From paradise island escapes to exciting urban adventures, there’s nothing better than a well-deserved holiday to melt life’s troubles away.
But all that rest and relaxation doesn’t come for free. There’s flights to book, spending money to save, and day trips to plan.
In recent years, it has become increasingly popular to take out a loan to pay for a big holiday, but is it a good way to finance travelling?
In this holiday loans guide, we’ll cover everything you need to know about holiday loans. Moreover, we tackle your other holiday finance options, so you can decide which method is right for you.
How much does an average holiday cost?
According to recent data, the majority of people in the United Kingdom spend an average of less than £4,000 on holidays each year. Around a third of holidaymakers aged 25-
35 would spend between £1,000-£2,000 on holidays per year, and another 26% would typically pay £2,000-£4,000.
While costs for holidays can vary greatly based on your choice of flights, accommodation, or how you spend your time while you’re there, you can typically expect to pay four-figure sums for trips that take you to other continents.
Can you take out a holiday loan to finance travel?
Yes, you can take out a loan to pay for travel. These are commonly referred to and advertised as “holiday loans“.
What is a holiday loan?
A holiday loan is typically an unsecured personal loan that has been granted by a lender for the purposes of financing – you guessed it—a holiday.
It’s really that simple.
A holiday loan can be a good option to consider if you’re keen to spread the cost of a trip over a number of months or years, or if you need to book right away and don’t have time to save up in advance.
How do holiday loans work?
A holiday loan works very much in a similar way to any other personal loan.
First, you decide how much you need to borrow. In the case of a holiday, it can help to plan your transport, accommodation, and activities first—so that you can get an idea of the costs.
With your budget set, it’s time to start comparing loans. Rather than simply applying to the first lender you find, it can help to shop around and compare rates. This is where we come in. As a broker, we search multiple lenders based on your circumstances to suggest options that look like a good fit for your needs.
Once you have found your ideal lender, you can apply and—if your application is successful—you will be presented with a loan offer. If you accept the terms of this agreement, you’ll then receive the funds and can start paying for your holiday.
From this point on, you’ll need to keep up with the agreed repayment schedule. Failing to do so can negatively impact your credit score, and incur additional charges on your debt.
Once the repayment term is completed and the full debt has been paid, along with any interest or fees, the loan will be repaid and your account with the lender will be closed.
Advantages of holiday loans
- They’re a convenient way to pay for a holiday if you don’t have time to save;
- You can spread the cost over a number of months;
- They can help to build your credit score if you make the repayments on time.
Disadvantages of holiday loans
- You’ll pay more than you would have done if you paid in full with cash;
- You’ll be taking on debt;
- Missing repayments can damage your credit score.
Can you take out a holiday loan with bad credit?
Your credit score is a representation of your borrowing history that lenders use to assess your eligibility for a loan.
If you have a high credit score, it shows lenders that you have a proven record of borrowing and then repaying the debt on-time. Lenders will be more likely to offer you the full amount requested, or a more favourable rate, if they see a strong credit history.
A low credit score, on the other hand, means that lenders will be less confident that you will be able to repay your holiday loan. It might be that you’ve had cases of missed loan repayments in the past, or simply that you don’t have much history of borrowing for them to evaluate.
If you have a lower credit score, you may still be offered a loan, though it may be lower than you’d planned or have a higher interest rate.
Is a loan holiday the same thing as a holiday loan?
While they sound similar, these two terms aren’t related.
A holiday loan is typically an unsecured personal loan that is used to fund travelling, whereas a loan holiday is a brief pause in a loan repayment schedule that might be granted by a lender.
Alternative ways to finance travel
While a holiday loan can be a great way to pay for a holiday and build your credit score through consistent repayments, there are a number of other options available to you.
Pay with cash
If you’re able to save up in advance, paying with cash can be a good way to avoid paying additional interest. Not to mention the benefit that, with cash, you’re not committed to a repayment plan.
The downside to paying with cash is that it loses the additional securities that some other options may offer, as well as the potential credit score boosting benefits of making credit repayments in full and on time.
Using your overdraft
If you’re planning to pay for your holiday with your bank account but don’t have all of the money available just yet, it’s best to avoid using an overdraft to pay for it. Not only is it generally a bad idea to rely on your overdraft, the interest rates and charges that can be applied for overdraft usage can be high, depending on your bank.
Pay via credit card
One of the most popular ways to finance travelling is to pay with a credit card.
Not only do cards provide a convenient way to pay, they often also provide additional insurance and security on any purchases over £100, as a result of Section 75—giving you a little extra peace of mind whilst booking your trip.
0% purchase cards in particular can help you spread the cost of your holiday. You can use the card to pay for your holiday and repay it over the 0% period, without the interest racking up.
Just remember to clear your balance before the 0% period ends, otherwise the card’s usual APR will apply.
Are holiday loans a good way to finance travel?
Here’s a quick recap of everything we’ve covered in this guide:
|What are holiday loans?||A holiday loan is usually an unsecured personal loan that is used to pay for travelling.|
|How do holiday loans work?||Holiday loans work in the same way as a typical unsecured loan. You make an application to a lender, who then checks your credit history to decide whether you are eligible. If you are approved and accept the terms, you will receive the funds for your holiday. You will then need to repay the debt according to the agreed schedule.|
|How much can you borrow?||The amount you can borrow will depend on your credit score, how much you can afford to borrow, and the amount of money you require for your travel plans.
For more help on deciding how much to borrow, check our guide to loan amounts.
|Advantages of holiday loans||
|Disadvantages of holiday loans||
|Other ways to pay for your holiday||