Vacation Loans: Find the Lowest Rate Options

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Find the Lowest Rate Options

Updated November 03, 2017
Travel is a huge priority for many people in their 20s and 30s. Seeing the world and collecting those experiences can make a big impact on you as you continue to develop into the person you want to be, and it’s just easier to get out there and go when you’re young.

You have fewer responsibilities to tend to back home, and long-term relationships, houses, or children might not be tying you down.

But if you’re early on in your career and still dealing with burdens like student loan debt from your college days, you also have less money to spend on travel when you’re young. Money can be a major limiting factor in your ability to take vacations and see more of the world right now.

If you’re set on taking vacations even when your budget is limited, you may be tempted to look into loans to fund your trips.

Can You Get a Loan for Travel?

While “vacation loans” aren’t really a thing, you do have options if you look into getting a loan to fund a vacation. Many lenders will provide personal loans instead.

You can get a secured or unsecured personal loan. A secured personal loan means you put up some asset as collateral against the loan, so if you don’t repay the money you borrowed you lose that collateral. (That collateral is often something like your car.)

You may be able to borrow more at a better interest rate if your loan is secured, but you risk losing whatever asset you used as collateral.

When you apply for a personal loan, you’ll need to provide a reason for borrowing the money. Some institutions accept things like travel and vacations as legitimate reasons for borrowing. And while taking out a loan for your vacation may sound crazy, it could be a better financial option than loading up travel expenses on your credit cards.

Funding Vacations with Personal Loans

If you do an online search for personal loans to fund your vacation with, you’ll likely come across a number of lenders that offer funds for this purpose. SoFi, Prosper, Earnest, LendingClub, Karrot, and Upstart are all legitimate companies to explore if you want to take out a personal loan for travel.

These are all online loan companies that offer personal loans, along with other financial products. (SoFi, for example, offers student loan refinancing.) The amount you can borrow will vary depending on a number of factors. Karrot allows borrowers to request up to $35,000. Upstart’s minimum loans vary by state, but all max out at $50,000 as well. SoFi offers personal loans in amounts from $5,000 and $100,000.

Earnest is a little different. The company offers “merit-based” unsecured personal loans up to $75,000. These loans are designed for individuals who may have limited credit histories but demonstrate that they’re financially responsible.

There are a number of other companies that aren’t as reputable as those listed above, and are considered predatory. Predatory lenders tend to make loans with extortionate interest rates with complicated terms that are in favor of the lender, not the borrower.

You can quickly end up owing far, far more than what you initially borrowed if you’re not careful – especially when searching for a loan specifically to fund a vacation.

Again, there are no “vacation loans.” These loans are just personal loans, but marketed to be used for vacations. Predatory lenders target keywords like vacation loans and will often show up in search results if you look for a loan to fund your trip, so be aware of companies like Loans of America who create landing pages for their products like this. Choice Personal Loans is another example of a predatory lender that you should avoid.

But perhaps a loan shouldn’t even be your first thought.

The First Option to Consider

If you have excellent credit, then a 0% purchase APR credit card may provide you with a better option than a personal loan. The benefit of using these cards is that you’ll be able to pay off your vacation over time, with no extra payments to interest.

In addition to looking for personal loans, consider a balance transfer credit card. You can find MagnifyMoney’s guide to the best balance transfer credit cards here, which is updated regularly.

Keep in mind that most of these cards provide the 0% APR as a limited-time offer and there’s a time limit. If you fail to repay your balance in full by the end of that promotion period, you’ll owe interest on what you charged to the card. Not managing your payments can cost you a tremendous amount, so charge your vacation to any credit card with caution.

You could seek out a low interest rate credit card instead, but these typically come from credit unions and are reserved for the institution’s members. It’s well worth looking into this option if you’re a member of a credit union or are considering opening an account with one in your area.

If you are wary of charging your family vacation on a credit card or are concerned about paying it off before the end of the 0% APR, then look into personal loans.

If You Have to Borrow, Here’s What You Need to Know

If you choose to seek out a personal loan for a vacation, you need to have good to excellent credit to be approved – and to get a low interest rate on the money you borrow. Getting the lowest interest rate possible is the only way a personal loan might be a viable financial solution for your trip.

