Borrowing a Vacation

I’m still not sure how I feel about the article in Market Watch about new services that are offering to allow people to finance vacations. That’s fair, I suppose, because I’m also somewhat ambivalent about the business transactions they’re talking about. Paying for things on credit – charging airline tickets and hotel fees on your credit card, for example, and paying them off once you get home – is a fairly normal part of travel these days. In fact, post-9/11 it can be almost impossible to purchase a plane ticket, rent a car or even reserve a hotel room without a credit card. Credit card interest being problematic isn’t news either; unless you are going to pay off all of your bills in full as soon as you get them, the interest can very quickly become a bigger problem than the things you purchased in the first place. But throwing a new form of consumer lending into the mixture just makes the whole subject even more confusing – and I don’t think the linked article is helping as much as they think it is…

The attraction of financing a vacation – assuming that you have the option of paying for it in some other fashion – is said to be that there are no hidden charges or fees involved; you know exactly what you are going to pay upfront. It is also apparently possible, depending on where you want to travel (and, presumably, your credit score) to obtain lower interest than you can usually get from a credit card company, which could be a major savings. The reason for all of the qualifiers in this post is that they also occur in the article. All of these conditions appear to vary depending on who is traveling, who is paying, what terms they want, how long they will need to pay off the trip, and what level of credit card interest they already have…

Confusing things even further is the fact that the Market Watch reporters bring up the idea of low-interest introductory rates, special deals, loyalty club and credit card rewards programs, and other limited opportunities that can, but won’t necessarily, reduce the cost of the vacation and/or the cost of the financing enough to completely change the financial implications of the situation. Some of these may be practical – financing anything at a special deal of 12% makes more sense than using a credit card to do the same thing at 28% interest – but not all of them are. In particular, applying for a credit card solely because you want to purchase something expensive during the three months you have a trial low interest rate is asinine unless you can pay off the entire trip in those three months. And if you can do that, you’d almost certainly be better off taking the trip three months later and just paying it off as soon as you get back…

The point I’m getting at here is that it isn’t clear from the article whether these programs are actually lower-cost consumer lending options or are just programs that make money on people who are unable to understand their credit card agreements or on people who are bad at math. All of the examples of other ways to finance your vacation that appear in the text struck me as one-off, specialized, unlikely, counter-productive, or just ways you could try to game the system that will almost certainly turn out for the worse. It’s possible that you could get a better interest rate from a company that just makes vacation loans than you could get from your credit card company, but if your credit is sufficiently good to do that you could probably just get a better credit card rate or a short-term bank loan that would do the same things for much less; that’s how consumer credit works…