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Personal Loans for Vacations Explained

What Are Vacation Loans & How Do They Work?
Sulaiman Abdur-Rahman
Sulaiman Abdur-RahmanUpdated October 24, 2023
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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.
Vacation loans are personal loans that help borrowers pay for the costs of a getaway. Vacation loans provide you with a lump sum of money that you may spend on anything related to a vacation.Vacation loans can provide you with opportunities to travel far and wide. Since these are personal loans for vacation, you may also use them to cover any expenses related to a road trip or sightseeing journey, including lodging and dining.A vacation loan may include flexible terms and predictable monthly payments. Below we provide more details about vacation loans and explain their pros and cons.

What Are Vacation Loans?

As mentioned above, vacation loans are personal loans providing you with a lump sum of money that you can spend on anything related to a vacation. Borrowers can use vacation loans to pay for plane tickets, car rentals, hotel expenses, dining, visiting major attractions, and more. Borrowers are expected to repay a vacation loan over a set term, including the principal loan amount and any interest charges. Banks, credit unions, and private lenders may offer personal loans for vacation. Lenders may offer the best rates of interest to applicants with excellent credit.

How Do Vacation Loans Work?

Vacation loans work by providing borrowers with a lump sum of money. The borrower can use that money to help cover any expenses related to a vacation, including travel, lodging, sightseeing, and dining.The costs of a vacation can be quite expensive in some cases, according to U.S. Bureau of Labor Statistics data. BLS in March 2022 reported that the average U.S. household spent about $2,100 on travel in 2019 and about $926 in 2020 amid the COVID-19 pandemic. These expenses reflect what the average household spent on transportation, lodging, food, entertainment, and alcohol on trips.Borrowers can repay a vacation loan under the terms and conditions of a loan agreement. For example, a $5,000 personal loan for vacation may feature a repayment term of two years and a fixed rate of interest. Borrowers in that case could repay the loan with 24 fixed monthly payments covering the principal and any interest charges and fees.

Are Vacation Loans a Type of Personal Loan?

Yes, vacation loans are personal loans that help borrowers pay for the costs of a getaway, road trip, or sightseeing journey. Personal loans for vacation can be secured with collateral or unsecured.Unsecured personal loans do not require borrowers to pledge collateral, whereas secured personal loans require borrowers to offer an asset as collateral.Collateral is any asset or personal property that you pledge to a lender for a secured loan. If you own a vehicle, you may pledge your car as collateral on a secured personal loan. Some lenders may require borrowers to pledge a vehicle as collateral on large loan amounts of $20,000 or greater. A lender may seize your collateral if you fail to repay a secured loan.Collateral reduces the risk to the lender in the event of default. Collateralized loans, therefore, generally carry lower rates of interest compared with unsecured loans. Borrowers with weak credit scores may have a harder time getting approved for unsecured personal loans than secured personal loans.

Typical Vacation Loan Terms

Here are typical vacation loan terms:

Principal Amount

The principal amount on a vacation loan refers to the amount of money you borrow. This is the lump sum of money the borrower receives in one transaction. Borrowers are expected to repay the loan principal in full by the end of the loan’s term.

Interest Rate

The interest rate on a vacation loan is the amount that a lender charges a borrower for taking out the loan. Lenders can offer a fixed rate that never changes or variable rates of interest that may fluctuate over the life of the loan. Interest rates are typically expressed as an annual percentage of the loan balance, aka the annual percentage rate or APR.

Repayment Term

The repayment term on a vacation loan refers to the length of time a borrower has to repay the principal and interest charges in full. Some lenders may offer personal loans for vacation with terms as short as 12 months and as long as seven years.

Pros and Cons of Vacation Loans

Here are some pros and cons of vacation loans:
Pros of Vacation LoansCons of Vacation Loans
Can help you finance costly getawaysCan negatively impact your debt-to-income ratio, which can make it harder for you to qualify for additional consumer lending products during the life of the loan
Can provide you with opportunities to travelThe costs of repaying a vacation loan can be high in terms of principal and interest charges
Can cover any expenses related to a dream vacation or sightseeing journeyCan place you deep into debt, which may fuel financial stress

Saving Up for a Vacation vs Taking Out a Loan

Saving up for a vacation could be cheaper than taking out a personal loan to finance the costs of a vacation. Vacation loans can include high rates of interest and may require borrowers to pledge collateral.Here are some ways you may save up for a vacation:
  • Reduce nonessential spending 
  • Set money aside each month from your income
  • Look for bargain prices when buying essential goods
  • Consider a side hustle or new way to boost your regular income
Saving up for a vacation can carry certain advantages over borrowing money. Applying for a vacation loan and borrowing a large amount may affect your credit score in several ways:
  • Your credit score may drop a few points if the lender conducts a hard pull inquiry into your credit report
  • Borrowing money can raise your debt-to-income ratio and make it harder for you to qualify for additional funding
  • Defaulting on a personal loan could leave you with damaged and subprime credit
Lenders may seize your collateral if you default on a secured vacation loan. Having a bad credit score could also make it more difficult for you to borrow money in the future. Although there are risks to the borrower, taking out a personal loan can also have its advantages. Here are some of the possible benefits of personal loans:
  • Can help you cover large expenses without depleting your savings
  • Interest rates can be lower than credit card APRs
  • Repaying the loan in full could help build your credit score
Also, if you travel often to the same spot, you may want to consider investing in a timeshare. Timeshare loans can help you secure the financing, and once the loan is paid off, the timeshare is yours to enjoy for years to come.