None of the lenders below charge a pre-payment penalty, but some do charge origination fees – so don’t forget to factor that in to the total cost.

Earnest (From 5.99% to 17.24% APR): One of the few lenders with No origination fee and no pre-payment penalty, Earnest is an excellent choice for those with top-notch credit and employment history. Fixed rate personal loans start range from 5.99% to 17.24% APR and you can borrow up to $75,000.

SoFi (fixed APR 5.99% – 17.88% with autopay): Similar to Earnest, SoFi also charges No origination fee, no pre-payment penalty and allows you to check your rate without harming your credit score. You can borrow a minimum of $5,000 and up to $100,000 from SoFi.

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LightStream (4.99% – 16.79% APR with AutoPay): is another lender that has No origination fee, but their interest rates run higher with the lowest starting at 4.99%. Similar to SoFi, you can borrow a minimum of $5,000 and up to $100,000. Unfortunately, there is no soft pull option and it will be a Hard Pull on your credit report to check if you’re eligible and determine your rate.

Karrot (6.44%APR): Karrot’s minimum APR is a bit lower than LightStream, but the company does charge an origination fee. This fee varies from 1.05% - 4.75% of the total loan. Karrot’s APR cap is also significantly higher than Earnest, SoFi and LightStream – which means you could end up borrowing at a rate closer to 30% APR.

Note: Karrot has suspended their personal loan program and are not currently offering new personal loans at this time. If you have an outstanding personal loan, Karrot states they are still servicing those accounts.

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Upstart (5.69% – 35.99% APR): Similar to Karrot, Upstart also charges an origination fee and has a higher maximum APR cap of 35.99% APR. The origination fee is a Up to 8.00% APR on a loan up to $50,000. You can check your rate without it affecting your credit score.

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Be sure to shop around and get quotes from a number of companies, and then compare rates.

What to Do If You Have Poor Credit

The most difficult part of getting a personal loan from a reputable company for any purpose is getting approved as a borrower. Most companies require good to excellent credit scores before they’ll allow you to borrow funds.

But there are options if you have poor credit. Avant, One Main Financial, and FreedomPlus are lending options that are more lenient with borrowers. But beware: these loans will come with origination fees and much higher interest rates than what is available via companies like SoFi, Earnest, and Upstart.

Avant, for example, charges 9.95% to 35.99% APR on its loans. FreedomPlus’ loans come with an APR from 5.99% to 29.99%. Additionally, these products aren’t available in all states and rates may change depending on where you live. Avant branded credit products are issued by WebBank, member FDIC.

You can find more information on these companies by searching for their FAQ, Support, or Help pages. Before applying, you should understand all fees involved, whether or not you’ll be charged if you pay off your loan early, and what interest rates and APRs you’ll be charged.

Look into Alternatives to Borrowing Money

At the end of the day, getting a personal loan is an option for funding your vacation — but it may not be the best money move to make. Instead of borrowing money, whether through a loan or by charging costs to a credit card, make a plan to explore financially sound alternatives.

The best way to fund your travels is to create a plan and start a travel savings fund for the trip or vacation you want to take. Consider using banks that offer great interest rates on cash savings accounts, like the ones in this post all offering APY of 1.05% or higher.

Then plan your trip and get an idea of the total cost. Let’s say you want to take a trip in the next year or so and you know your vacation will cost you $5,000. By giving yourself 18 months to save, you can set a goal to transfer $278 per month to your travel savings fund.

That will allow you to pay for your trip yourself, without taking out loans or using credit cards and subsequently paying more in fees and interest charges.

Feel like you can’t wait that long for your vacation? Your next option is to look at how you can reduce costs and take a trip that fits in your budget right now. Some solutions may include taking a trip with other people and splitting the cost of things like accommodations, or looking for low-cost alternatives to your dream trip. Perhaps you can stay in hostels or use Airbnb to find cheap rooms instead of splurging at pricey hotels every night.

And you can still use credit cards in a smart, responsible way. You can maximize your current spending and rack up reward points for travel. Then, you can use those rewards and points to cover your vacation expenses instead of paying for all costs with cash.

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Kali Hawlk
Kali Hawlk |

Kali Hawlk is a writer at MagnifyMoney. You can email Kali at [email protected]

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