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Advantages of a Personal Loan to Finance a Vacation

Couple On Vacation
Personal loans, which are a type of installment loan, sometimes come cheaper than other forms of vacation financing. A personal loan also comes with less risk than borrowing money with a secured loan that requires collateral.
After all, who wants to risk losing their home or other asset for a 2-week vacation, even if your destination is a fabulous island in the Caribbean? Instead, why not consider the advantages of applying for an unsecured personal loan to pay for your next vacation?

No Role in Credit Utilization Ratio

As long as you make your loan payments on time, taking out a personal loan shouldn't hurt your credit score. Although lenders generally associate low debt with low risk, personal loans aren't calculated in the credit utilization ratio, which is the amount you owe on your credit card balances compared with your credit card limits. That's because personal loans aren't revolving debts like purchases you make with consumer credit cards.
Credit scoring models usually take a look at the amounts you owe on both installment debt and revolving debt, but they put a lot more weight on your credit utilization ratio. And by financing your vacation with a short-term personal loan rather than adding the debt to one or more credit cards, you can lower your credit utilization - a move that may boost your credit score.
As far as your overall credit standing goes, whenever you don't pay back any type of debt on time, your credit score can take a serious hit. A personal loan may also increase your debt-to-income ratio (DTI) - a key factor lenders consider when you apply for a mortgage loan or other large installment loan.

Fixed Monthly Payments

Like other types of installment loans, you can get a personal loan that offers fixed monthly payments for a specific number of months. A longer repayment period gives you a lower monthly payment, whereas a shorter repayment period means you will pay of the loan faster but your monthly payments will be higher.
A personal loan with a fixed interest rate allows you to make equal payments until you repay the loan plus the interest in full. Got a good credit score? Your reward may be an interest rate lower than the average credit card rate. The lower the interest rate you pay, the lower your monthly payments and total cost of the loan.

Early Booking Deals

A personal loan allows you to benefit from early booking deals. Air travel can become pricey as your departure date grows closer, especially if you plan a vacation near the time of a major travel holiday. But with cash from a personal loan already in hand to pay up front, you can book your airfare, reserve a stateroom on a cruise line, or buy your tickets for train travel way earlier.
Besides avoiding price hikes and lowering the cost of your vacation, early booking gives you a better pick of what's available. And if you book early enough, you may even have the loan paid off before your vacation date arrives.

Loan Terms Sometimes Negotiable

If you decide to apply for a personal vacation loan, be sure to read the loan document which lists general terms and conditions of the loan. Try to get the best terms. For instance, if you aren't happy with the interest rate, negotiate for a lower rate. The higher your credit score, the more negotiating power you have.
Consider the total cost of the loan. This may include a loan origination fee, check payment fee, and prepayment penalty if you pay off the loan early. Providing there is no prepayment penalty, paying off the loan sooner can save you money in accrued interest. If the lender you choose charges extra fees for paying off the principal balance before the loan term ends, negotiate to have the prepayment penalty removed.
For more information on a personal loan to finance your vacation, call Service Finance Co. and Employee Finance Co. to request current interest rates and find out what you need to do to apply.


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