4 Steps to Getting a Vacation Loan

Here is how you may find and apply for a vacation loan:

1. Calculate Your Vacation Costs

Calculate your vacation costs when planning a trip. This can help you determine how much funding you need to cover the costs of your getaway. Ideally, you’ll take out the bare minimum that you need.

2. Compare Rates

Explore personal loan offers as a prequalified or preapproved consumer, which can allow you to compare personal loan rates and apply in minutes with a lender of your choice. Getting personal loan preapproval means you’re prequalified and likely — but not guaranteed — to get approved for the loan.Some lenders may allow you to see whether you’re prequalified for a loan. Seeing if you’re prequalified involves a soft credit check that doesn’t impact your credit score. Getting prequalified may also forecast what your interest rate may be if you submit an application and get approved.

3. Compare Total Costs

Search across lenders and compare total costs of personal loans for vacation. Total costs can include principal, interest, origination fees, and application fees. You can also reach out to lenders directly with questions if you can’t find information on fees.

4. Check Requirements

Check the application requirements of any loan product before applying. Lenders may require applicants to submit proof of income, proof of residence, and proof of identity. Some lenders may also require collateral.

4 Lenders Offering Vacation Loans

Comparison shopping is the key to getting the best rate and terms on your vacation loan. Below are five top lenders you may want to look into.

1. Avant

Avant offers vacation loans ranging from $2,000 to $35,000 with terms of one to five years. Funding times are quick — once approved, you can receive your funds in just one business day.

2. LightStream

LightStream offers qualified borrowers large personal loans you can use for a vacation up to $100,000. Terms range from 24 to 144 months and LightStream does not charge any fees or early payment penalties.

3. Prosper

Prosper offers vacation loans up to $50,000 through a peer-to-peer lending marketplace. Repayment terms range from two to five years, and funding can be received within one business day of loan approval.

4. Upstart

Powered by artificial intelligence (AI), Upstart offers personal vacation loans up to $50,000 to borrowers with poor credit or no credit. Terms are either three years or five years, the application process is quick, and funds can be received within one business day of approval.

Alternatives to Vacation Loans

In addition to personal loans, there are other forms of financing you can use to help pay for your vacation. They include:

Personal Lines of Credit

Borrowers may use personal lines of credit to finance a dream vacation. Personal lines of credit allow borrowers to withdraw funds up to a set limit for personal spending. Personal lines of credit are revolving credit accounts that allow account holders to make minimum monthly repayments or greater.A personal line of credit (PLOC) can differ from a credit card in the following ways:
  • A personal line of credit may feature a draw period that limits the amount of time a borrower has to withdraw funds.
  • A personal line of credit may have no grace period for interest-free transactions.
  • The APR on a personal line of credit may be lower than the APR on a credit card.

Credit Cards

Borrowers may use credit cards to finance a dream vacation. Credit cards are a revolving line of credit that allow cardholders to make transactions up to the card’s credit limit. Consumers with good credit scores above 670 may qualify for credit cards offering 0% interest on purchases for a 21-month promotional period.

Point-of-Sale Travel Financing

Borrowers may consider point-of-sale travel financing to help pay for vacation-related expenses, such as the cost of transportation and lodging. Travel websites may offer point-of-sale loans, allowing you to book your vacation now and pay later. Some lenders may offer point-of-sale travel financing with 0% interest.

Local Vacation or Staycation

Consumers may consider a local vacation or staycation that can allow for local sightseeing and leisure without incurring large expenses for travel and lodging. A staycation can allow you to sleep at home during the night and explore local attractions during the day.

Creating a Travel Budget

Creating a budget may help you plan a dream vacation that you can finance within your means. A travel budget takes into account your savings and expected future income. Your travel budget can also establish a framework on how much you intend to spend on each aspect of your planned vacation.

The Takeaway

Going on a cruise, taking a long road trip, or flying to extravagant destinations can cost hundreds to thousands of dollars. Financing such a getaway could increase your burden of debt but also provide you with opportunities to experience new adventures.Lantern by SoFi can help you compare personal loan options that may help you pay for the cost of a dream vacation. Provide basic information about yourself and the loan you need, and Lantern can guide you in the process to apply for a personal loan with the lender of your choice.

Frequently Asked Questions

What is a vacation loan?
Is a vacation loan the same as a personal loan?
Is a vacation loan a good idea?
Do banks give loans for vacations?
Are vacation loans cheaper than paying outright?
Photo credit: iStock/kate_sept2004

About the Author

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman

Sulaiman Abdur-Rahman writes about personal loans, auto loans, student loans, and other personal finance topics for Lantern. He’s the recipient of more than 10 journalism awards and served as a New Jersey Society of Professional Journalists board member. An alumnus of the Philadelphia-based Temple University, Abdur-Rahman is a strong advocate of the First Amendment and freedom of speech.
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