Holidays don’t come cheap, and with spring and summer fast approaching, you might be considering the best way to afford your next trip.
Ideally, planning ahead and putting money into a savings account each month is the most effective way to fund a holiday, and helps avoid falling into debt.
But, if you don’t have the savings to pay for your next trip, taking out a holiday loan could be a manageable option to help spread the cost of your next getaway, whether it’s a sunny beach holiday, a round-the-world trip, or something closer to home.
Rhiannon Philps, a personal finance expert at NerdWallet, said, “If you’re struggling to save up enough money to fund your dream holiday, it’s sensible to consider alternative options first before borrowing money to help spread the cost.
“If possible, try scaling back your holiday budget, delaying your holiday plans so you have more time to save or even cancelling or rearranging the trip altogether to make it more affordable, such as changing the location, or length of stay. Also check if there are cheaper dates that you could go away, as stays during school holidays are likely to be much more expensive, for example.
“However, you may find yourself in a situation where none of these options work for you, and you may be considering a holiday loan instead. This would enable you to spread the cost of your trip into manageable, monthly instalments, instead of one big upfront payment.”
Below, Rhiannon highlights all you need to know about taking out a holiday loan to pay for your next getaway, as well as outlining the pros and cons to help you make the right decision:
What is a holiday loan?
A holiday loan is not a specific specialist product. It is just a name to describe any personal loan that you might use to pay for a holiday.
If you are accepted for a holiday loan, you’ll then pay it back in monthly instalments over a pre-agreed timeframe.
How much can I borrow?
You can usually apply for anything between £1,000 and £25,000, although the exact amount available will depend on your individual situation and the lender’s criteria.
If you are going to take out a loan to pay for your holiday, make sure to only borrow what you need and can afford to repay.
How do they work?
There are a range of providers who offer loans that can be used for holidays, so it’s worth taking the time to find a loan that works for you.
It’s also a good idea to first decide how much money you need to borrow and be aware that lenders will consider a range of factors before approving the loan.
Lenders will need to know certain details about your finances, including your income and outgoings, to see if you’ll be able to afford to pay back the loan in the time frame agreed.
They will also look at your credit score when deciding whether to approve the loan and what rate of interest to charge you.
Pros of a holiday loan
- Repayments are typically fixed, so you’ll know exactly how much you’re paying back, making it easier to budget.
- The money can be paid into your account quickly, sometimes on the same day or next day..
- You can choose how long you need to repay the amount borrowed.
- The loan can be paid back early, although there may be an early repayment charge, which is often the equivalent of one to two months’ interest.
Cons of a holiday loan
- By taking out a loan to pay for a holiday, you’re taking on debt that you could be repaying for a long time.
- Holiday loans may be expensive if borrowing smaller amounts of money.
- If you miss payments, the lender may charge late fees and your credit score may suffer. If you continue to miss payments and default on the loan, the lender may take more serious action against you.
- Only those with excellent credit scores are accepted for the lowest interest rates.