Are you dreaming of taking some time off work and jet-setting halfway across the globe, but your financial situation stopping you? If you have the itch for travel but are worried you don’t have enough saved, consider some other options. It’s time to start thinking about other ways you can fund your next adventure – a loan or a credit card.

We are here to help you decide which option Is best for you.

In this guide, we will provide you with a full comparison of the two borrowing types so you can decide which will help you discover the world.

A personal loan is when you borrow a set amount of money from a lender. You will agree to the provider’s conditions, including paying interest and any associated fees, upfront and ongoing. You then pay the amount back over the agreed time frame.

A credit card has some useful features that can help you while you’re abroad. Typically, a credit card will offer a competitive foreign exchange fee, bonus points per dollar spent and features like travel insurance. You can even get interested free periods. If you get a 0 per centinterest rate card, you could pay no interest for the introductory rate period, as long as you pay the minimum monthly repayment each month.

Types of personal loans for travel

What types of loans can you apply for? With a secured loan, a lender will want to put up an asset as security. In return, you will get a more competitive deal with a lower rate. This will save you lots of money over the life of the loan. In contrast, an unsecured loan is when you don’t have security. This means you don’t need to put up an asset. The lender will only assess your eligibility based on your savings and credit history.

If you don’t want your interest rate changing while you are on holiday then you want a fixed interest rate loan. However, this type of loan can be unappealing to some people. This kind of loan is usually less flexible than variable rate loans. For example, there can be break cost fees that occur if you try to pay off the loan before the agreed term. Variable interest rate loans mean that your rate can change at any time. You also get better features including extra repayments, redraw facility and the ability to choose your repayment cycle. More importantly, variable rates are often lower than fixed rates.

Types of credit cards for travel

There are different types of credit cards available on the market. Each will offer something different, and usually your personal needs or wants will be what helps you decide.

There are three mains types of credit card:

Travel credit cards are specifically designed for travellers. They come with a low foreign exchange fee, sometimes even $0. There may also be free travel insurance.

Rewards credit cards are for the individual who likes to shop. Typically, a card will get you 1 or 1.5 rewards points for each dollar spent. Take that credit card overseas, and it could jump up to 3 points for each dollar spent. You will also get travel insurance, purchase protection and other features with some providers.

0 per centpurchase rate credit cards allow you a period where you don’t pay any interest on purchases. As long as you pay the minimum monthly payment, you will be able to pay for expenses overseas without being charged any interest during that intro term. Unfortunately, this period will come to an end, and you will need the money to pay the balance to avoid getting into debt.

Which one?

Now we know more about the two different types of loans. We can make a more informed decision about which is better for your travels.

Loans offer more consistent repayments, especially when you have a fixed rate. You can even work out your repayments before you apply on sites like RateCity. Typically, with a personal loan you can borrow more money than a credit card allows you to charge, especially when you are putting up an asset as security. Unfortunately, you start being charged interest on the day you take out the loan. Some people also consider a loan less flexible because you get a lump sum.

Travel credit cards offer the flexibility of pay as you go. You can also borrow smaller amounts of money. Unlike loans, credit cards offer the ability to get reward points that you can put towards flights and shopping. You can also get free perks like travel insurance.  However, a credit card will often tempt you to spend more than you intended. If you take out a cash advance, your credit card provider could hit you with a higher interest rate for the privilege. Some cards also have high foreign exchange fees.

When it comes to choosing one or the other, there is no right or wrong. Each option has their pros and cons, so it’s wise to compare all the above factors against your needs, wants and current financial circumstances.