday loan, you will be responsible for monthly payments until it is paid off. That means you could pay off your trip months later. Taking out a loan is a long-term investment.
- Can negatively impact your credit score if you don’t make payments. If you’re behind on your payments or have to defer them, your credit could take a serious hit.
How to get a vacation loan?
If you decide to take out a holiday loan, you will need to follow several steps.
Check your credit score
First, you need to 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. Generally, a score of 670-739 is considered good and a score of 740-800+ is considered excellent.
Knowing your credit score is important because it tells you which lenders you may qualify for and what terms you may qualify for. If your credit is less than stellar, you may want to consider a lender who works with borrowers with bad credit.
Once you have reviewed your credit score and overall financial situation, start researching the best lenders. When comparing lenders, consider the interest rates offered, fees charged, minimum and maximum loan amounts, repayment terms, and any additional features offered by individual lenders.
Many lenders allow you to pre-qualify without hurting your credit. This allows you to see the rates you will be entitled to without making an official request.
Submit your application
Once you have chosen a lender, you will submit an official application, including identification documents such as your ID, W2 forms and pay stubs. If you are accepted, the next step is to sign the agreement, receive the funds, and start repaying the loan in monthly installments.
Information on discount rates
While many lenders offer quick approval and funding in just a few days, it’s best to apply for a travel loan at least a month before your planned vacation to ensure you have plenty of time.
Should I apply for a holiday loan?
Although taking out a vacation loan may be the right decision in certain circumstances, you should generally try to save and budget for unnecessary expenses rather than taking out a loan.
Because holidays are a luxury and not a necessity, you have to think carefully before taking out a holiday loan. If travel is an emergency, a vacation loan may be a good idea. Other circumstances that warrant taking out a vacation loan include traveling for special occasions like a honeymoon or one-time trips.
Essentially, if there’s a sense of urgency and you don’t think you have time to save, taking out a vacation loan could be the answer. However, you should budget and save instead of going into debt if possible. If you decide to take out a holiday loan, be sure to research the best rates and make sure the loan fits your budget.
What are the alternatives to the holiday loan?
Before taking out a vacation loan, consider the following alternatives.
- Budget. If you plan accordingly, there are plenty of ways to save money on a trip. Spend time researching the cheapest travel and accommodation options, as well as researching tips and tricks for cheap travel in a certain area. Creating a budget and finding options that fit that budget is the best way to save money while traveling.
- Travel cards and reward cards. Many credit card companies offer travel benefits and rewards programs. Find a credit card that lets you earn travel points as you spend. This could help you reduce travel costs, with some cards even awarding airline miles as you spend and pay for the card.
- Economy. If you know you want to go on a trip, it’s always a good idea to start saving early. Set aside a predetermined amount from each paycheck to go towards a travel fund. Establishing a travel budget will make it easier to determine how much and for how long you need to save.
- Traveling with a larger group and sharing the costs. Traveling with a group and sharing accommodation can significantly reduce travel costs.
- Find discounts. There are often discounts available if you look for them. Do your research to find flights, hotel rooms, and more. the cheapest. There are almost always deals to be found online.
- Choose a less expensive vacation. If the vacation you are planning turns out to be too expensive, you may want to consider a smaller-scale trip or change your destination to a less expensive region.
- Wait for the offseason. Prices are higher in certain areas at certain times. For example, it is more expensive to go to the Bahamas in the summer than in the fall or winter. Consider visiting your location of choice during the shoulder season to take advantage of lower prices and less traveled destinations.
The bottom line
Despite rising costs, Americans are ready to travel after the pandemic. Although rising inflation is making travel more difficult, there are still plenty of ways to cut costs and keep your travel budget on track.
If you can’t wait to save but are sure you can repay the loan, a vacation loan could be a great way to finance your next trip. However, you should do your research and compare financing options before making this decision. Saving and finding deals is always a better option than going into debt.