Ready to Borrow – Summer Preparation and Smart Borrowing
May is here, and summer is just around the corner! Warmer temperatures mean home improvement projects, outdoor plans, and vacations - expenses that can add up quickly. Unless you have extra cash on hand, it’s time to plan how to cover those summertime costs. Let’s dive into the details.
Smart Borrowing
If the choice is between excessive work stress and obtaining a modest loan to finance a vacation, it is understandable to consider borrowing; after all, part of maintaining good credit involves having different types of credit established – this is called the credit mix.
Forget Payday Lenders
A payday loan may appear very convenient. Some lenders specializing in second-chance financing also offer rapid access to funds, often at a high interest rate. However, the true cost of this convenience extends beyond the surface. Higher interest rates, application fees, prepayment penalties, and other potential hidden charges are common. Before committing to any new loan, conduct thorough research and only work with reputable institutions. Having an established relationship with your lender is beneficial. For this reason, credit unions are often a preferable choice over banks or other private lenders.
Interest Rate Matters
Loan terms are like people – each following a basic structure, but with so many different parts and distinctions. One of the more critical features of a loan is the interest rate. The cost of borrowing money varies, but you can generally expect a rate between 7% and 30%, with factors including your credit score, your personal history with the financial institution, and your ability to repay the loan. Obviously, the lower the interest rate, the better, but if you can pay the loan amount in full early (or even before the first payment is due, if you use a credit card), you’ll save big!
Terms
I hear you – you are desperate to go on vacation – but don’t let that cause you to make a costly mistake. When considering a personal loan for vacation costs or annual maintenance, think carefully about the loan term. A 12-month term spreads payments out, making them smaller, but you'll be paying interest over a longer period and may still owe money when the next summer arrives. A shorter-term loan means higher monthly payments but less interest paid overall, and you can clear your balance sooner. Before deciding, also consider your monthly payment comfort and the interest rate.
Personal Loan
If I were in the position to be weighing my options for summer vacation or small home improvements, I would go in one of two directions – a short-term personal loan or using a rewards credit card. Notice I specified a “short-term” personal loan. In my case, I would rather have a shorter repayment period that would allow me to pay off the balance before my next annual vacation, minimizing long-term debt.
Credit Card Rewards
Is a Personal Loan not for you? One approach to consider is using a rewards credit card. If you have to spend money anyway, you might as well spend it in the most rewarding and beneficial way possible. Take our Visa® Rewards Credit Card, for instance; if you were to go on vacation, and use that card to pay for your hotel/lodging, a rental car, the cost of an amusement park, and dining out during your stay – you would accrue 3 points per dollar spent on every one of those purchases. If it were me, I would redeem those points for cash, but you could choose another option if you prefer. Of course, not all cards are as robust as ours, and you should do your research on the right card for you. If you are not a Visa® Rewards Credit Cardholder with InFirst, I will encourage you to check out how our card stacks up.
Free and Low-Cost Options for the Summer
It is not necessary to incur significant expenses during the season. A variety of low-cost or free options are available, such as:
Taking a tour of local parks
Participate in community events – your local Parks and Recreation Department is a great resource for family-friendly activities.
Take a dip in the public pool.
Visit your local library – they often have free events or workshops that families can attend.
How are you planning on covering summertime expenses? Share your strategies in the comments or email me directly—I'd love to hear your plans and help you make the most of your summer!
Krista Kyte is a personal finance blogger and personal banker with over 23 years of experience in the financial industry. Krista is passionate about helping our members understand their financial situations. She writes tips that help consumers reach and maintain financial security and live the lives they've always wanted.