Most holidays aren’t booked more than a year in advance, which doesn’t give you a lot of time to save for one – let alone to save for the spending money you’ll need while you’re there, plus the other inevitable costs involved – like car hire, meals out and insurance, to name just a few. If you’re fed up of putting off that hard-earned break, then taking out a personal loan and just booking the holiday is a great way to make sure it actually happens.
So what’s the best way to go about it? How do you choose the right loan? Are there alternatives? This guide will cover-off all these questions and more, so that you can make an informed decision and start looking forward to your trip!
What is a holiday loan?
When lenders talk about a “holiday loan”, it’s essentially just a regular unsecured personal loan, that you could use to finance a holiday. Personal loans can be used for almost anything – in fact, lenders normally list just a small handful of things that you can’t use an unsecured personal loan for, and you wocn’t see “holiday” among them. With an unsecured personal loan you can get the funds you need now and repay it over an agreed term.
How do holiday loans work?
OK, so you’ve found the holiday you’re after – now you just need to sort out financing it.
Once you’ve compared lenders, chosen a loan and submitted an application, provided your application isn’t rejected you’ll then receive a loan offer. You’ll want to check through this offer carefully. Once you accept it, the lender will transfer funds to an account that you’re nominated, and you’re ready to book your holiday.
The not-so-exciting part – repaying the loan – comes next. Each month you’ll make a repayment which will consist of the interest you’ve accrued so far, plus a part of the capital (the original sum borrowed). Because unsecured personal loans are almost always “fixed-rate” products, the interest rate doesn’t change throughout the course of the loan, even if interest rates generally do start to rise (or fall). That means that your monthly instalments will remain the same, and you’ll know in advance exactly how much the loan is going to cost overall.
A lot of people like the rigidity that personal loans offer. While it can be hard to know in advance exactly how much you’ll spend on your trip (especially if you’re heading off for longer than a couple of weeks), at least you’ll know exactly how much your loan is going to cost, and when it’ll be cleared.
How should I compare holiday loans?
It’s easy to just focus on the rates of loans, and make no mistake: the APR is a good benchmark for comparison, but there are other factors to bear in mind. Here are some of the key things to look out for when you’re comparing loans:
Amounts available. Perhaps the first question you’ll want to ask is: “Can you lend me the amount that I need?”. Typically, personal loans can be for as little as £1,000 or as much as £25,000, although some lenders may offer larger sums – potentially up to £50,000 (seriously, where are you going?!), although chances are you’ll need to be an existing customer to borrow this much without security.
Loan terms available. Nobody wants to be saddled with debt for years and years, but realistically, for most of us, spreading the cost of a major outlay like a holiday is how you make it affordable. So, typically the length of the loan will be dictated by the amount that you’re borrowing and how much you can afford to pay each month. Generally speaking, the longer the term you spread repayment over, the smaller the monthly repayment, but the greater the overall cost of the loan. Try to keep your loan as short as possible while ensuring you can afford the instalments.
Eligibility. It might sound obvious, but if you’re not eligible for a loan, don’t apply for it. Each application for credit will generally be visible on your credit report. Too many of these, and you’ll look desperate to a potential lender.
APR. For lenders, the Annual Percentage Rate (APR) is normally the main “hook” they’ll use to promote their product. So what exactly is it? Well, the APR is designed to be a benchmark for consumers, providing an annual summary of the cost of the loan. As well as the interest, the APR also takes into account any compulsory charges – like an “admin” or “set-up” fee (if there is one). However, crucially, lenders only have to award the advertised APR to 51% of those who take out the loan – the other 49% could be offered a different (higher) rate, at the lender’s discretion. That’s why it’s often referred to as the representative APR.
Overall cost. If you only compare one factor, it should probably be this one! A fantastic interest rate is, well, fantastic, but if you have to borrow for longer than you need to in order to get it, or borrow more money than you really need to get it, then that’s a false economy.
