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Considering a vacation with an intimidating price tag? If so, you might be considering your borrowing options. But credit cards are expensive, and borrowing money for something that isn’t a car or house can seem tiresome or tedious at first.
The truth is that leisure expenses have long been a common reason to take a loan. In this quick guide, we will go over the whys and hows of personal vacation loans.
Can I Take a Personal Vacation Loan?
Yes, you can absolutely take a loan for a personal vacation or for many other leisurely activities.
Some vacation loans come labeled as such. But lenders may simply offer a blanket “personal term loan” and allow you to select “leisure” or “vacation” while applying. Another common example would be personal loan products like marriage loans.
What all these loan products have in common is that they enable you to pay for vacation expenses by providing a lump sum. This way, you don’t need to have a large sum of money to be able to take a vacation. Instead, you borrow the money and pay for your vacation over time with smaller repayments.
Personal Vacation Loan Considerations
As with any loan product, it’s your responsibility to borrow responsibly. But that doesn’t necessarily mean you need to think any harder about a vacation loan than you would with other loans. It just means you need to understand the math behind the loan you take and ensure you’re able to repay it.
The idea of a “vacation loan” may sound unnecessary. However, in practice and from many lenders’ points of view, a vacation loan isn’t different from any other type of personal loan. Similar logic applies:
You will be granted a lump sum and have to pay back the principal plus interest and any fees. If you want a large sum of money, you will be expected to provide collateral. Your repayment process will affect your credit score and future ability to borrow.
But unlike other loans, vacation loans are considered discretionary spending, not a necessity. So, lenders may assess you more closely and may offer less attractive loan terms. So, you will want to ensure that you’re making a decision that doesn’t add too much financial strain.
Interest Rates & Repayments
The most important two questions to ask when considering a vacation loan are:
How much will I need to pay back each month?
How many months will pass before I’ve repaid the loan?
Fortunately, in most jurisdictions, lenders are required to be transparent about the answers.
Vacation loans are normally unsecured, meaning they aren’t backed by collateral. That means they normally have higher interest rates and therefore higher repayments.
Repayment Plan
Now, it’s time to think long-term. How do you plan to fit your loan repayments into your budget until the repayment term is over?
This question should not induce stress and the answer shouldn’t be too complicated. If it’s stressful or complicated, you should consider a different vacation loan lender, a smaller loan, or a longer term.
Take out a calculator and do some basic calculations. If a vacation loan easily fits into your monthly budget, but a big budget for your vacation doesn’t fit without a loan, then a vacation loan is a good idea.
Emergencies
It’s best to be prepared for emergencies during any vacation. So, factor travel insurance into your calculations and borrow a little more than you need without going too high.
Mixed Financing
In many cases, a good vacation is more affordable with a mix of saving and borrowing. If you’re considering a loan, consider a plan where you save a reasonable amount while borrowing and paying back over time to reduce the burden. This way, you pay what you are comfortable paying on your vacation but you aren’t overburdened over time with debt repayments.
Credit Score
If your credit score is higher, you can save more money on your vacation by getting approved for lower interest rates.
For similar reasons, having a simpler debt profile can be helpful. Personal lenders look at your credit utilization rate and number of open accounts. For these reasons, it is better to take care of any existing debts or issues with your credit before borrowing for a big vacation.
Consolidation Loans
One way to control your debt utilization and not having too many outstanding debts is with a debt consolidation loan.
A personal debt consolidation loan is a loan an individual takes to immediately pay off their other debts. Then, they have a single loan to pay back instead of many others.
In addition to other potential benefits like paying off higher-interest debts, consolidation loans increase your credit score and reduce outstanding debts. This can help a lot in many situations, including when you’re thinking of your next vacation.
Consolidation Loans in Norway
Consolidation loans in Norway are available in high amounts. For example, you can use a personal lending platform to refinance up to 600,000 KR in other debts.
Consolidation Loans in Sweden
A debt consolidation loan in Sweden can prepare you for your next major financial decision. If you want to borrow to take a vacation, you can start by closing your other debts.
Consolidation Loans in Denmark
You can get a consolidation loan in Denmark from one of many local lenders. You can use a lending platform to compare many lenders who offer the consolidation loan you need.
For unsecured personal loans, you will also find a good selection of loan comparison platforms that allow you to easily compare lenders in Denmark.