Credit Card or Personal Loan: Which Is the Better Option for Funding Your Travel Goals?
If you want to go on a vacation or a long trip but you do not have enough readily available money to fund it, you have the option of using a credit card or a personal loan to fund your journey and attain your travel goals.
However, before you choose either option, it is important that you spend time comparing the two and looking at the pros and cons of each in order to determine which is the best choice for you.
To help you get started, take a look at the following advantages and disadvantages of funding your trip with either a credit card or a personal loan.
Pros of Using a Credit Card to Fund Your Trip
There are various reasons why it makes sense to fund your trip with a credit card.
Here are three pros that you need to know about.
It Is Convenient
Tracking down ATMs or currency exchanges can take up a lot of time and effort when traveling abroad. But if you use your credit card to fund your trip, you can focus on the experience of your vacation and not have to worry about funding logistics.
It is easy and quick to book hotels, flights, sightseeing trips, and other things when you adopt the convenience of using a credit card.
You Can Be Protected When Away
If you have a certain type of credit card, you can be protected while you are away.
For instance, some credit cards provide travel accident insurance, emergency assistance services, and lost luggage reimbursement. You will not be able to get the same with a personal loan.
You Could Gain Rewards
When you use a credit card that provides you with rewards for usage, it could make more financial sense to fund your trip with your credit card rather than obtaining a personal loan.
For example, if you use a 2% flat-rate cashback credit card, you could earn $80 by spending $4,000 on your travel expenses.
Cons of Using a Credit Card to Fund Your Trip
To determine whether using a credit card to fund your travel is the right option, you need to weigh the pros with the cons.
So, here are some of the main potential disadvantages of using a credit card to fund your journey.
The Interest Rate Could Be High
While you could get cashback for using your credit card to fund your trip, you need to weigh that up against the cost of interest. And your credit card interest rate could be more than you would pay in interest for a personal loan, so make sure you compare rates between the two before making any decisions.
Many credit cards charge interest rates of at least 10%, and often much more. So, using your credit card to fund your whole trip could soon see interest amounts add up.
Your Credit Score Could Suffer
Credit utilization refers to the amount that you owe as a percentage of your available credit. It is a major factor in determining your credit score.
So, if you use your credit card to fund your journey and the costs eat up over 30% of your available credit, you could end up with a poor credit score. In turn, that could affect your future ability to do things like take out loans or qualify for a good insurance rate.
Using a Credit Card Could Cause You Stress
With a personal loan, you will know exactly how much you have to pay back each month.
If you do not plan your credit card funding well, you could end up going into more debt than you had planned. That could end up causing you stress while you are away, which is the last thing you want when on vacation, or you could return home to find yourself in financial turmoil.
Sure, you can plan your spending well to avoid such situations from arising, but it often makes more sense to use a personal loan to fund a trip.
Pros of Using a Personal Loan to Fund Your Trip
By learning about the pros and cons of using a personal loan to fund your journey, you can weigh them up with the pros and cons of using a credit card and determine which option is best for you.
Here are some of the key advantages of using a personal loan.
Personal Loans Are Often Easy to Obtain
Often, personal loans are easy to obtain. Even if you do not have decent credit, you could qualify for a personal loan.
Furthermore, the application process is quick and simple and you can find out if you have been approved for the loan quickly.
So, if you do not want to wait around to book your flight, plan your trip, and pack your bag, it could be a good idea to take out a personal loan.
You Will Have Fixed Repayment Amounts
When you use a personal loan instead of a credit card or another type of loan to fund your trip, you will get a fixed interest rate, so you will know precisely how much you can afford to borrow and how much you will have to pay back on a monthly basis.
You can, therefore, gain more peace of mind when you use a personal loan to fund your trip and you will not be hit with any unexpected costs.
Your Credit Score Will Not Be Affected
As long as you keep up with repayments, your credit score does not have to suffer as it potentially could when you max out your credit card or borrow money via another type of loan.
Cons of Using a Personal Loan to Fund Your Trip
Okay, now let us take a look at the disadvantages of using a personal loan to fund your trip.
You Have to Pay Interest
A personal loan will not be interest-free. So, it is vital that you consider whether you can afford the repayments, interest included, before you take out a loan.
However, you have to pay interest fees with credit cards and other loan options, so as long as you look for fixed rate personal loans, you can ensure you pay as little interest as possible and do not have any unexpected costs.
Your Debt-to-income Ratio Will Increase
By taking out a personal loan, your debt-to-income ratio will increase. That is the percentage of your total monthly income that you pay towards your debts.
By taking on additional debt, it could potentially harm your ability to get financing in the future.
You May Not Be Able to Borrow as Much in Comparison to Other Funding Options
Different loan providers offer different maximum amounts you can potentially borrow. Often, personal loan amounts are less than you could get via other options like credit cards and other loans.
So, you definitely need to figure out how much your trip will cost to determine whether you can get the amount you need from a personal loan provider.
You could find that you can afford to get to Australia but a trip around the world is out of the question.
However, you can typically get up to tens of thousands of dollars via personal loans, which is often plenty enough to fund a trip.
And if you find you cannot get funding at all, you could always take some great day trips around the Suncoast instead.
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