According to data from gap year programs, around 250,000 18 to 24-year-olds took a gap year in 2022.
This can largely be attributed to the large number of programs and remote work options that make it more financially feasible. Whether or not you take part in a specific gap year program, taking a year off to travel will still come with expenses you need to consider.
Official programs usually cost around $5,000, with the more expensive options even reaching over $10,000. If you’re traveling on your own, these costs may even hit a range of $40,000 to $80,000 depending on your lifestyle and spending.
Research from Statista shows that 33 percent of US travelers spend an average of around $1,000 dollars on summer vacation alone, so the actual numbers can really vary based on where you’re going, too.
If you’re planning to go traveling for a year, you may be thinking about getting a loan to cover some of the expenses. Here’s everything you need to know about what kind of loan is possible and how to get one.
What Kind of Loan You Can Use for Travel
There are plenty of loans that can be used for your expenses.
The most relevant to your plans would be a vacation or travel loan. This is a type of personal loan that is considered unsecured, which means you don’t need to provide any collateral to get the loan. Because they don’t require collateral, they tend to have higher interest rates than secured loans.
If you find a lender with reasonable interest rates but doesn’t offer travel loans specifically, you can simply just take out a general personal loan and use that.
Either way, it is important to note that it can be very risky to take out a loan if you’re unable to pay back your debt. Failure to repay your loan on time will not only bog down your vacation but can also result in a lower credit score and piling debt.
You can choose the amount you prefer when applying for a vacation loan, but it’s important to maximize your usage of it and take unprecedented incidents into account.
Getting direct bookings for accommodations and getting your flight at least two months in advance are just a couple of the “20 Travel Hacks That Will Save You Time and Money” to optimize your usage of the loan.
How to Be Eligible for a Loan
To even be considered for a loan, you must have a consistent means of income, a good credit score, and government-issued identification.
Depending on the lender, you will also need to have a debt-to-income ratio that is not more than 36 percent. Minors also can’t apply for a personal loan, so you will need to be at least 18 years old.
Lenders will check a lot of information to confirm your identity and assess whether or not you are deemed a good candidate for a loan. Travel loans are usually granted to individuals with a good credit score and DTI ratio.
For reference, Experian notes that the average American has a credit score of 714. You’ll want to aim for that mark, not going below 620 for approval. The higher your credit score, the better your interest rates will be.
What to Prepare When Applying for a Loan
To actually apply, you’ll want to be ready with at least two identification documents, proof of income and employment, and any billing statement or lease that represents where you live.
Whether you go to a physical lender or go online, they will provide you with a form that you’ll need to fill.
Aside from documents, the biggest thing you need to be ready for is the hard credit check. Lenders not only want to know your credit score but your financial records and history, because this will help them assess whether you are likely to pay your bills regularly and on time.
According to Upgraded Points, hard credit checks require your permission before making the inquiry. They also note that each hard inquiry shows up on your credit report and lowers your score, especially if you get a lot of inquiries in a short span of time.
Because hard credit checks account for about ⅛ of your overall score, you should be mindful of how many applications you take at one time.
Planning Your Trip
Finally, you’ll want to plan your trip!
As noted in Meghan Taylor’s guide to planning a vacation, the most important first steps include setting your budget and figuring out flights and accommodations.
Mapping this out for an entire year’s worth of travel is essential if you’re going to determine how much you need to loan and what your repayment plan will be in congruence with your daily and monthly expenses.
Don’t leave the financial planning for when you’ve already kicked off your gap year. Surveys have shown that money is a big stress factor for travelers, with recent data from CNBC even showing that 42 percent of adults feel that money negatively impacts their mental health.
You’ll thank yourself later for thinking ahead.
If you do your research, solidify your budget, and get all your paperwork in order, you should be able to get a loan and enjoy exploring the world for a year.