Should You Save or Use a Personal Loan for Holiday Travel?

Thomas Barwick/Getty Images

We have entered the Ber months (October, November and December) and with the cold weather comes the expectation of Holiday. As millions of Americans begin planning their vacation trips, costs come first as inflation continues to impact prices.

If your funds aren’t cutting it this year but travel is a top priority, it may be tempting to use any funds you have to cover costs, including investing your savings or taking out a personal loan.

In almost any scenario, taking out a personal loan for travel expenses is not a good idea, especially when interest rates are this high. Fortunately, there are steps you can take to lessen the blow to your savings by reducing travel expenses if the holiday sneaks up on you or your plans change at the last minute.

When to use a personal loan for travel?

When it comes to financing travel expenses, reaching for a personal loan shouldn’t be your first instinct. However, travel prices are still low due to demand and inflation. It is estimated to be high Paying out of pocket for 2023 may not be in the cards.

There is little reason to take out a loan for holiday travel. Personal loan interest rates are at record levels with an average of 11.43 percent. If you were to take out a loan just for vacation travel, you’d likely be paying for the trip with interest alone over the years.

How can you reduce your total loan cost?

If travel is a necessity for the upcoming holiday season and you don’t have savings, you can technically use a personal loan to finance the expenses. If you take out a loan, there are ways to reduce the overall cost of the loan.

For example, go with a budget airline and choose economy over business. Pack light, don’t check the bag, bring your own snacks and a water bottle to fill up after going through TSA. While these may seem like trivial simple factors, taking just these few steps can reduce your total trip by hundreds of dollars.

How to get a loan for holiday travel?

Calculate exactly how much you’ll need, down to the penny. To get the most competitive rate, borrow only up to this amount and get pre-qualified with at least three lenders.

If you have less than stellar credit and have absolutely no other options at your fingertips, consider a small dollar loan. A small dollar loan may not require a credit check and is intended to serve people who would not otherwise be eligible for credit.

Small dollar loans It is offered by select banks and credit unions and has a maximum amount of $2,500. The loans are federally and state regulated and have maximum rates of 36 percent, although some banks have maximum limits below that amount.

When to use savings for travel?

Planning your vacation trips in advance and setting aside some money from each paycheck is always a better option than taking out a loan. First, there is no interest involved in using your savings and you won’t be subject to a tough credit check like you would with a loan.

How to save money for holiday travel

It is recommended that you make your travel reservation well in advance, especially in order to get the cheapest prices on flight tickets. But plans change and you can’t always plan your holiday months in advance. If that’s the case and you’re not able to save money slowly over time, implement a short-term, aggressive savings strategy.

Cut out most side expenses until you have the full amount of money you need to save. Temporarily suspend gym and health club memberships, pause subscriptions, reduce dining out, and pause any mobile apps that charge monthly fees.

Not everyone’s financial situation is the same and this is not an infallible method. Cutting these expenses isn’t guaranteed to equal the total cost of a plane ticket or a few nights at a hotel, but it can certainly help.

final thoughts

In almost all cases, it’s not a good idea to use a personal loan to pay for travel-related purchases. You’re likely to pay for your holiday break in the future with interest alone. Additionally, when you apply for a loan, you will undergo a strict credit check, which will knock your score down several notches.

If possible, always use your savings to cover travel expenses or consider a low-interest or small-dollar loan if necessary.