Vacation loans increasingly popular, but have big drawbacks

Vacation loans popular, but have big drawbacks

(WXIX) - You take out a loan for your house and car, but how about for your next trip?

It's something more people are doing now, but there's a big downside.

Google "vacation loans" and you'll get a ton of splashy options. But these are all just personal loans. They're unsecured, which means you don't have to put up collateral but you will have to pay interest.

And here's where things get tricky.

Depending on your own credit history and the loan you choose, that interest rate could range anywhere from 5 percent all the way up to 36 percent.

Generally speaking, even borrowers with good credit will get an interest rate in the neighborhood of 10 percent on a $5,000 loan, with a three year repayment period.

Crunch the numbers and that trip will mean you're locked into $162 monthly payments for three years. And that's the real problem here: Years after that trip is over, you'll still be paying for it.

Borrowing to pay for a house, car or college education can make sense, but experts do not recommend you borrow money for a luxury item like a vacation.

Instead, figure out what that vacation will cost, and start saving for it now.

An app like Mint makes it easy to create that budget and track your savings.

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