Holiday Loans: Should You Borrow?
From career break loans to household furnishing loans; in today’s lending market there are loans advertised for just about anything. But taking a loan or using a credit card to pay for an annual holiday will not usually be a cost effective option.
What Are Holiday Loans?Holiday loans are basically a short or long term loan provided by lenders to pay for a holiday, and they are advertised as such. Loans can be given for any purpose and in most cases it will be up to the customers how they spend the funds. But lenders do offer holiday loans as an affordable way to pay for that much needed annual holiday. Lenders will advertise loans specifically to pay for the entire cost of a holiday or simply to pay the deposit. There are also loans available for students to fund that summer holiday or even the gap year spent travelling.
More People Using Credit to Fund HolidaysWhen finances are tight people turn to lenders and credit to make ends meet and simply fund month to month expenses. A holiday is not usually a priority but for many people it can be a necessity and a chance to unwind and relax. But an AA Travel Insurance survey states that just over 40 percent of Brits will be eliminating the annual summer holiday due to inadequate finances. Credit cards and loans are an easy way to pay the expense of a holiday and repay in convenient instalments, according to the lenders. But as with most credit agreements there are financial issues to consider before taking a holiday loan.
The Major Disadvantage of Taking a Holiday LoanOn average most holidays last for a two week period although some people do have more than one holiday per year. For most people the holiday goes by far too quickly before they are back at home and back to work. Taking out a loan to fund a holiday is an additional debt, and one of the biggest disadvantages is how long this debt will last. A borrower who takes on a loan for a simple two week holiday that amounts to one or two thousand pounds could still be repaying this debt long after the holiday is over. The borrower can still be repaying the debt when the next annual holiday is due.
Holiday Loans Will Mean Additional CostsTaking holiday loans or using a credit card to fund a holiday will mean additional costs. Interest fees will be applied to both loans and credit cards for the length of the repayment period. Some lenders will add on extra fees such as administration and loan set up fees that will increase costs further. All of this extra expense will seriously kick up the original price of the holiday. Anyone who is considering a holiday loan should assess the final cost of the loan compared to the actual original price of the holiday.
Using a Credit Card to Pay for a HolidayCredit cards can have some advantages over loans when it comes to paying for a holiday. Credit cards have interest free periods meaning the expense of a holiday can be split over two salary payments. Credit cards with long interest free introductory offers can also be a good idea as long as the debt can be paid before the interest kicks in. Paying by credit cards does also offer financial protection in the form of insurance if a travel firm does go bankrupt. There are also many rewards available through credit cards such as Airmiles that can provide free flights and even free hotel rooms depending on the credit card provider.
Alternatives to Taking Holiday LoansThere are some cost effective alternatives to taking out a long-term holiday loan. An increased overdraft with low interest fees is a good way to spread the cost and help finance part or all of a holiday. Taking a loan from low cost lenders such as a credit union is an option when spreading the cost and decreasing the interest payments. Of course the lowest cost alternative is to save the actual money and pay cash for the holiday. But for many British people with financial responsibilities this is not an option that comes easily.
If a holiday loan is the only option then always look out for the best rates available. Do not simply apply for loans because they come under the ‘holiday loans’ heading. There are plenty of lenders who will offer low interest rate loans, and how the loan is spent is entirely up to the borrower. Undertake research, use comparison websites and shop around to find the best low interest deals on credit cards and loans if this is the only finance option.