Holiday loans: ways to pay for your holiday
Looking for holiday finance? Whether you’re taking a city break, jetting off to a sunny paradise or hitting the slopes, our guide explains what types of holiday loans are available and how they work.
What are holiday loans?
A holiday loan is a personal loan that you can use to pay for a holiday or trip. You borrow the money upfront and then pay off the loan in monthly instalments.
People also use personal loans to pay for things like a car or wedding. Sometimes personal loans may be advertised as car loans or wedding loans.
How does a holiday loan work?
Once you’re approved for a loan for a holiday, the lender pays the agreed amount into your current account. It’s up to you how and when you spend the money, although it’s wise to have a holiday budget before you apply for a loan.
You’ll make set monthly payments to repay the amount you borrowed plus interest. Interest is calculated as a percentage of the amount you owe, called the interest rate. A fixed interest rate stays the same, while a variable interest rate can go up and down meaning your payments could change.
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Are holiday loans secured or unsecured?
It’s common to get an unsecured loan (also called a personal loan) to finance travelling abroad. Unsecured loans tend to be for smaller loans with shorter terms and lower risk. Secured loans can be risky as they’re tied to an asset like your property or car, which the lender can take to get their money back if you don’t keep up with repayments. Secured loans tend to be for larger amounts and have longer terms.
Personal holiday loans may have higher interest rates, especially if you have a lower credit score. Watch out for payday loans which are a very expensive type of personal loan — it’s not uncommon for them to have an APR (this is the total cost of your borrowing for a year) of 1,500%. Consider alternative short-term loans such as credit union loans which may be cheaper.
Will I get approved for a loan for travelling?
Each lender has its own criteria meaning some may refuse you credit while others may approve you. If you want to get the best holiday loans, consider improving your credit score and make sure you can easily afford the repayments. Also, check your chances of approval when you search personal holiday loans with Experian — searching takes less than two minutes, doesn’t cost a penny and won’t affect your score.
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Can I get a loan for a holiday with bad credit?
It’s possible to get holiday finance even with a low credit score. You may find it easier to get approved for a bad credit loan — just know they usually have higher rates. Another option is a guarantor loan where someone you know agrees to make the payments if you can’t. This may lower the risk for the lender and increase your chances of acceptance. Your guarantor should understand the risks and may need a good score.
What are the benefits of getting a loan for travelling?
If you haven’t saved up enough for your getaway yet, a loan may help you book sooner to secure the holiday you want. Booking early may also help you snag a cheaper deal on things like flights and hotels — but check you’re saving more than the cost of interest on a loan.
Trying to decide if you want a loan or credit card? With a loan, it can be easier to know how much you’ll pay each month as well as overall. This is because they have set payments over a fixed term. Whereas with credit cards you choose how much you repay each month. While this may give you more flexibility it also can make it tricky to work out the overall cost of the loan.
What are the downsides of taking out a loan for a holiday?
Holiday loans come with a price tag. Consider if the total cost of a loan for travelling is worth it. You may be able to get a low-interest loan if you have a good credit score, but loans don’t have interest-free periods like 0% credit cards. Also, think about how the monthly payments will impact your spending in the future.
Getting a loan affects your score. Your score dips when you apply for holiday finance but should improve over time if you take care of it. Making payments on time and in full is good for your score, whereas late payments lower it and may lead to fines, defaulting and even legal action.
How much will holiday finance cost?
The cost of holiday finance depends on things like how much you borrow, the annual percentage rate (APR) and loan term. APR reflects the yearly cost of interest and certain fees. It’s shown as a percentage of the amount you owe, meaning you pay more with a higher APR or larger loan. The term is how long you will be making repayments — a longer term means smaller monthly payments but more interest overall.
Here are some examples of the cost of holiday loan:
| Loan A | Loan B | Loan C | Loan D | |
|---|---|---|---|---|
| Amount borrowed | £3,000 | £3,000 | £3,000 | £1,000 |
| APR | 10% | 10% | 20% | 10% |
| Term | 1 year | 2 years | 1 year | 1 year |
| Monthly payment | £263.15 | £137.84 | £275.57 | £87.72 |
| Total to repay | £3,157.76 | £3,308.13 | £3,306.85 | £1,052.59 |
| Overall cost | £157.76 | £308.13 | £306.85 | £52.59 |
If you compare loan A with B, you can see that B’s longer term means it has smaller monthly payments yet costs almost twice as much overall.
Now compare loan A with C. Loan C’s higher APR means both the monthly payments and the overall cost are higher.
Finally, compare loan A and D. Because you’re borrowing less with loan D, both the monthly payments and the overall cost are lower.
These are just examples, and your offers may be different. If you want to see what you could get, search holiday loans with Experian without affecting your score.
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What are the alternatives to a holiday loan?
Taking out a loan for travelling isn’t right for everyone. Often saving up is the cheapest and less risky option. But there are also other ways to finance your holiday. These include using a credit card or getting an arranged overdraft on your current account.
Credit card
A credit card has more flexible payments than a loan. You choose how much to repay each month as long as it’s at least the minimum amount. If you carry a balance into the next month you’ll pay interest on it — although some cards like purchase cards may offer an interest-free period. Try to pay off your card before the 0% period ends and you’re put on the lender’s standard variable rate, which is typically high.
Credit cards also protect purchases between £100 and £30,000 under Section 75 of the Consumer Credit Act 1974. This means your lender should help if there’s an issue, such as your flight being cancelled and not refunded because the airline went bust.
Planning to spend abroad or in a foreign currency? A travel card may give you the best exchange rates with no international transaction fees. They usually have high rates and no 0% period, so pay them off in full each month if possible.
Bank overdraft
An arranged overdraft is a type of credit that’s attached to your current account. You’ll usually pay interest on the amount you owe. Like cards, overdrafts typically have flexible payments. Get your bank’s approval before using an overdraft or you may be charged penalty fees.
How to apply for holiday loans with Experian
Applying for a holiday loan can usually be done online or over the phone. Lenders ask for various information like your address, contact details, date of birth, employment details, monthly income and expenses.
Experian helps you apply with confidence. Look for the best deals with us and check your chances of approval. Searching loans with us is free, takes a few minutes and won’t affect your credit score.