Holiday Loans

Let’s face it, we all need a holiday sometimes. 

They give us a chance to rest, recharge, and spend time with the people we love.

If you’ve considered jetting off on a much-needed break abroad or indulging in a staycation, it’s likely that the cost of any travel will be a factor in deciding which break you take.

A holiday loan could help you pay off the cost of your break gradually, whilst allowing you to get your plans in order as soon as possible.

In this article, we'll break down everything you need to know about holiday loans. Whether you're a newcomer to the world of personal finance or simply on the hunt for some helpful insights, you've come to the right place.

What is a holiday loan?

A holiday loan, also called a travel loan in some contexts, is a popular financial tool used by many holidaymakers in the UK.

They’re a type of personal loan, designed to help you fund your dream trip and cover any holiday expenses you may encounter.

A holiday loan can equip you with the necessary cash to cover costs like flights, a place to stay, transport, meals out, and any other costs associated with the trip you’ve got in mind. 

Once you’ve successfully secured the sum of your holiday loan, you can spend it any way you see fit. Easy!

You can obtain a holiday loan from a variety of financial institutions. Banks, credit unions, and online lenders can all offer you this type of credit product, provided you meet their lending criteria.

The loan amount and repayment terms of a holiday loan you take out will vary depending on which lender you choose, as well as your creditworthiness as a borrower.

It's important to remember that holiday loans are unsecured, like most other personal loans. 

This means that you don't need to offer the lender any collateral, such as your home or your car, to secure the holiday loan you apply for.

By taking advantage of a holiday loan, you can spread the cost of your trip over a fixed period without relying on your savings account or a high-interest credit card. 

This makes budgeting for your break much more manageable overall.

So, whether you're dreaming of exploring Britain’s mountains, relaxing on a golden beach, or immersing yourself in a new culture, a holiday loan can be a great tool to turn your travel aspirations into reality.

What are the advantages of a holiday loan?

As you can imagine, taking out a holiday loan to cover the cost of a trip can offer you some big advantages:

• Holiday loans give you the ability to access the cash you require quickly. Instead of waiting months or even years to save up for your dream holiday, a loan can enable you to obtain the money you need upfront. This means you can book flights, a place to stay, as well as excursions without delay. This way, you’ll be sure to secure the best deals by sorting the logistics of your trip far in advance.

• Depending on which lender you go for, holiday loans can come with highly flexible repayment terms - always a bonus! Lenders understand that everyone's financial situation is different, so they can generally offer you a range of repayment options to suit your specific circumstances. You can choose a duration to repay your loan which works for you, whether that’s a few months or even a couple of years.

• A big perk of holiday loans is that your repayment term and the sum you’ll need to pay the lender each month is usually fixed. This means you will be able to determine a monthly instalment sum which can fit within your budget and won’t change at all during the repayment period.

• Depending on how creditworthy a lender deems you to be, holiday loans can offer hugely competitive interest rates. This means you will be able to enjoy the benefits of borrowing money without needing to pay excessively high interest charges on the sum you’re loaned. It's always sensible to compare interest rates from a few different lenders so you can find the best deal available for your financial situation.

• By opting to take out a holiday loan, you can preserve your savings account for emergencies. Rather than depleting your savings account to cover travel expenses, which is never fun, you can keep your cash intact and use it for other important purposes, such as unexpected health expenses or home improvements.

• If you have limited or no credit history to your name, you could use a holiday loan to build your credit record. This will ensure that if you need to take out a bigger loan in the future, you’ll be able to show lenders you can be responsible with credit use. 

But keep in mind, if you’re unable to keep up with repayments, it could negatively affect your credit score and leave you struggling to get accepted for a loan in the future. 

Can I get a holiday loan with bad credit?

Getting that all-important holiday loan with bad credit can be a challenging feat. However, doing so is not entirely impossible.

While having a good credit score does increase your chances of obtaining a loan with good terms, some lenders specialise in providing loans to people with less-than-perfect credit histories.

