Last updated: 16/10/2020 | Estimated Reading Time: 4 minutes
We’re familiar with taking out loans for those more essential items of life, like a new boiler, renovation works, or an upgrade on a just-still-gets-from-A-to-B car. But taking out a loan to relax seems… alien, right?
Yet where there’s a loan to be given, there’s money to be made. Yes, you can now take out a loan to get away from it all, but what’s the real deal? Relax – we divulge all in our handy guide.
In This Guide:
- Before you get a loan
- What are holiday loans?
- How much do holiday loans cost?
- Loan rates
- Should I get a holiday loan?
- What are the drawbacks of a holiday loan?
- Can I get a travel loan?
Before you get a loan
Before you look to take out a holiday loan, we’re obliged to do our parent bit - it’s just because we care! It’s now easy as pie to compare loans online, and even the most resistant of us can be tempted by alluring deals: with post-lockdown flight and holiday bargains now flooding our inboxes, holiday loans companies are looking to catch their market.
Know that you should always, always, try and pay for a holiday with your own savings first. A loan will cost you more in the long run, and could send you into serious debt if payments are missed.
Be sure you know what you’re getting into; now, on with the show.
What are holiday loans?
A holiday loan is essentially the same as any other personal loan available to take out from a lender. Usually, with a personal loan, you can borrow up to £25,000 but each company will have their own limits, terms and criteria.
How much do holiday loans cost?
Ultimately, your loan won’t just cost the sum you’re borrowing. Be wary of cheap loan offers as there could be a myriad of extra charges. Many companies will also charge administrative or transaction fees, but far more significant are interest rates – you’re not getting that loan for free! What rate you can nab will depend on your credit history and your repayment period.
It’s also be important to have the inside scoop: when you see a sexy APR advertised on these loans, the company only has to offer that rate to 51% of customers. That means that basically half of us can expect to pay a higher rate of interest than that advertised – so be wary when you see lenders claiming to offer suspiciously cheap deals.
When you run a loan comparison, it’s important to know about the types of rates offered.
The majority of personal loans are given as fixed-rate. Fixed-rate loans mean your interest rate is set, making your repayment plan easy to manage, and you’ll know exactly how much you need to pay back when.
Your other option is to take out a variable-rate loan. Variable-rate loans depend on market forces, meaning that the interest rate is aligned with the Bank of England. So, this could increase or decrease on a monthly or annual basis: great if you benefit, not the best for budgeting, especially if interest rates rise.
Should I get a holiday loan?
If you’re just a bit short on funds for that dream trip or much-needed escape, then taking out a personal loan to pay for your holiday could have a few benefits. First, you’ll receive the money either in cash or deposited directly into your bank account, meaning it’s yours to spend on whatever holiday treats you seek – be that cocktails, jetskiing or shopping. And, you can convert your loan into any currency.
If you’ve got a good credit score, then you should be able to access the best loans going.
What are the drawbacks of a holiday loan?
If you’ve got a poor credit score, then be prepared to miss out on the best deals. It’s likely you’ll get a higher APR and end up paying back more overall.
Additionally, watch out for secured loans, which are loans where you may have to give an item as security against the loan. If you default on repayments, then you could end up having that item repossessed which, depending on the size of the loan, could be your car or house. Usually these are higher-value sums, but not exclusively. Take a look at our article on secured and unsecured loans.
Can I get a travel loan?
If you’re going travelling, then the process may not be quite so simple. As travelling typically involves people being away from the UK for extended periods of time and (if done properly!) on a budget, it’s less common to have a consistent income during that time. Therefore, prospective lenders may be reluctant to give you a loan as they cannot guarantee you’ll be able to keep up with the repayments.
Though if you’re confident you’ll be able to pay back the loan, then it may be possible to take out a loan for your travel repay over an extended period of time – just expect to pay more overall. Plus, if you’ve got an awesome credit score, then cash in on that accolade to access the best loans going.