Money Trip

The pros and cons of taking out a loan to pay for a vacation

Everyone loves taking a vacation, but not everyone can afford it. To solve that problem, some people have taken out loans to fund their trips abroad. Companies like Affirm and UpLift are taking advantage of this trend — they cater to people who want to borrow money to fund their traveling. Like many things, there are (some) good and (a few) bad sides to making this money move.

The good part about taking a vacation or travel loan is that it allows you to pay over an extended period of time. These loans are also helpful should you need to book a trip at the last minute. On the other hand, if you book your trip way in advance, you can take advantage of lower prices on things like airfare and hotel bookings. And that’s really where the benefits end.

If you absolutely need to get funds to travel at the last minute, consider a credit card with a zero-percent introductory interest rate. Using a card in this way helps you avoid the potentially high interest rates connected to vacation loans. Affirm, for example, can charge consumers a 30 percent interest rate. That’s much higher than the average credit card interest rate, currently 17 percent.

In general, financing a vacation just does not make sense. It might be tempting to do it, because after all, everyone wants some rest and relaxation. But consider the long-term impact the loan could have. Instead of taking out a loan, take your time to save the funds you need the old fashioned way — in advance. Open a separate savings account and fund it over time with automatic transfers. Then you’ll be able to truly enjoy the vacation with no strings attached.

Chris O'Shea

Chris O'Shea