3 Reasons I'll Never Take Out a Loan to Travel

A vacation isn't as important as a roof over your head.

After a few years of sticking close to home, travel is back in a big way. AAA found that for spring break this year, international travel is up by 30% over 2022. If you had travel plans canceled in the past few years thanks to COVID-19, a lack of money, or both, it stands to reason that you might be ready to hop on a flight and put home in the rearview mirror for a while. But how are you going to pay for that vacation? Is it a good idea to take out a personal loan for it?

Personal loans are a flexible way to borrow money, in that you can borrow for any reason you want (unlike taking out a mortgage or auto loan, which must of course be used for a home or car purchase). And personal loans come with fixed payments and a fixed interest rate, which might be fairly reasonable if you have decent credit. Despite these perks, here's why I won't be using a personal loan to pay for my upcoming vacations in 2023 -- or any other year.

1. Travel isn't a necessary expense

Try as we might to save money and budget for big purchases, it isn't always feasible to do so for everything. For example, if you want to buy a home, it's likely that you'll need to take out a mortgage loan. Plus, tying up such a large amount of cash in a home purchase may not be a good idea if it leaves you going into debt on other expenses.

As wonderful as taking a vacation can be for your mental health, it's not a necessary expense like a roof over your head. It's also far more possible to save up the money to pay for a vacation in full, especially if you have a timeline of, say, six months to a year before you want to make the trip.

2. Paying interest makes a trip more expensive

While personal loans for good credit come with lower interest rates than credit cards do, the interest you pay will make your vacation cost more. This may not amount to very much if you have good credit. For example, if you can snag a personal loan at 7.99% APR, and you borrow $3,000 with a repayment term of 24 months, you'll end up paying $256.04 in interest. But what if your credit isn't so good? That same $3,000 paid back over a 24 month term, at 19.99% APR will cost you $664.15 in interest.

3. It could put my credit (and future borrowing) at risk

If I decided to borrow money to pay for a vacation and then my income took a hit, or I had another financial catastrophe, I might not be able to make my loan payments as originally planned. And this could put my credit score at serious risk.

Plus, I'm going to be mortgage shopping next year, and I want to make sure my debt-to-income ratio is as low as possible ahead of that. If you also have a plan to borrow for a big expense, like a house, in the near future, think twice about borrowing money for travel.

Better ways to pay for travel

Here are a few better ideas to help you cover the cost of your upcoming vacation.

Save ahead of time

If you can put money aside from your regular paychecks, perhaps in a high-yield savings account, this is definitely the best way to pay for travel. It won't cost you any extra in interest and you won't be risking a credit score hit.

Take less costly trips

Save your tropical vacation or two weeks in Europe for when you won't have to go into debt to pay for it. Book a regional road trip instead. (May I recommend Old Route 66?) You can also save by visiting tourist destinations in the shoulder seasons when hotels and flights will likely be cheaper. Plus, there should be fewer fellow tourists to contend with -- sounds like a win-win to me.

The right credit cards can help -- with one caveat

Life is full of expensive surprises, and I'd still strongly caution you against borrowing money in any form for a vacation. That said, a 0% APR credit card will give you a period of no interest (up to a year or longer, depending on the card and depending on your credit score). If you can pay off your trip in full during that period, you'll be in the clear. And you might consider applying for one of the best travel credit cards and using it to pay for your everyday expenses so you can rack up points or miles to defray the cost of your vacation.

While using a personal loan to pay for travel may be tempting, it's not a good idea. Do your future self a favor and don't promise to pay for a vacation after the fact -- with interest.