What you need to know about the holiday loan
What you need to know about the holiday loan

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Vacation loans are personal loans that you can use for everything, including paying for travel expenses. (Shutterstock)

A vacation loan is an unsecured personal loan that you can use for any purpose, including paying for a trip. Saving is the best way to pay for your vacation. But when cash payment is not possible and travel is necessary, you have financing options.

If you are considering a holiday loan, it is a good idea to compare personal loan rates from several lenders. You can easily see your prequalified rates in minutes with Credible.

What is a holiday loan and how does it work?

A holiday loan is a Personal loan you contract with a lender. You can use any loan to finance your vacation as long as the lender does not specifically prohibit its use. For example, you generally cannot use a personal or vacation loan for gambling or illegal activities.

And even if you can use a personal loan for almost any purpose, some lenders market specific personal loans for vacation travel or as travel loans. You can use these loans to pay for travel-related expenses like your flight, hotel, and tours.

Personal loans are generally unsecured loans, which means that they are not secured by collateral like your home guarantees your mortgage loan or your vehicle guarantees your car loan. Unsecured loans do not put you at risk of having your property seized or repossessed.

You will need to submit an application for a personal travel loan. Lenders decide if you qualify for a vacation loan based on factors such as your credit report, credit score, and debt-to-equity ratio.


If you are granted a loan, you will repay the lender with interest, usually in monthly installments. The interest rate you receive for a vacation loan varies depending on several factors. Lenders determine your interest rate based on factors such as:

  • Your credit score and credit history
  • Debt-to-income ratio, which compares your debt payment obligations with income
  • Amount of the loan
  • Repayment term (shorter term usually comes with lower interest rate)

Quotes from lenders can vary widely, so it’s usually worth checking out. shop around for the best loan deals.

At the end of December 2021, the average rate for a 24-month personal loan was just 9.09%, according to data from the Federal Reserve. That’s significantly less than the rates of another popular travel financing option – credit cards. While using a credit card to pay for travel can earn you rewards points, you’ll pay more interest for these benefits. At the end of 2021, the average credit card interest rate was 16.44%.

Where to get a personal loan for travel

You can usually get a personal loan for travel by online-only lenders, credit unions, and banks. To apply, you will need to provide financial information and documents, as well as verify your identity with your date of birth and a driver’s license or other form of identification. Financial institutions will then check and record information that identifies you.

Online lenders only

With online lenders, you can complete your application and submit it online, and once approved, close your loan digitally. Because they don’t have the expenses associated with a physical branch, online lenders can often offer competitive rates. And online lenders typically fund loans within a few business days of approval, although some offer next business day financing.

Credible makes it easy to find personal loans online and compare rates from multiple lenders.

Banks and credit unions

Not all banks offer personal loans, but many do. You may be able to apply online or you may need to go to the bank branch to get a personal loan. If you have an account with a bank that offers personal loans, your bank may deposit the vacation loan funds directly into your bank account.

Some credit unions offer personal loans, but you must be a member of the credit union to qualify. If you are a member in good standing, your credit union may lend to you even if you have a fair or poor credit rating.

Point of sale

Another option is point-of-sale travel financing. It’s a “buy now, pay later” type of option. When buying airline tickets, for example, you may have the option of paying using a point-of-sale loan. If you choose this option, you will be directed to the website of a loan provider.You will enter the required information and you will either be approved or denied.

This process is similar to applying for a personal loan, but the point of sale may be easier since you only go to the retailer’s site, and that retailer redirects you to the loan provider. A disadvantage is that the interest rate could be high.

How much does a holiday loan cost?

Holiday loans may incur costs other than principal and interest. Personal loans can often have fees, such as origination and application fees.

On your loan contract, the interest rate will be presented to you as a percentage. You’ll also see the annual percentage rate (APR) of your loan, which represents your interest rate plus fees. Because it shows you all of the loan costs in a single percentage, the APR is a much better way to understand how much you will pay for a loan.

The total cost of the loan will vary depending on factors such as your credit score, the amount you want to borrow, and the repayment term. A Personal loan calculator can help you estimate your payment on a personal loan.

When to use a vacation loan

A holiday loan makes sense in some cases. If you need to travel but don’t have cash on hand, a personal loan is probably a cheaper option than using a credit card. It depends on the interest rate and fees of the personal loan compared to the interest rate of your credit card. Note that you probably won’t get the funds immediately with a personal loan. Some lenders can provide financing the next business day, but others may take a few days to get you the money.

It makes sense to use a credit card for travel expenses because credit cards have built-in security measures. If you lose your credit card or suspect fraudulent activity, you can ask your card issuer to block the lost card and send you a new one. The maximum you’ll need to pay is $50, and many credit card issuers waive this fee. However, you should pay off your credit card balance in full as soon as possible to avoid accumulating credit card debt, especially if your credit card has a high interest rate.


Advantages and disadvantages of the holiday loan

A holiday loan, like any financial product, has advantages and disadvantages. Here are some points to consider.

The advantages of a holiday loan

Disadvantages of a holiday loan

  • Costs – Holiday loans come with costs, such as origination or application fees, which make the loans more expensive overall. You can usually build the fee into the loan or subtract the fee from the loan funds. Some lenders also charge prepayment penalties if you pay off the loan early.
  • You debt — You’ll have to factor the cost of your vacation into your monthly budget for years. And if you can’t repay the loan as agreed, you risk negative effects on your credit.
  • Higher monthly payments — Compared to the minimum payment on a credit card, your monthly payment with a personal loan could be higher.

Comparison shopping could help you find the lowest personal loan interest rates available to you. With Credible, you can easily view your prequalified personal loan rates without affecting your credit.

Alternatives to the holiday loan

A holiday loan is not the only way to finance a trip. Consider these other options:


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