What Do I Need to Know About Holiday Loans?
Whether you book a package holiday through a travel agent or prefer to mix and match your travel and accommodation options yourself online, you usually end up having to pay for a holiday up front. And that’s where many of us run into problems. If you don’t have the ready cash in your current account, if you don’t have any savings, or if you’ve recently had another high-cost outlay like home improvements to deal with, finding the money to pay for your holiday can be tricky.
If you absolutely can’t miss out on your fortnight away, a holiday loan may be just the ticket. A holiday loan is an unsecured personal loan marketed at people looking for a way to finance their vacation. They tend to be small loans in the borrowing range up to £2500, with repayment terms of between 12 and 36 months.
Holiday loans can be an ideal way to allow your family to get away. But as with any borrowing, you need to be aware of the bigger picture before you sign up for anything. Here’s a quick run through some of the main questions you might have about taking out a holiday loan.
Does my credit score matter?
Yes. Like any type of personal loan, your application to borrow will be subject to a credit check. If you have a poor credit history, you may find it more difficult to get approval for a loan. There are options, however, including finding a guarantor to back your loan application, or looking for more specialised no guarantor loans for people with low credit scores that charge a higher rate of interest. This will make your holiday more expensive, as you will have to pay back more in interest.
How do I make my holiday loan affordable?
There are three key points to follow here:
- Only borrow what you really need. A little loan of a few hundred pounds will have a much smaller impact on your finances long term than borrowing thousands. Ideally, you should try to use a loan to top up your own funds, to minimise the amount of debt you take on.
- Don’t overstretch yourself in your choice of holiday. Make your choice based on what you can afford to borrow, rather than borrowing to fund your dream vacation.
- Only apply with lenders who have accepted your application. Using Choose Wisely’s Get Accepted application process will help you do exactly that. How will it help make your loan more affordable? Applying with lenders who have already accepted your application will give you a much clearer idea of the range of potential repayments you will be looking at and a better chance of seeing your holiday funds paid to you, which is also better for your credit profile.
Should I just use my credit card?
Many people pay for their holidays on the credit card for convenience and also because they automatically get protection if something happens like their flights are cancelled or their operator goes out of business. However, paying by credit card can be more expensive than taking out a loan in some cases. As always it’s worth comparing all the options at your disposal, weigh up the pros and cons of the extra payment protection vs the rates of interest available and make sure you’re comfortable with making the repayments before taking out any finance agreement.
Andrew joined Choose Wisely 5 years ago, originally working in a design capacity to make sure the website was simple to use. Most notably he worked with the Consumer Finance Association to design the comparison table of choice for High-Cost Short Term Finance products.