Gone are the days when traveling places aren’t that easy and affordable, that travelers need to plan their trips in advance. Gone also are the conservative spending habits of people who choose to save money before spending on leisure.
Nowadays, travels are not only for the adventurous but also for fearless spenders. Only a small population still go for traditional travel habits of saving before spending.
With wide choices of companies offering credit cards and faster loan approvals, traveling comes handy. Moreover, people prefer to use their credit for spending on a vacation and keeping their savings for contingencies and emergency purposes.
Funding your dream getaway could lead you to many options, and two of them are – credit cards or personal loans.
While both offers to fund, they vary in terms of repayment as credit cards are for short-term, and you need to pay off the amount in full to avoid additional interests. Personal loans, on the other hand, have terms longer than credit cards.
Choosing between the two depends on how much you intend to borrow, your repayment terms, and most importantly, which among the two will you be approved.
What is a travel loan?
A travel loan works exactly the same as personal loans but renamed as such to attract borrowers that look for that specific funding.
Personal loans usually have lower interest rates as compared to credit cards. One more distinct feature between the two is that personal loans are lent to you on a lump sum, and principal plus interest are amortized on a monthly basis depending on the term of the loan. Credit cards are most likely needed to be paid in full the next month after you swiped it.
Personal loans are best used if the repayment program you need is longer. Since personal loans have no specific loan purpose required, it can be used even for business expansion, to consolidate debts, or even to finance your travel. And since personal loans bear lower interest rates than credit cards, it’s more practical to use it when you want to spread your principal payments.
What is a travel credit card?
Travel credit cards are customized for travelers where for every use, they can earn free points that they can redeem for airfares, hotels or a cashback. These credit card companies’ partners with hotels and/or airlines for special discounts or loyalty points, to attract the credit cardholders to utilize the credit card. The often you use your credit card, the more free air tickets, hotel rooms, and vacations you can get.
Travel loans VS Travel Credit Cards
Now that we’ve quite differentiated the two, let’s take a closer look at each one’s pros and cons:
Travel loan pros:
- Having a Fixed interest rate – this is easier for you to program your budget as the monthly loan amortization amount is the same throughout the term of the loan.
- Higher loan amount – the loanable amount on travel loans can usually be higher than a credit card, especially if you have a collateral to offer.
Travel loan cons:
- The interest rate is already running and charging you the moment the loan amount is released.
- Less flexible as the release is on lump sum whether you need the whole fund or just a portion of it.
Travel credit card pros:
- Swipe and go to
- Applicable even for small purchases.
- With offers to give you reward points that you can use for free airfares, hotels, or cash back.
- Additional free perks such as travel insurance and concierge
Travel credit card cons:
- Tempting to spend more than the budget.
- High rate on cash advances
- Others come with high foreign exchange fees
Tailor-fitting what’s the best loan option for you will depend on your need and your repayment plans. For an instance, if your dream vacation is an extravagant one and you’ll be needing a relatively higher amount that you want to amortize for a longer period of time, then a personal loan works better for you. Nonetheless, if you want the flexibility and convenience to borrow money anytime of the day during your travel shopping, then the credit card is more suitable for you.
So, whichever one you choose, make sure that you take more than one travel money option with you to ensure a smooth and worry-free vacation.