Holiday Loans

A loan for a holiday is a way to spread out the cost of your vacation. You don’t have to worry about paying for it all at once with one because you may spread the repayment out over a predetermined number of months.

When you apply with a lender or bank, you have to choose your loan amount and the repayment period. Your monthly repayment amount will be calculated based on the loan duration you choose.

Lenders will need to know specifics about your financial situation, such as your income and expenses, in order to determine if you will be able to afford to repay the loan within the predetermined time frame.

When determining whether to authorise the loan and what interest rate to charge you, they will also take into account your credit score.

With a secured holiday loan, you have to offer collateral to the lender or bank you are borrowing the loan. Although you might get to apply for a greater loan amount at a lower interest rate, your asset will be at risk. In case you fail to repay the loan, the lender has the right to acquire and sell off your asset to recover the loan amount.

While with an unsecured loan, you borrow for your holiday, you do not have to provide any collateral. That way, your assets are safe if you fail to make the repayments. However, your credit score will be impacted if you do not make timely repayments on the loan.

Every lender or financial institution has their own eligibility criteria and process for approving your holiday loan application. You are offered a personalised loan rate when you apply as individual situations may vary from person to person.

The most basic eligibility criteria for borrowing a holiday loan are –

(i) you must be 18 years or above, and

(ii) you must be a citizen of the UK. Some banks may also require you to have an active account with them.

The lender must determine whether to lend to you when you apply for a loan or any other sort of credit. Different factors are considered by creditors when determining whether or not you are a good risk.

Listed below are a few factors that affect the approval of your holiday loan application:

• Credit Score and History 

Your credit score and history are assessed by the lenders to analyze your borrowing history. It gives them an idea of the risk associated with lending money to you. Hence, before applying for a holiday loan, check your credit report for any errors.

• Income and Employment Details 

Lenders need to ensure that the loan they are lending will be repaid by you. Hence, your monthly income, expenses, and your employment details will be scrutinised to form a decision on the loan application approval.

•     Loan Amount 

The loan amount you are borrowing should be easily repaid by you. If you borrow a loan that you are not able to repay on time, lenders may not approve your holiday loan application.

You will be asked to share a few documents by the lender to be considered as proof of residence, income, employment and identity. The documents you need to provide may vary from lender to lender. Your financial details need to be shared with the lender to help them in the decision making.

Compare quotes from different lenders and choose one who is offering you the best interest rate as per your circumstances. Once you finalise the lender, check their eligibility criteria and apply accordingly. The lender you choose may allow you to apply for a holiday loan online. Submit the application form along with the documents asked by the lender for assessment. 

The lender will review your loan application and check your documents to make their decision.

Whether you choose an unsecured or secured holiday loan, you will repay the loan in accordance with a repayment plan with an agreed-upon variable or fixed interest rate. To help you choose the right financing option for your holiday, we have listed below three different options for you to consider:

Personal Holiday Loans 

Unsecured holiday loans don’t require the use of collateral or personal property as security. This loan type is less risky but normally has a borrowing limit of £35,000 and comes with a slightly higher interest rate. If you have a decent credit score, unsecured loans are a good option for holiday loans as the interest rate offered to you will be lower.

Secured Holiday Loans 

A secured holiday loan will be backed by a valuable asset, often known as collateral, such as your house or vehicle. You can often borrow more money and have a longer repayment time with secured loans. It can be helpful if your credit score is not very good. But keep in mind that if you default on your payments, your asset can be seized by the lender and sold off to recover the money. 

Credit Cards for Holiday Expenses 

When travelling overseas, should you use your credit card? This is a common problem for vacationers. In most cases, it comes down to your card’s terms and conditions as well as the purpose for which you are using it—for example, cash withdrawals vs paying a restaurant bill.

You may incur some fees and charges while travelling, regardless of the type of card you use. You should carefully review the fees your credit cards charge before you go. If you have time to prepare, one option would be to apply for a credit card that is specifically made for use abroad and has minimal, or sometimes even no, fees. Such cards are offered by many reputable card issuers, so do your research before applying.

But keep in mind that, like with all credit cards, interest fees will accrue if you don’t pay off your balance in full when the statement is due.

Using Savings for Holidays 

You will benefit from not paying interest if you have the savings necessary to pay for your vacation. Even if it’s not always simple, you should always strive to save.

Saving money is often challenging. However, there are a few things you can do to save up some extra cash. Review your household bills for savings and change your energy providers if needed. Take charge of your finances by examining your income and spending, it will give a boost to the way you are saving money.

To borrow a holiday loan, you must know the exact amount you need to borrow and how much interest rate the lender will charge you, the monthly repayment amount so that you can pay off the loan without any issues.

Let us find out more about these terms of holiday loans.

Determining the Loan Amount you can Borrow 

Think about how much you would like to borrow; it’s crucial to account for the major expenses, such as lodging, transportation, and spending money for any extracurricular activities. Then if you have any savings, deduct the amount and you will find the exact amount you need to borrow for your dream vacation.

Repayment Period and Options 

Although you might be able to borrow for up to seven years, most travel loans must be paid back between one to five years.

A longer term will result in lower monthly payments, but you will also pay more in interest, increasing the overall cost of the loan.  Hence, choose your repayment period carefully after reviewing your monthly income and expenses.

