If you’ve begun planning your perfect holiday – whether you’re in the early ‘what if’ dream stages or are as far as saving hotel and flight information in your notes – you’ve probably noticed how expensive the total cost of a holiday can be.
So, before you confirm your hotel reservation and start packing up your suitcase, it’s vital to take into account how you’re realistically going to pay for it all. As a result, it’s not uncommon for you to consider some form of holiday finance to help you pay for the associated costs and make sure you enjoy your time away.
As with many other types of loan in the UK credit market, there are plenty of options available when it comes to finding a personal loan to finance your seasonal getaway. According to the 2018 Holiday Habits Report from trusted travel brand, ABTA, the average amount spent whilst on holiday fell in 2018, suggesting that instead of choosing not to holiday at all, holidaymakers are simply deciding to budget more carefully when they’re away.
On this page, we’ll run through the pros and cons of taking out a holiday loan, also referred to as a personal loan, and lay out the available options so that you can move forward with confidence.
What is a holiday loan?
Simply put, a holiday loan is a type of personal loan taken out to cover the cost of a holiday. A holiday loan can cover a variety of aspects of the trip, including: flights, accommodation, cruises, honeymoons, family weddings or other celebrations. Whether the trip is due to take place within the UK or abroad, a holiday loan is an unsecured loan option, meaning that the lender doesn’t use the borrower’s property or another personal asset as a means of repayment security.
Beware though: Some payday lenders market their services specifically as ‘holiday loans’, so to avoid the high-interest rates and fees that have the potential to total up to 100% of the borrowed amount, it’s important to clarify your loan isn’t a payday loan and is, in fact, a holiday loan.
How much can I borrow for a holiday?
Holiday loans tend to be anything up to £15,000 with typical interest rates falling between 3% and 13% depending on the loan period – so, from a week-long summer break to an around the world trip, there’s enough flexibility for any kind of getaway.
If you’re scouring the internet looking for a week-long holiday for your family and estimate that you’ll need to borrow £5,000 over a 5 year period with an APR (Annual Percentage Rate of charge) interest rate of 4.4% and annual interest rate of 4.4%, you can predict to pay back £92.79 each month. Over the total 60 month loan period, this would mean you’d end up paying back a total of £5,567.40 – that’s £567.50 in interest at the end of the 5 years.
Taking out a personal loan for holiday purposes can be a viable option for those without the cash to pay up-front, as these can come with lower interest rates than that of loans specifically tailored for holiday purposes.
Advantages of holiday loans
The immediate benefit of a holiday loan is that it can finance a trip you might not have been able to afford otherwise. Once the money is in your account, a holiday loan gives you the freedom to choose how you spend your money – whether by debit card, money from a bank or cash from an ATM. Remember to consider the other key elements of your holiday though, including holiday clothes, travel money, travel insurance.
With a holiday loan, you’re able to make fixed-rate payments within a term of your choice – meaning that you’ll know how much you have to pay and when this is due to come out of your bank, allowing you to budget accordingly. Fixed repayments make it easy to budget for this type of loan, and remember – a shorter repayment time equals a cheaper loan overall.
Disadvantages of holiday loans
A holiday loan can often be seen as an impulsive borrowing decision, and this may lead to you being served an above-average interest rate or not being able to borrow as much money, particularly if you have a bad credit score.
Loans are always a calculated risk, so make sure that you’ve fully understood your repayment plan (as getting into repayment trouble could be highly detrimental to your credit score) and make sure you’ve shopped around for the best holiday loans online before making your decision. Where possible, it’s always best to pay for your holidays using savings to avoid this.
Before you take out a holiday loan
Consider the following before taking out a loan:
- Borrow realistic amounts – Before taking out a loan, work out exactly how much you’ll need. This will help you not to get sidetracked by larger sums of money available and ensure you don’t take out more money than initially anticipated.
- Look at your savings – Typically, the less you borrow, the better. Therefore, before opting for a loan, if you have some money in your savings it may be worth taking a look to see how much you’d be able to afford to use for your holiday. Alternatively, it’s worth considering how long it would take you to save for the holiday you’ve dreamed about – it might not take you as long as you think and it will definitely be worth the wait!
- Run a soft search – Using online tools, shop around and look at different loans out there before committing to disclosing your personal details – this won’t affect your credit rating and will give you a better idea of where to start looking.
- Consider the alternatives – Many credit card providers offer 0% interest credit cards, which you could use as an interest-free loan to fund your holiday (although these often come with time restraints, so be sure to check this before taking one out). Alternatively, you could also consider the benefits of asking your current bank for an overdraft, or even think about peer-to-peer lending allowing you to borrow money directly from another person who will often offer you more competitive interest rates.
Are holiday loans for bad credit available?
While having bad credit certainly won’t help you secure the best holiday loan deal, there are a few avenues you can explore.
Firstly, you could explore the marketplace and compare various lenders, as some are willing to look at each case individually rather than engaging in a blanket refusal. Our page on bad credit loans offers a full run-through of the options available to applicants with a less than perfect credit history.
Of course, if you successfully repay a holiday loan (or any kind of personal loan), it can have a positive impact on your credit score – so loans such as this can be seen as a good opportunity to repair your credit rating in the long term.
Generally, you can apply for a holiday loan by popping into your lender’s local branch (if available) or by doing it online, on the phone, or by post. However, make sure you’ve thoroughly considered all your options and are in the best position to apply before taking one of the above steps, as this will increase your chances of being accepted.
For advice on holiday finance as well as a range of financial news and practical tips, why not visit our blog today? Alternatively, if you find yourself struggling to cope with an onslaught of financial pressures, remember that help is always available – check out the Citizens Advice website here or call the free national debt helpline on 0808 808 4000.