Holidays can be expensive, whether it's domestic or abroad the costs add up. Especially if you want to go at the most popular times of year, you might find yourself looking for ways to borrow money. Personal loans
for holidays are becoming more common, so it is essential to understand the details when comparing them. This guide will take you through how holiday loans work, and the pros and cons. We'll also take a look at a few other ways to borrow money, a loan might not be the best option if you have a poor credit score.
What is a holiday loan?
If you need money for a holiday but can’t pay for it up front, you could use a ‘holiday loan’ to pay. These are a form of personal loans
that are unsecured, meaning you do not have to put your house up as collateral in case you can’t make the payments. They are often used instead of credit cards as they can offer lower interest, although you don’t get the same security (for example if the holiday company folds).
How do holiday loans work?
In order to get a holiday loan, as with any unsecured loan, you will have to pass a credit check
. This means that the lender will examine your credit history and see whether you can be trusted to pay it back, giving you a score on how trustworthy you are in terms of your financial history. The most efficient loan to get would be a fixed rate, this means that the interest will stay the same the whole time that you're repaying it and helps you budget more effectively. As with other loans, you will need to provide details about yourself and forms of photo ID.
What are the advantages and disadvantages?
- As it’s a personal loan, you should be able to choose your term (how long you have to pay it back). If you have a fixed rate as well, the repayment process will be relatively straightforward and easy to keep on top of.
- These loans give you more freedom than a credit card. Once the loan has come through you can spend it however you want, withdrawing money or by card. Credit cards will often charge you a fee for spending money on holiday.
- They can be relatively inexpensive. Compared to credit cards the interest rates will be lower.
- As with borrowing any money, taking this loan out can improve your credit score, provided you make the payments on time.
- As with any loan, taking out money is a risk if you cannot afford to pay it back. Although they are a simple way of borrowing money, it is important to know the risks and decide whether it’s absolutely essential you get a loan for your holiday.
- Because its unsecured, if you don’t have a good enough credit rating banks will not lend you the money. If your credit rating is average, you may be allowed to take the loan out but with high interest.
What are the alternatives to holiday loans?
The most common way of borrowing money for a holiday is using credit cards. These can be very useful as many companies will offer 0% interest for a certain period of time. Credit Cards also give an added layer of protection to your money, should the travel company go bust it would be easier to recover your money if you paid with a credit card. The key to a credit card is making sure you pay it on time as there can be high interest fees if you don’t, there can also be high charges for using them abroad.
A less known way of financing your holiday can be found directly with a travel agency. Some offer financing, such as putting a deposit down and then paying the balance off. If you are considering this, it’s important to read the fine print as they will often have hidden fees and high interest rates.
What to Look for When Comparing Holiday Loans
- It’s important to not just get the first loan that you see. Take some time and compare loans from different lenders, especially if you have a poor credit history.
- Compare the repayment plan to that on a credit card. A credit card will be interest free for the first month but could still be cheaper if you take a few months to pay it back.
- Loan applications may affect your credit score. The best way to compare is to run a soft search, where you will be given a list of loans available.
- Use as much of your own money as possible. As a general rule of thumb, the less money you borrow the better.