Are people actually taking the bank up on their offer?

What is wrong with this picture?

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I typically work evenings when it comes to my job. So one day, I’m rolling down 1604 in San Antonio, Texas and I see this interesting billboard, which is right at my exit to my home. What caught me was the 7.5% APR. I’m always looking for a good deal so in my mind I was thinking a bank was going to offer me a 7.5% return on my savings (or maybe they offer a Certificate of Deposit that pays 7.5%). Obviously in this interest rate environment it could NEVER be close to 7.5%.

Instead, this was an ad for a 7.5% APR Vacation Loan.

Let’s break that down…

If you can’t afford a vacation, this bank wants you to take out a loan at a 7.5% APR up to $8,000 to take a vacation. Which also means that when you come back, the loan is still there. If you head to this bank’s website there is a page dedicated to this loan:

So, this loan is a 60 month, 7.5% interest rate loan. The loan breakdown looks like this (these are the calculator keystrokes for a financial calculator):

N = 60
I/Y = 7.5%
P/Y = 12 Months
PV = $8,000
PMT = Calculate (-$160.30)
FV = 0

So that vacation is going to cost you $160 a month for 60 total months, which in turns comes out to $9,618.22 in total payments. Now a good vacation doesn’t have to cost $8,000, and as someone who has traveled a lot (domestic granted not internationally), then you know you don’t need $8,000. However, a good $4,000 would be helpful for a vacation (family of four). That amounts to $80.15 per month and a total cost of $4,809.11. Not only are you taking a vacation that you can’t afford, but you are also going to have to pay an additional $809.11 because you can’t even afford a vacation.

Why is this sooo DUMB?

I love taking a vacation and traveling throughout the world. For the millennial generation, the idea of vacation and experiences are essential in their lives. However, if you aren’t paying cash for a vacation, then you are making a dumb move.

There is no reason you should be financing your vacation. There is literally no upside. Why would you pay a 7.5% premium for a vacation? For some people they aren’t even taking private loans out, they are just putting it on their 19.99% credit card. There is literally no reason anyone should be taking a vacation if they cannot afford it. If you can’t afford a vacation, then you need to stay home and hustle. If you’ve seen my side hustle report, I can come up with $1,300 after taxes in a matter of a month by side hustling. 6 months of side hustling and I can have $8,000 in cash ready to use for a vacation.

It is financially irresponsible to pay for your vacations using a loan or credit. It doesn’t help you get out of debt, and it doesn’t help ensure a financially sound future.

What can you do to afford a vacation?

You can obviously side hustle as a way to afford a vacation. Sure it takes a lot of work to get to a point where you might be able to afford it, but it will be worth it in the end to not have debt coming back with you.

In my personal finances, I allocate $150 per month of my regular pay to a travel fund account. After a year it totals $1,350 (I get paid nine times a year). That’s about enough for a domestic vacation for me. Airfare is usually booked with points (yes I do use credit cards, and I do accumulate points, but I don’t keep a balance on my card thereby negating any savings). My travel fund usually pays for everything else.

There is a great feeling not having debt when I come back from a vacation or splurging on vacation and not worrying how am I going to pay for X thing.

Summary

Don’t take out a loan to fund a vacation. Work hard, save up, and hustle to afford your vacation in all cash. If you can’t do that, stay home and enjoy watching the ole tube for your favorite tv show.