Most people dream of holidays away, but sometimes your funds can get in the way of the perfect trip. A holiday loan is one of the best ways to ensure your time away from home is spent exactly how you want it to be. Read more about how to find the best holiday loan for you in this in-depth guide.
What is a holiday loan and how does it work?
A holiday loan falls under the bracket of unsecured personal loans and is intended to help you out with financing a holiday. Each lender will have different policies and criteria for holiday loans, but they will typically function in the same way as any other unsecured personal loan.
Borrowers will generally be able to receive anywhere between $2,000 and $50,000 to be paid back over a period of one to seven years. Holiday loan will look slightly different to each borrower depending on your loan preferences and the scope and cost of the holiday.
Are there different types of holiday loans to compare?
Yes – not only are there different types of holiday loans, but there are a variety of factors to choose from when it comes to optimising your plan. Term loans are the most common type of loan which are paid over a fixed term duration established at the beginning of the process. Most standard personal loans will fall in line with this type. Borrowers also have the choice of whether to go with fixed or variable interest rate holiday loans. Fixed rate loans maintain the same interest rate over the life of the loan, while variable rate loans are subject to fluctuation. This option is used generally for larger holidays where borrowing of $5,000 or more is required.
Credit cards can be used for travel instead of a loan for smaller amounts, with certain types of cards designed for travel on offer to holiday-goers. They can provide great flexibility and money on demand, as well as garnering frequent flyer points which can provide a discount on future flights. Credit cards can be dangerous for the uninitiated, though, as failing to pay off a loan within the 30 days of a credit card payment cycle will incur higher interest rates and fees. As such, they’re probably a more sensible option for smaller cash injections up to $2,000. Users could also be slugged with a high cash advance rate or foreign exchange fees on a credit card if used overseas.
A line of credit can also be a viable option for those looking for a smaller cash boost, as borrowers can withdraw funds as they need them to provide greater flexibility. A line of credit is a pre-defined amount of money that is accessible when required and able to be paid back immediately or over a length of time that you establish with your financial institution. They tend to carry a lower average annual percentage rate (APR) than credit cards but will still usually have a monthly fee regardless of whether you have drawn down on funds.
Additionally, borrowers have the choice of applying for a short-term loan, which start as low as $300 and go up from there. These can be paid over terms varying from a few weeks to up to a year. Short-term loans can be a good way to fill in gaps when it comes to holiday booking and spending and can serve as a bridge between paydays. Borrowers should be aware of the higher interest rates that this kind of loan is subject to, meaning that you should review the loan’s terms and associated fees thoroughly.
How do I apply for a holiday loan?
Applying for a holiday loan is similar in many respects to applying for any other personal loan, with the requirements for qualifying as a potential borrower fairly straight forward. Eligibility criteria will differ slightly between lenders, such as age and minimum income, but there will be common points that you have to meet before approval. Producing documentation like proof of identity, record of income and current assets and debts will be required to progress the application.
Prospective borrowers should aim to enter the application process with a positive credit score and minimal debt, as these will help you appear more attractive to lenders. If you’re looking to apply for a holiday loan, it’s worth checking out a wide variety of lenders to compare their criteria and policies to see if one in particular suits you above the rest. You’ll be able to compare lenders in our comparison table, side by side, and enquire on each lender’s website if you want to find out more.
Did you have any more holiday loan questions?
We’ve answered some more of the questions you might be thinking of regarding holiday loans and what steps you should take.
Pros and cons of applying for a holiday loan
Weigh up some of the positives and negatives of holiday loans listed in the table below.
Bringing the impossible within your reach
holiday loans can help you book a holiday you may not otherwise be able to pay for by saving up over time, with repayments over a longer period lessening the financial blow.
some lenders may offer holiday loans at a lower interest rate than other personal loans, which would make repayments more palatable particularly over a longer period of time.
Less waiting time
holiday loans usually take less time to process, as well as carrying fewer overall requirements, than larger investments like home or car loans.
Paying more for your holiday
interest rates and other potential expenses mean you’ll likely end up spending a fair amount more than your overall holiday outlay.
if you apply for a variable rate holiday loan, budgeting for your travel and beyond may lack certainty given that your repayments have the capacity to vary on a monthly basis.
Dropping your credit score (sort of)
Taking out a holiday loan will cause your credit score to dip temporarily, as with any personal loan, but timely repayments throughout its term will actually increase your score in the long term.