It's that time of year again. It's summer and you've probably revisited the idea of that dream vacation you've been pining away for since you broke out your summer wardrobe. Maybe you have it all planned out down to your vacation read. Maybe you're too afraid to see the price tag. Increasingly, Americans are taking out loans to pay for their vacations and companies are enticing travelers with book-now-pay-later plans, but is it a good idea or a huge money no-no?
Paying for the full price of a vacation – plane ticket, hotel, restaurants, excursions, etc. – can be a lot up front. Even when you're splitting the costs with friends or family, it adds up quickly. Suddenly, getting out of town seems harder than you thought. The idea of being able to book your dream getaway and paying for a trip over the course of several months sounds like a great solution, but before we all start browsing Instagram for photos of Tulum, what's the catch?
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"Booking vacations using travel loans is a slippery slope," explains Rebecca Walser, personal finance and retirement advisor and author of Wealth Unbroken, told Refinery29. "We have to realize that we’re being marketed to. It’s fear of missing out. It’s everything we see on social media. Whether we can afford it or not, we feel that social pressure."
Walser advises anyone considering a travel loan to read the fine print. What might sound like a good deal may in fact not be when you take a closer look, particularly when it comes to interest rates. The interest rates for travel loans and financing run the gambit. Some are as low as 9%, while others soar as high as 30%.
"They say it’s a flat fee as if it’s limiting your interest. That’s not true at all. The truth is, if you don’t make your payments with enough time to pay off that amount, they’re going to charge you interest and you’re going to have to keep paying," Walser warns. Any fee can be presented as a flat fee when you give it a time limit, but interest is still interest.
Before completely swearing off the idea of paying for your trip over time, we asked Walser if there was ever an instance where booking now and paying later is a good idea. If you give yourself time to plan, it can be worth your while. "Credit cards can make a lot of sense," she explained. "You can do an introductory offer for six months and you can actually finance it with payments over time for free."
While a spontaneous trip sounds like fun, try to remember your future self when planning a getaway for your current self. If financing your trip is going to saddle you with payments for months to come, taking some time to save might be the better option. In the meantime, planning a trip closer to home or even a staycation can be just as relaxing.