Should I use a loan to fund my holiday break?

 Matt Tristram, of Loans Warehouse, spoke to Moneyfacts about the advantages of using a “holiday loan” to finance your getaway.

With the long Easter weekend fast approaching, and summer on the horizon, many of you are probably thinking of taking a city break.

However, with the cost of living showing no signs of slowing down, financing this holiday could become complex for some families. This is why some are considering a personal loan, or “holiday loan”, to help finance their getaway trip.

Below we have discussed what you should know if you are considering a holiday loan.

What is a holiday loan?

As the name suggests, a holiday loan is a personal loan you can take to fund your holiday. This can be for a local weekend in the Lake District or a larger trip of a lifetime on another continent.

Whatever the cost, it is often used so you can afford this trip in bite-sized instalments rather than a one-off payment.

Since this is a form of a personal loan, the amount you borrow will be unsecured. This means you will not need to use one of your assets as collateral in case you cannot repay the amount you borrowed.

But what about a credit card?

Compared to credit cards, holiday loans often charge less in interest and customers can benefit from a repayment plan, according to Matt Tristram, Co-Founder and Director at Loans Warehouse.

“The main benefit would be a repayment plan,” he said.

“If you can afford to settle your credit card bill each month, then fantastic. But for many that isn’t an option, so a repayment plan or term means you know when the debt will end.”

Only making the minimum payment on a credit card will generally extend the term of your credit card balance. Ultimately, this will make the cost of your borrowing more expensive, adding further costs to your trip which you may not have anticipated.

Still, there are some cases when credit cards may be preferable for your holiday.

Smaller sum financing

For some, their holiday may not be expensive. Perhaps you have savings you would like to use, or maybe your getaway is not that pricey.

In such instances, where you may look to repay your debt within a month, a credit card could be a viable option. There are a variety of 0% purchase credit cards on the market which will allow you to spend on your holiday without incurring any interest.

If you cannot use a credit card and you intend to use a loan instead, then you should look for options which have a lower rate and no early repayment charge, according to Tristram.

Otherwise, you could also consider using an overdraft. If this is something you are considering, then make sure you compare any interest charges to loans and credit cards.

Should I use a holiday loan if I have bad credit?

If you have a bad credit score, then some of these options will likely not work for you. In such instances, a loan could give you more flexibility.

If you find yourself looking for a larger sum of financing, a credit card might restrict how much you can spend, said Tristram.

“The issue with a credit card is if you have poor credit, the amount you can borrow will be very limited and likely to be less than on a loan,” explained Tristram.

Still, do not borrow more than you can pay back. If you do so, you could default on your payments which would worsen your credit score and lead to fewer options in the future.

Current rates on the market

Since June 2021, average unsecured loan rates have remained largely static, according to our data.

Average interest rates for loans between £7,500 and £15,000 have stayed at 4.4% since this period. Meanwhile, average rates for smaller loans at £5,000 and £3,000 dropped 0.01% to 7.0% and 14.3% respectively.

Instead, average rates for much lower offers have seen the biggest change. Average rates for £1,000 loans dropped from 18.5% in June 2021 to 17.9% as of April this year, making it cheaper for those looking for a low-cost holiday.

Post a Comment

Previous Post Next Post