A vacation loan is a loan that consumers borrow to finance their trip. Whether the money is used for a short vacation or an extensive trip around the world is up to the borrower. Before applying, however, he must have a comprehensive overview of the costs he would like to finance with the loan in order to apply for the correct loan amount. Alternatively, consumers can also access a travel agency’s financing options. The following guide shows when it is worth booking a vacation on credit and what you need to consider.
The essentials in brief:
- A vacation loan is a classic installment loan.
- In order to be able to realistically determine the amount of the loan, it is necessary to have an overview of all costs incurred.
- In addition to the expenses for the trip itself, there may be ongoing costs, such as insurance contributions or renting an apartment.
- A comparison of different credit providers helps to find the right offer that can be used to finance the trip cheaply.
Funding a vacation: what are the options?
A vacation loan is usually a classic installment loan. This is used when there are insufficient funds for the trip. Since an installment loan is not earmarked, the borrower can use the loan for all expenses, from flights to leisure activities at the holiday location. With a travel loan, borrowers receive the loan on their account, after which interest and principal are repaid in monthly installments. A feature of the installment loan is that borrowers repay the same amount every month for a fixed period of time. There is no high closing rate. This means that the holiday loan can be planned well for the applicant from the start.
A holiday loan can be obtained from a bank (offline and online) and from private lenders. All variants offer advantages and disadvantages, which can be seen in the following overview:
Classic installment loan with the house bank (offline)
|Personal contact with the employees||Often worse conditions / higher interest rates than with online banks|
|Personal advice||Usually good creditworthiness is required|
|Local contact person|
Vacation credit online
|Fast and easy processing||Personal advice is limited to telephone, email, Skype|
|(Often) better conditions than with stationary banks|
|Comparison of different providers in the comparison portal possible to find suitable conditions|
Vacation credit from private
|Comparison of different providers to find a cheap offer||Hardly any security|
|Credit Bureau information may not be necessary||Frequently high interest rates, especially for loans without Credit Bureau|
Conclusion: Most consumers opt for an online loan, where they immediately receive their money for the vacation. Since manageable amounts of up to a maximum of USD 20,000 are usually required to finance a trip, borrowers can apply for their loan quickly and easily online. If they have a good credit rating, the loan amount can be called up within a few days.
Arrange payment in installments with the travel agency
Some tour operators offer the possibility to book a vacation on credit. This option usually requires that the customer take care of the booking a few months before the start of the trip, so that the final installment is paid before departure. In contrast to an installment loan, consumers do not receive a loan, but rather pay the price for the booked services such as flight, accommodation and excursions in several installments before the start of the trip. Additional costs, for example for the visa or leisure expenses on site, cannot be financed through this variant.
If you only need a credit for the flights, accommodation and planned excursions, you should speak to the travel agency about the possibility of paying in installments. It is important to compare the interest of the organizer with that of a vacation loan, because the bank is usually the cheaper option.
Take out a loan for the vacation: Set the amount of the loan amount
At the latest when submitting the application, consumers have to determine how high the desired loan amount should be. In the case of a travel loan, this can be determined based on the travel costs incurred. If it is a complete package, in which the flight and accommodation, possibly also the rental car, are already included, the necessary financing amount is quickly determined.
The choice of the loan amount becomes more difficult if, for example, it is a trip around the world. Many travelers do not fully determine which destinations they want to visit in the next few weeks or months and try to act as spontaneously as possible. However, this adventure also affects funding, which is difficult for many applicants.
Calculate costs for a trip around the world (and other vacations)
Note: The following calculation can also be used for conventional trips that the traveler is planning without a travel agency.
In principle, future world travelers should first create a calculation in which they record the costs as precisely as possible. If not all flights and accommodations have been booked in advance, it is necessary to analyze all expenses incurred. It is important to proceed as realistically as possible so as not to run into payment difficulties during the trip. The checklist helps to get an initial overview of the amount required:
- Flights: All planned flights including baggage and seat costs. A flight search engine can be used to find out the average costs for the planned travel destinations.
- Accommodation: The cost of accommodation varies greatly depending on the destination and the desired equipment. A booking portal helps to determine the expenses.
- Means of transport: expenses for rental cars and fuel, transport to and from the airport, long-term parking (if necessary) and public transport on site.
- Activities and excursions: entrance fees for sights and attractions. Excursions already defined at the holiday location must be taken into account.
- Meals: The amount of meals spent depends on the travel destination. As a rule, groceries are much more expensive in metropolitan areas than in rural areas. Costs between 20 and 70 USD per day can be expected per person.
- Insurance: Travel health insurance abroad, luggage and travel cancellation insurance as well as additional insurance for the rental car.
- Other expenses: costs due before the start of the trip such as visas, vaccinations, passports. As well as local expenses for souvenirs, for example.
Get cheap travel credit – so it’ll work
If you want to finance your vacation with a loan, you first have to find a suitable provider. The Good Finance loan calculator makes it possible to compare different lenders free of charge and to find the right offer. It is important for consumers to pay attention to the annual percentage rate. This includes all costs associated with the financing. In addition to the interest incurred, the processing costs are also taken into account.
Tip – check conditions: Even if an installment loan can be planned well, unpredictable problems can arise during the repayment period. Sickness or the loss of a job create financial bottlenecks, making monthly repayments unsustainable. If the contract includes the possibility to temporarily suspend the repayment, difficulties and possibly a collection procedure can be avoided.
Some banks also give their customers the option of making special repayments free of charge. These additional payments make it possible to repay the travel loan faster – for example when the world tour is over and more financial resources are available.
Funding a (world) trip: 5 tips to make it happen
Applying for the holiday loan is the first step in financing your trip. To keep the loan amount as low as possible or to avoid payment difficulties on site, holidaymakers should consider further tips:
Tip 1: Save early
If you want to start a big trip, in many cases you plan it a few months in advance. At best, this leaves enough time to save money. Consumers should deposit a fixed monthly amount into a separate account to fund their trip.
Tip 2: Reduce running costs
If you want to save, you should get an overview of your monthly fixed costs. These can usually be reduced by temporarily avoiding unnecessary expenditure. These include, for example, subscriptions to streaming services, contributions to the gym or spontaneous purchases. It may be possible to temporarily suspend payments during the trip. Some lenders or insurance companies offer this option.
Note: Not every insurance policy should be canceled or closed before a trip. Personal liability and accident insurance also offer protection abroad. In this respect, it is advisable to check the existing contracts and to decide on an individual basis.
Tip 3: sublet the apartment
For a longer trip, it is advisable to sublet the apartment for this period. This eliminates the monthly rental costs without terminating the rental contract. If you want to sublet your apartment, you need the landlord’s consent. It is also advisable to conclude a contract in order to be covered in the event of possible damage or arrears.
Tip 4: sell or unsubscribe
The car incurs running costs even when it is not in use. Because insurance contributions and vehicle tax are also due when the vehicle owner is abroad. In order to reduce or avoid these costs, it makes sense to deregister the car at the latest when you start your trip. If you can do without a vehicle for work and private reasons, you should switch to public transport and leave your car before you go on holiday in order to save these expenses for the upcoming trip.
Tip 5: Check conditions
If you want to take out a travel loan, check the conditions of the various providers to find the right offer for you. The same applies to the credit card and bank account, because each bank offers its customers different terms. The differences are particularly serious when withdrawing money abroad, which is why a comparison of the banks is definitely worthwhile.
Tip: Borrowers who receive a loan for their vacation online often benefit from more favorable conditions for bank accounts and credit cards. With an online loan, it is worth checking these options with the loan calculator from Good Finance.