Fees. Although “set-up”/”admin”/”product” fees are actually pretty rare now in the world of unsecured personal loans, you’re definitely going to want to check if the product you’re considering comes with any fees attached. Other fees you could potentially come across include early repayment fees, late repayment fees and annual fees.
Turnaround time. Let’s face it: British banks can be pretty slow. If getting access to funds quickly is important for you, then factor this into your comparison. Lenders are normally upfront about the time it takes from application until the funds are “drawn down” (that’s when the money lands in your account). Applying to a bank where you’re already a customer will normally be much quicker, but it almost always pays to shop around.
Early repayment terms. Once you’ve made some memories and you’ve got stuck in to paying off your loan, chances are you’ll be keen to repay the loan early if you can – and that’s a great, responsible attitude. However, the reality is that lenders don’t really want you to do this if it’s going to mean they make less money from the whole process. Most lenders promote the fact that they don’t charge you a penalty if your repay your loan early, but that doesn’t necessarily mean that doing so will save you money in interest. For example, if you were to clear a two-year loan in 18 months, but still had to pay two years’ interest, chances are you’d feel a bit sore about it. A common policy among lenders is to charge two month’s additional interest on early repayments. So if you’re planning to try to overpay where possible, and clear your loan early, you’ll want factor early repayment terms into your comparison of lenders – favourable terms could be worth more to you than a fractionally better interest rate.
Compare personal loans to fund your holiday
Table: sorted by representative APR, promoted deals first
With no guarantor
With a guarantor
With a guarantor who is a homeowner
Please note: You should always refer to your loan agreement for exact repayment amounts as they may vary from our results.
Warning: late repayments can cause you serious money problems. See our debt help guides.
What about just paying for the holiday on a credit card?
There’s more than one way to finance a holiday. A personal loan is a popular option, but some people might simply “put it on plastic”. Is that a crazy choice? Not necessarily, but there’s advantages and disadvantages to both routes, and which of the two is better for you will depend on your individual circumstances. Here are some of the key considerations (this is not an exhaustive list):
Amount of credit. A personal loan might give you access to more credit than a credit card.
Interest rates. Credit cards typically charge higher rates of interest than personal loans, however, you’ll only pay interest on what you spend. Additionally you could seek out a credit card with a 0% interest on purchases offer. In this situation, purchases you make using the card can be exempt from interest for a set period. As long as you pay off what you owe within this period then you could avoid paying interest altogether.
Repayment flexibility. With a personal loan, you pay a set amount back each month to clear the debt over a pre-arranged period. However with a credit card, you’re only obliged to make a relatively small monthly repayment. If you only make this small payment, then you could end up shouldering the debt for a lot longer. You might even go on to make additional purchases after your holiday. So if you don’t have the financial discipline, a credit card might not be the answer.
Cash transactions. Need cash to buy flip flops at the market? Well if you withdraw cash on your credit card, there’s likely to be a fee involved plus a higher rate of interest on that part of your balance. By contrast, with a personal loan you simply receive a lump sum to your nominated account.
Overseas spending. To pay for your holiday on a credit card you’ll probably want a card that charges 0% on purchases for a promotional period, but if you’re considering a credit card for spending while you’re away, you’ll probably want to look for a card that’s specifically designed for overseas use (these cards won’t charge you hefty fees for non-sterling transactions). Finding one card which does both could prove tricky.
Ultimately, a credit card could work out cheaper, however if you’re not disciplined about repayments and could be tempted to make additional purchases on the card in future, then you could easily end up paying more overall.
How you can apply for a holiday loan
Before you apply for an unsecured personal loan you should first compare your options using the table on this page. Once you’ve chosen a loan you can click “Go to Site”. Applying online is straightforward and normally takes around 15 minutes. Don’t forget that eligibility criteria vary between lenders, so make sure you meet the criteria before you apply.
Frequently asked questions