Monthly Instalments and Interest Rates 

If you are planning a more pricey vacation, unsecured holiday loan rates are typically the most competitive, with loan sums of £7,500 or more receiving the most beneficial interest rates with an annual percentage rate (APR) of just below 3%. However, this is not what happens in every case. The interest rate you will be charged depends on your credit score and history, your income, expenses, and employment as well.

Keep in mind to follow the repayment schedule provided in your loan agreement. Only once all payments and accrued interest have been received in full will your account be closed.

When you take out a holiday loan, the lender or bank will charge you an interest rate on the loan amount you borrow. The interest rate will be decided by the lender after assessing your loan application along with the documents and details you have shared with them while applying for the loan.

Now, when it comes to interest rate, there are generally two types of interest rate – fixed interest rate and variable interest rate. 

Let us find out how do they work.

Fixed Rate Vs Variable Rate Holiday Loans 

Fixed interest rate, as the name suggests the interest rate will remain the same throughout the loan term. That means the monthly instalment amount will remain same and you can easily have a stable budget to stay on track of your finances.

However, with a variable interest rate holiday loan, the interest rate will vary. It is not fixed, hence, the monthly instalment amount will also be not fixed. You may end up paying more or less in interest, but it cannot be predicted.

Factors Influencing Interest Rates of your Holiday Loan 

Various factors affect the interest rate of your holiday loans, and they are:

Repayment Term

The loan term you choose impacts the interest rate of your loan. If you choose a longer repayment period, the monthly repayment will be low but as you have to pay it off in a long time, the interest you will pay is more.

Credit Score and History

Your credit score and history impacts your loan rate. With a good credit score, the interest rate will be low. And if you have a low credit score, your loan will have a higher interest rate due to the risk involved in lending money to you.

Loan Amount

If you borrow a smaller loan amount, the interest rate will be high as the chances of defaulting at the repayments is high. The interest rate will decrease if the loan amount is more.

Annual Percentage Rate (APR) of Holiday Loans 

The annual percentage rate, or APR, is the price you pay for all of your borrowing over the course of a year. The regular costs and interest that you will have to pay are included, which is significant. Because of how the interest is determined, your monthly payments are fixed. Your initial loan repayments will be higher in interest but lower in loan principal. Your repayments will eventually contain less interest and more of the principal as the loan term comes to a close.

Loan Arrangement Fees and Other Charges 

Lenders generally charge a loan origination fees for arranging the funds for your holiday. In short, it is a fee that the lender charges as a fees for the loan they are giving out apart from the interest rate.

If you pay your loan late, for example, you missed the due date of your repayment, the lender will charge a late payment fee. Ensure to make all the repayments on time.

Also, if you wish to foreclose the holiday loan, the lender will charge a early payment fee. As the lender will be losing out on the interest they would have earned in case the loan was active.

The holiday loan you take out can be used for different purposes such as booking your flights, accommodation, sometimes shopping too. The money you receive from your holiday loan can be used for:

• Financing flights and accommodations
• Funding holiday packages and tours
• Covering travel expenses and transportation
• Budgeting for meals, activities, and shopping

When you borrow money, you agree to certain terms and conditions proposed by the lender. You will have to follow certain rules set by the lender, otherwise there could be consequences, which may hurt your finances.

Let us find out more about it.

Loan Repayment Obligations and Consequences of Default 

Your loan repayment date will be fixed as per your contract. The repayment needs to be done on that particular date till the end of the loan term. In case, you miss the repayment once, you can always reach out to your lender and get that waived off. However, not repaying the loan on time even once will impact your credit score. And if you continue to miss the repayments and stop paying off the debt completely, you may receive a Country Court Judgment (CCJ).

Budgeting for Loan Repayments After the Holiday 

Revisit your monthly budget after you come back from a vacation, especially if you have borrowed a loan to cover for the expenses. Remove all the unnecessary expenses or items that you can easily do without for the loan term. That way you will have more room in your monthly budget and you will not feel completely squeezed by the financial demands.

Impact on Credit Score and Future Borrowing 

Your credit score will be impacted if you do not make timely payments. It will be recorded on your credit report that you had not cleared off the debt. So, if in future, you apply for a loan, this history will have an impact on the lender’s decision to lend money to you.

It is natural to feel excited about the vacation you are about to go on, and it will only double up the excitement once you get the funds. However, you should have a budget and you must allocate the funds accordingly so that you do not deviate from your financial path.

Setting a Realistic Holiday Budget 

You have to set a budget that seems real and borrow an amount that you can easily pay off. Remember, you will have to pay back the loan amount along with the interest. Allocate the funds you receive from the holiday loan to different purposes wherever needed. Do not go overboard in spending the funds, as you will have to pay them back and disturbing the budget may disturb your entire plan.

Comparing Loan Offers and Terms 

Apply with a loan broker to get multiple quotes from different lenders. If you directly apply with one lender, you will only get a lender’s quote. And your credit score will be impacted every time a lender reviews your credit report.

LoanTube allows you to compare multiple quotes from different FCA authorised lenders with a single application form. You get quotes from various lenders at a single place, helping you to have an easy comparison.

Choose a lender who is offering you the lowest APR.

Managing Finances and Loan Repayments Effectively 

You need to prepare a budget according to your monthly income and expenses to manage the repayments effectively. Having a budget will give you a clear picture of your finances. You will have an idea of how to balance expenses in your budget so that you have enough money for the repayments.