Travel Loan or Credit Card? Comparison for Your Next Holiday

Planning a holiday is an exciting time. Whether you’re heading away to see family, ticking dreams off a bucket list or taking the kids for a mini break, you might already be daydreaming about the places you’ll go and the things you’ll see.

But before you head away for your trip, there’s the question of how you’ll pay for it.

If you don’t have the cash upfront to pay for your trip, you might be thinking about putting it on your credit card.

But sometimes it can make more sense to apply for a personal loan.

Here are a few things to weigh up.

What’s a travel loan, anyway?

A travel loan is a personal loan that you take for the purpose of travel.

It has a fixed repayment term and usually a fixed interest rate, which means what you will pay is set at the outset and won’t change over the term of your loan.

The length of your loan can vary and will depend on how much you borrow and your capacity to make the required repayments.

You can use this sort of loan to pay for anything from flights and accommodation to tours, and eating out while you’re away.

A travel loan might be secured, where the lender takes an interest in an asset as security in case you don’t pay back your loan, or unsecured.

How does that compare to a credit card?

If you put your travel on your credit card, you might get interest-free days, rewards points and maybe even some travel insurance if you pay for your flights with your credit card.

But the interest rate could be higher, particularly compared to the option of a secured personal loan.

There also tends to be more flexibility about repayments on your credit card. That can be helpful, but if you only make your minimum credit card repayment each month, the loan can end up a lot more expensive overall.

So what are the key differences?

Interest rates

Personal loans may have a lower interest rate than a credit card interest rate, particularly if you’re able to offer the lender some security.

Repayment terms

Loans tend to have structured, predictable payments over time. If you make each of these as they fall due, you end up with the loan paid off at the end of the term. Credit cards, by comparison, usually just require a “minimum” repayment each month. Paying only this amount may mean it takes a long time to clear the debt, and people sometimes add other debt onto their cards in the meantime.

Discipline required

A personal loan will set you up with a schedule that will have your loan paid off within a specific timeframe, provided you make all your repayments as required. With a credit card, it takes more self-control and attention to payments to make sure the debt is cleared.

Borrowing limits

When you apply for a personal loan, the amount you can borrow will depend on your credit score,  income and ability to repay your loan. It’s sometimes possible to access larger sums of money than might be available on a credit card.

When should you use a travel loan?

There are lots of times when a personal loan may be an appropriate tool to help pay for a holiday.

Maybe you’re booking a large or once-in-a-lifetime trip and need some help to get it underway.

Maybe you want the security of knowing that your repayments are fixed and your loan will be clear at a certain time.

Perhaps you don’t have a credit card and don’t think it would be suitable for your circumstances to take one out.

It could be that you prefer the upfront control over costs and budgeting that a loan can give you.

What about a credit card?

If you can repay the full balance owing during your interest-free period, a credit card could be a cheaper option.

Some credit card issuers offer low-interest credit cards, which could be an option.

Want to talk about your options?

We love making travel dreams come true. If you’ve got questions about how a travel loan might work for you, get in touch with the team at better finance™ today. We’re experts when it comes to personal lending and can help you understand what your options might be.

Disclaimer: Please note that the content provided in this article is intended as an overview and as general information only. While care is taken to ensure accuracy and reliability, the information provided is subject to continuous change and may not reflect current developments or address your situation. Before making any decisions based on the information provided in this article, please use your discretion and seek independent guidance.