What’s the best way to borrow money for travel? A once-in-a-lifetime trip may be beyond the reach of your savings. And you may need to take that trip now, before your career takes off. Or you start a family or go back to school. In addition, some expeditions require you to be young and healthy, so waiting to save might not be an option.
Should you borrow money for travel?
Many young and middle-aged people borrow money for travel instead of waiting to save. There are good arguments in favor of saving up the money to see the world before you go, but not everyone can or wants to put off their dream trip until they have the cash in hand.
In addition, being able to pay for a trip up to a year in advance can get you very deep discounts. Two-for-one deals on cruises, for instance, are common. You may be able to easily recoup your borrowing costs with these discounts.
By traveling when you’re younger — and even taking a gap year before or during college — you can see the world when you’re still young enough to enjoy it. And if you finance travel in a responsible way, you may not spend the rest of your adult years regretting it.
Travel loan pitfalls
Many financial experts warn against financing short-term items with long-term borrowing. A trip is definitely a short-term item. And while many would argue that the memories of a trip last a lifetime, you don’t want to taint those memories with a lifetime of repayment.
That’s an easy trap to step into when you borrow money for travel with credit cards. The minimum payment can have you paying for decades. Don’t get too comfortable with it.
Considering the average credit card charges an APR over 17%, borrowing even a few thousand dollars for your dream trip could cost you a lot more than the airfare, hotels, meals, excursions and souvenirs.
Personal loans for travel
If you must borrow money for travel, find the cheapest travel loan you can. That’s likely to be a personal loan. Unlike credit cards, personal loans can make repayment a predictable and finite process:
- Personal loans for travel generally feature fixed interest rates and payments
- Travel loans have set terms (usually between one and five years). You know exactly when your debt will clear (and when you can perhaps take another special trip)
- Personal loans for travel are installment loans. They don’t harm your utilization ratio and cause your credit score to drop
- Travel loans carry lower interest rates than credit cards (about 7% lower on average)
Many consumers like to borrow with personal loans because they get the money fast. And because personal loans are easier on budgets.
Travel rewards and credit cards
Credit cards have their place in paying for travel. Airline credit cards let you earn miles you can use to cover airfare around the globe, for example, while flexible travel credit and flexible points can be used to cover, hotels, rental cars, and more.
And many give you a substantial bonus of miles or points if you charge a certain amount in the first months after signing up. Some travel rewards cards give you extra benefits when you use them to purchase travel. The points you earn by charging your flights and hotel might pay for your car rental.
Alternatively, if you qualify for a card with a zero interest introductory rate, you may save a ton in interest by using it to pay for your travel.
However, just because you use your cards to borrow money for travel doesn’t mean you’re stuck with their drawbacks.
Drawbacks of rewards and zero interest credit cards
Travel and rewards cards typically charge higher interest rates. And they count on you carrying balances to cover the cost of your rewards, and then some.
Zero interest cards also count on you carrying balances and not paying the debt off during the interest-free period.
Best way to finance travel
You should take advantage of zero interest periods or travel rewards when you can. But there is no law forcing you to pay off those charges over time, racking up interest costs. Use the cards to earn rewards, or to take advantage of a low interest rate. But take out a personal loan for travel to clear your balances before the high interest rate kicks in.