The holidays are a time of giving and meeting and Americans are expected to spend an average of $ 1,387 during the season, according to Deloitte. This is a decrease of 7% from the same time last year, however, 45% of people plan to spend $ 1,530 or more.
But the coronavirus pandemic has put financial strain on many households, and it can be difficult for some to pay their vacation expenses. Some may even wonder whether to apply for a personal loan to help pay for things.
If you are considering taking out a vacation loan, you should first register with a multi-lender site like Credible to compare rates and see what types of small personal loans are available.
However, if you’re still unsure whether you want to take out a vacation loan, here’s what you need to know about the process – and whether it makes sense for you to apply.
Do I need to take out a vacation loan?
Borrowing money for the holidays is rarely ideal, but in some cases it could be worth it. This is especially true for people who have a good or excellent credit rating and who can qualify for a relatively low interest rate.
The average interest rate on a three-year personal loan is 11.52%, which is lower than on a credit card. And with a solid credit history, you might even be able to get a single-digit rate.
Since each lender has a different fee structure, the rates that each will be offered to you will be different. Use Credible to explore your personal loan options and find your personal loan interest rate.
HOW TO PREQUALIFY FOR A PERSONAL LOAN
In addition to good credit, another important factor to consider is your budget. Being able to benefit from a low rate is of no use if you cannot afford the monthly payment.
Some of the benefits of getting a personal vacation loan include:
- You could save money compared to a credit card.
- You will not be limited by a credit limit and will not damage your credit history by accumulating a high credit card balance.
- You can choose your repayment term according to your budget.
Credible can help you find a lender online. Simply enter your desired loan amount and your estimated credit score in this free tool to view personal loan interest rates.
That said, there are a few downsides to keep in mind before making a decision:
- You will end up paying for your vacation expenses for months or even years to come.
- Your credit score can go down if you can’t afford to pay.
- You are not assured of a low rate, and cheaper options may be available.
If you are considering a personal loan for your holiday shopping, use an online marketplace like Credible to compare personal loan interest rates and find your monthly payment with its online personal loan calculator.
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Can I take out a personal loan to consolidate debt?
If you decide to use credit cards to pay for your holiday shopping instead, you can still use a personal loan to consolidate your credit card debt down the road.
Consolidating credit card debt with personal loans can be beneficial for several reasons:
- You may be able to get a lower interest rate.
- Personal loans have established repayment schedules, which could reduce the time it takes to pay off your debt.
- Paying off a credit card with a personal loan will lower your credit utilization rate, which can help improve your credit score.
Take the time to compare personal loans and their interest rates with what you pay on your credit cards to see if you can save money. If you want to get an idea of the custom debt consolidation loan options available to you, you can visit Credible to compare rates and lenders.
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What are the other types of vacation loans?
There are several other ways to finance your vacation expenses, although some may be more expensive than others:
- 0% APR credit card: These cards offer an introductory APR promotion of 0% for up to 18 months or even longer in some cases. This way, you can cover your expenses and pay them off without worrying about interest charges. Those looking for zero percent cards can use Credible’s free tools to view their options and choose a card that best meets their needs.
- Credit line: Some lenders offer unsecured lines of credit that work the same as a credit card: you can carry purchases to the line of credit, pay them off, and reuse them again.
- Home equity: If you already have a Home Equity Line of Credit (HELOC), you can use it to pay for your expenses. HELOCs tend to have low interest rates because they are secured by the equity in your home as collateral. That said, it’s probably not worth taking out a new HELOC or home equity loan specifically for this purpose because of the closing costs. However, if you think this makes sense for your needs, you can check out personal loans through Credible.
- Payday loan: Payday loans may seem like an easy alternative, but they can be incredibly expensive. Hence, it is better to avoid payday loans altogether.
HOW TO GET THE BEST HELOC RATES
What factors should I take into account when taking out a vacation loan?
If you are considering unsecured personal loans or some other form of credit for your holiday shopping, here are some features to consider with each product:
- Interest rate
- Repayment schedule
- Loan amounts
- Monthly payments
- Initial and ongoing fees
- Customer reviews
Also note that some loans offer variable interest rates that start out low but increase over time. Avoid them unless you are sure you can pay off the loan as soon as possible.
Finally, think carefully about whether borrowing money is the right decision for you. If so, you can use Credible to compare personal lenders with a soft credit check, as well as 0% APR credit cards to find the right solution.
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