Memorial Day marked the unofficial start of summer travel and 2024 is poised to surpass last year’s travel records. But airport crowds aren’t all that’s reaching new heights. Nearly 1 out of 5 travelers expect to spend more on travel this year with vacation budgets increasing by an average of 18%.

These travelers aren’t immune from inflation and many plan on taking on debt to finance their trips – something lenders are aware of and eager to cash in on. One such tactic is a product called a “vacation loan” — here’s what you need to know about them.

What are vacation loans?

Vacation loans are advertised as specialized loans intended for funding travel like honeymoons, road trips, cruises, and everything in between. In reality, vacation loans are just ordinary personal loans. They’re not a specialized or new credit product, just a marketing ploy (similar to “wedding loans”, “baby loans”, or “divorce loans” which are also just personal loans with different names).

You can apply for a vacation loan whether or not you have travel plans. Having a destination in mind or a special reason for travel has no bearing on how much you’d be approved for, your interest rate, or your likelihood of getting approved for it. Nor would you be restricted to using that money only for travel expenses.

Like any other personal loan, the primary factors used to determine how much you can borrow are simply your credit score and credit history. And once you have the money, can use it however you wish, on whatever you want – not just for travel.

Is it a bad idea to take out a vacation loan?

It is never a good idea to take on debt for a vacation. Unlike things that contribute towards wealth-building like getting your degree, renovating your home, or purchasing a car (vehicles themselves rarely appreciate, but increase mobility necessary for employment), vacations are a luxury, and ultimately, inherently unnecessary.

But, you might be thinking, it’s probably cheaper to pay for a vacation using a loan than a credit card. True, credit cards are known for having extremely high interest rates, and carrying a balance on those is never a good idea. However, a vacation loan could still be the more expensive way to pay for a trip.

Some credit cards offer promotional APR periods with low or no interest for up to 18 months. Therefore, it’s technically possible to finance a vacation for free with a 0% APR credit card, (a risky move unless you have impeccable credit and financial discipline) which immediately puts loans at a disadvantage. Interest charges are incurred immediately on loans no matter how good your credit score. The only way to minimize the cost of borrowing is to pay off the loan as soon as possible.