You’re not alone if you want to go on a trip in the upcoming holidays. The holiday season is an excellent opportunity to spend more time with your family and friends somewhere far away.
However, it’s not as easy and relaxing as it seems. Before you enjoy the waves on the beach or the chilly atmosphere of winter in a high-class cabin, there are a lot more things you have to think about, especially financing.
Going on a trip can potentially make you break the bank. So if you’re looking for ways to finance your next vacation trip, then you’re in luck because in this article, we’ll tackle just that. Here are some ways to finance your next dream vacation trip.
A credit card is an excellent way to finance your next trip if you know how to handle one. Along with a secured payment method, you can also receive benefits and points that you can spend on important things on your trips, like flights and accommodations. Some credit cards even give you benefits for free without spending any points, like free hotel rooms, returning flights, etc.
But the best thing of all is travel credit cards. A travel credit card is a type of rewards card that can let you have a stress-free and relaxing trip with various complimentary services. With this type of credit card, you can save a lot on cheap flights and hotel bookings, and it even gives you access to first-class travel amenities offered in many airport lounges worldwide.
You can also opt for a 0% APR credit card. This type of credit card lets you pay off your balance without interest for some time. Usually, this promotion can go on for months or even a year. You can spend as much as possible without paying interest on your monthly bill.
This is very convenient because if you’re traveling for a short time, you can use your credit card without paying any interest. However, if you continue using the card after the introductory period, you’ll start repaying with interest.
Vacation loans are a form of financing used to fund vacations. Usually, vacation loans are unsecured, so you don’t have to use valuables as collateral. However, they are more stringent when it comes to requirements compared to a secured loan.
So how do they work? The general idea of a vacation loan is to spread the repayment over several weeks, months, or years, depending on the repayment terms agreed upon. For example, if you opt for a personal loan to finance your vacation, the repayment terms can generally go up from two to seven years.
Also, loan interest rates can be much lower than credit cards. That said, some loans can go as low as single digits for interest rates, unlike credit cards which usually go twice as much.
However, depending on the loan that you got and the repayment terms, personal loans can go as high as 30%. It also depends on the lender you’re applying to, and there are a lot of them online, like CreditNinja.com.
But regardless of the numbers we put out, your interest rates and repayment terms will entirely depend on your creditworthiness. So if you’re looking to opt for a vacation loan to finance your next trip, ensure a good credit score and a clean credit report so you’ll have a more favorable interest rate and repayment terms.
Lines of Credit
Lines of credit usually have a lower interest rate than credit cards. However, rather than giving you one lump sum of money to finance your vacation, the bank or lender will give you a credit limit that you can withdraw from at any time as long as you don’t go over it. One good thing about lines of credit is that if you pay for your borrowed funds, your credit limit will return to its original amount.
This makes it great when you’re planning a trip but don’t have an estimate on how much money you will spend. Of course, since you can repay your funds to their original amount, you can withdraw again and again as long as you don’t exceed your limit.
Usually, the interest rate can go as low as 2.5% but can also be as high as 40%, which depends on your creditworthiness. The borrowing limit is at a minimum of $5,000.
You can also opt for a home equity line of credit. This one is secured by putting up your house as collateral. This makes it much cheaper when it comes to interest rates since it’s a secure loan.
However, since you’re putting up your house as collateral or, more specifically, the equity you’ve accumulated for your house, it can be pretty risky if you fail to repay the loan. This is because when you fail to repay, your equity will be reduced, or in the worst-case scenario, your house will be repossessed by the bank or the lender.
Home Equity Loans
A home equity loan is a secured loan where you’ll put up the equity you’ve built on your house as collateral. This type of loan is much easier to qualify for since you have collateral, but it is also risky since you’re putting your house on the line for this loan.
Usually, you can borrow up to 80% of your equity with a minimum of 65% as the loan amount. As good as this sounds, if you fail to repay the loan, your equity will be reduced, and worse, you’ll lose the rights to your house. That said, before you go for this loan, make sure that you can repay it in full.
As good as a vacation might sound, preparing for it can be a nightmare, especially financially. Fortunately, there are several ways that you can finance your next vacation; you have to know where to look. The options discussed in this article have pros and cons, so make sure you do your research and pick the most suitable option for you.