There are a few options to consider if you’re somebody with bad credit who’s on the hunt for a holiday loan.

Online Lenders

It may surprise you to know that many online lenders often have more flexible lending criteria in comparison to traditional banks.

They might be willing to take other factors about you into account, such as your income and your employment history, in addition to considering your credit score when assessing your application for a holiday loan.

A good place to start is researching and comparing online lenders who specifically cater to people with bad credit. You may find the product you’ve been searching for!

Just remember, with bad credit score your interest rate is likely to be higher. So, make sure your repayments are affordable for you before taking out a loan. 

Secured Holiday Loans

If you own any valuable assets, such as a car or a property, you might be able to get a secured holiday loan, as opposed to the conventional unsecured holiday loan we mentioned earlier.

In this case, you can use your asset as collateral in the loan agreement. This will provide the lender with some added security if you fail to make your repayments, making the prospect of them agreeing to lend you money more likely overall.

Whilst this could be a viable option if you’re someone with not-so-great credit history, it's very important to fully understand the risks involved with taking out a secured loan. Defaulting could result in the seizure of your collateral, so you’ll need to keep those repayments on track.

Credit Unions

Credit unions are non-profit financial institutions who generally work with a more customer-focussed and holistic framework. This means that they may have more lenient lending policies when compared to traditional banks you come across.

They often prioritise their members' financial well-being above generating income and might be more willing to work with those who have bad credit.

If this is you, it would be wise to contact a credit union to discuss your options for a holiday loan.

Guarantor

Having a guarantor with good credit to co-sign on your holiday loan can significantly improve your chances of getting approved by a lender.

A guarantor agrees to be held legally responsible for repaying your loan if you fail to keep up with the schedule you agree to. 

This provides an added layer of security for the lender, increasing the likelihood they’ll stump up for a holiday loan.

Improve Your Credit Score

If your credit score is on the low side, you might consider taking steps to improve it before starting an application for a holiday loan.

Paying off any outstanding debts, making timely repayments, and keeping your level of credit utilisation low can all work to boost your creditworthiness over time.

Ultimately, this will make it all the more likely that a lender will approve your request for a holiday loan in the near future.

Remember to thoroughly research and compare lenders who are offering holiday loans on the market, paying close attention to the interest rates, fees, and repayment terms attached to any products you come across.

It’s also wise to remain cautious of predatory lenders who might try and take advantage of people with bad credit by charging exorbitant interest rates, or imposing unfair terms.

Are there any alternatives to a holiday loan?

If you’ve made it this far but are still not convinced that a holiday loan is for you, you’ll be pleased to know that there are some alternative options to consider for funding your break.

• Perhaps the most obvious alternative to a holiday loan is self-funding. You can set a budget, determine how much you’ll need to save each month, and create a savings account dedicated to accruing your travel funds.Of course, it may require some discipline and forward planning, but saving for your trip in advance can help you avoid debt and any associated interest charges which come with a loan. This way, you’ll only pay for what you actually spend.

• If you’re in possession of a credit card which carries a reasonable interest rate, you can use it to cover your holiday expenses instead of taking out a new loan. However, it's important to be very mindful of your spending and be proactive in creating a repayment plan to avoid accumulating a lot of high-interest debt. If you don’t have a credit card already, you can look for cards with solid rewards or cashback programs. This could help offset some of your travel expenses, which is always a bonus!

• Some financial institutions offer their customers holiday savings clubs or accounts which are specially designed to help you save towards travel costs. These accounts often come with incentives and perks to boot, such as higher interest rates on your savings, or discounts on travel-related services like airlines and hotel groups. To save some cash and take advantage of these perks, you could consider inquiring about the benefits your bank currently offers.

• Some travel providers offer their own in-house financing options if you book any part of your break with them. You can explore deposit options, interest free payment plans, as well as any other deals individual travel companies offer on the market by researching providers online.

Remember, whichever alternative to a holiday loan you choose, it's important to plan your finances wisely.