Financing a cruise — an interesting argument

Is it a good idea to tell clients to finance a cruise vacation?

The easy answer is yes, if it helps a travel advisor make the sale. But on the assumption that the relationship between advisor and client is a long-term one, it may not be in the client’s best interest to do it.

Going into debt to go on vacation is not something that many financial advisors would endorse. If they recommend borrowing at all, it may be for big-ticket items that fall into the “need” bucket instead of the “want” bucket.

Things like homes, cars and college education. If a client has loans for all of those things plus credit card debt, they might be better off saving for next year’s vacation than borrowing for this year’s.

Still, there are plenty of lenders with websites making a case for charging that cruise.

One I saw recently came from AmOne, a Fort Lauderdale-based website that matches consumers with willing lenders. Its pitch looks at the typical terms being offered by cruise lines and argues that locking in a good price now, even with the cost of a loan, beats waiting until the prices go up further.

“Get more cruise for less money by financing it,” is the title of its white paper.

Here’s the math:

A cruise line offers a $12,000 cruise — for a limited time, or for booking early — at 2-for-1 rates. Throw in a “pick one or more” promo that, for the example, is valued at $500. Then factor in $120 in cash-back rebates from a credit card company.

Assuming a one-year loan of $6,000 financed at 10%, the monthly payment on the cruise would be $528. The total interest due would be $330.

So for $330 in interest, the client could in theory net a savings of $6,290.

Of course, the longer you stretch out the loan repayment, the lower the monthly nut and the higher the interest. To its credit, AmOne says consumers should finance the loan over the shortest term they can afford.

Most consumer sites would still recommend that consumers set up a vacation fund to pay for the trip in advance, or find some other pot of money, such as refinancing a mortgage, to pay for the cruise of their dreams.

But it’s an interesting argument that saving over the long haul isn’t necessarily cheaper than borrowing short term.