How Do Cruise Loans Work?

Cruise loans are an increasingly popular way to finance your vacation.

You may be dreaming of taking a luxury cruise, but perhaps it's not in the budget right now. Though cruises are fairly affordable relative to other vacations, the fact that you have to pay upfront can be challenging to some families. That's why cruise loan programs are becoming more popular.

How Cruise Loans Work

Basically, you are given a revolving line of credit to finance the cruise's cost (the same way credit cards work). You are given the option of paying off the loan over 24, 36, or 48 installments (much as car loans and mortgages work).

Cruise Loan Rates

With car loans and mortgages, your car or home backs the loan (meaning if you don't pay, the bank can repossess your car or foreclose on your home), but since that's not the case with a cruise, rates are higher. In fact, they can be a lot higher.

In 2006, the lowest rates for cruise loans were 9% while the highest were a whopping 31%, according to The Unofficial Guide to Cruises.

As they write, "Loans are administered by participating banks that are unaffiliated with the cruise lines. If you obtain the lowest interest rate for cruise loans on a 36-installment loan, the monthly payment for a seven-day cruise costing $5,000 per couple is $161 per month. Multiply the $161 by 36 months to see you'll actually be paying $5,796 for your cruise."

And who ever manages to get the lowest monthly rate, anyway?

As the book says, most people would be better taking out loans on their own instead of going through the cruise loan programs.