Holiday Loans

Comparison- Payday Loans, Holiday Loans and Instalment Loans

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Been on the internet and seen a holiday you just absolutely have to go on with your friends or family? That’s great but the next big thing to think about is how you’re going to pay for it given how expensive holidays are these days.

In this article, Oyster Loan looks at:

  • Why do people need to borrow money for their holidays?
  • Are payday loans suitable as a holiday loan?
  • Are instalment loans suitable as a holiday loan?
  • What is a holiday loan?
  • Holiday loan versus payday loan versus instalment loans
  • Holiday loan brokers

Why people borrow money to go on their holidays

Behind our mortgages and the taxes we pay to the government and to our local councils, holidays are, usually, by far and away our biggest expense during any given year.

Every year, nearly 7 million of us go to Spain. Nearly three quarters of us take a holiday in the British Isles. In a 12 month period, Brits take out over £1 billion of loans to reward themselves with a much-deserved two weeks in the sun.

According to the travel agents’ main trade body, we spend £532 on our holiday before we’ve reached the airport – nearly £2bn on holiday clothes and another near £2bn at duty free airports. A family of four need more than £1,000 in spending money and that’s before excursions, day trips, days out for the children, and other travel expenses.

Oyster Loan worked out the cost of a holiday for a family of four to Barcelona in one of our previous articles and it came to a whopping £5,347 all in (4 star hotel, flights, food, drink, and entertainment).

Finding £5,347 in spare cash is difficult for most family so millions of us every year choose to spread the cost of our time away with a loan.

But what types of loan are available for us if we want our dream holiday?

What is a payday loan?

Could you use a payday loan for your holiday? Yes, but it’s not advisable. Payday loans are designed for emergencies like paying to repair your car if it’s broken down, medical expenses, funeral expenses and more.

A payday loan is a type of loan which you pay back in full next time you receive your wages or within 30 days – whichever date you and your lender have agreed upon.

Payday loans are generally for between £100 and £1,000 meaning that most payday loans won’t cover the amount you need to pay for your holiday. Payday loans also offer higher interest rates than standard holiday loans so, as with everything else you buy, you’d do well to shop around.

What is an instalment loan?

An instalment loan, sometimes called a short-term loan, is like a payday loan but it’s a loan you can take out over between two and twelve months. You don’t have to pay the loan and the interest off all at once as you do with a payday loan.

Instalment loans are generally between £300 and £5,000 in size meaning that, in most cases, it won’t be enough to cover the cost of your holiday.

Instalment loans can be used for holidays but please do make sure that you shop around to get the best quote because you don’t want to pay more than you need to.

What is a holiday loan?

Holiday loans are a type of loan specifically designed for people who want to book a holiday now but they don’t have the cash in the bank available to pay for it today. Once you’ve worked out the cost of your holiday and the amount you can put towards it from your savings, you’ll then know the size of the loan you need to take out for your holiday.

Make sure that you include everything when you’re budgeting – the travel, the hotel or the villa, and what you’ll be doing every day (excursions, entertainment, food, drink, and other incidental expenses).

There are hundreds of Financial Conduct Authority-licenced firms who work with borrowers looking for a loan to pay for their holidays. The types of companies you can obtain holiday loans from include banks, building societies, peer to peer lenders, comparison sites, brokers, and more.

Interest rates on holiday loans tend to be lower than the interest rates you’d pay on either a payday loan or a short-term instalment loan. As with instalment loans, you don’t need to put up any security for a holiday loan too and that means that, if you’re not able to pay it back, then your holiday loan provider can’t take your home, your car, or anything else you own away from you.

If taking a big holiday is an annual thing for you and your family, it’s better to try to make sure that your loan doesn’t overlap with any other holiday loans you’ve taken out. Most financial experts recommend that holiday loans should not be taken out for periods of longer than 12 months.

Like we mentioned earlier, try to put aside any of your savings you can afford to put by to pay for your holiday. That means that you’ll borrow less money and you won’t have to pay as much interest on your holiday loan.

Could I use a personal loan to pay for my holiday?

Yes. Personal loans are standard unsecured loans that you can use for virtually any reason you want to use them. You can’t use personal loans for, in general, business reasons or if you want to invest in something speculative, like stocks, shares, and cryptocurrency.

You can get a personal loan from exactly the same places you can get a holiday loan from. You can generally borrow up to £25,000 and for up to seven years. People generally use personal loans not just for holidays but for home improvements, new cars, weddings, and so on.

Holiday loan versus payday loan versus instalment loans

Payday loans should never be considered as a way to fund your dream holiday because:

  • they’re expensive in comparison to standard holiday loans,
  • it will be difficult to take out a payday loan of the size you need to pay for your holiday, and
  • you pay one back within 30 days meaning that, because of the interest on the loan, you’ll have less money than you had before taking the loan for your holiday.

Instalment loans and holiday loans (or personal loans taken out to pay for a holiday) are better bets. You can take them out for the recommended 12 months – enough time to raise the funds you need, have your holiday, pay it off, and then plan for the holiday after.

Instalment loans are generally targeted towards people with less than perfect credit scores whereas holiday loans are more often given to people with very good credit records. As you’d expect, instalment loans have a higher interest rate than holiday loans so you’ll need to make sure that you understand the full cost of this option in particular.

The next thing to consider is what your monthly repayments are going to be. With both instalment loans and holiday loans, you’ll generally pay back the same amount every month on the same date in each month until you’ve fully settled your account.

You should do a budget – understand how much money is coming into your household and how much you spend each month. If you are spending more than you’re earning, you should address this straight away and come up with a new budget to make sure that you’ve got money left at the end of each month.

If you do already have money left over at the end of month, choose the loan option which allows you to comfortable make the repayments you need to make without causing you any hardship. While it might be great to take two weeks in the sun once a year, it’s harder to justify if it’s hard financially for the other fifty weeks of the year.

Holiday loan brokers

Oyster Loan works with both instalment loan providers and holiday loan companies. We’re not a lender – we’re a Financial Conduct Authority-licenced broker and we introduce borrowers like you to Financial Conduct Authority-approved lenders who want to help you pay for your holiday.

How does it work? Click here to enter your details onto our application form. We’ll ask you questions like how much you earn, where you work, what you spend your money on, and the addresses you’ve lived at for the last three years.

We then take those details and we match them up to the lenders whose “borrower profile” (the type of person they like to lend money to) you most closely match. Those lenders will then send us back a decision in principle – they’ll tell us the type of offer they’re likely to make to you.

Once we know who seems happiest to lend you money, we run a credit check on you and then we send your credit report to all the lenders who have come back with a provisional “yes”. The lenders then use what’s on your credit report to refine their deals so that they can come up with a final offer for you.

We’ll then show you the best final offer we’ve secured on your behalf – you’ll see the total amount of interest you’ll pay back, the monthly repayments (and when you have to make them), and any other charges and fees attached with that loan offer.

The good news is that all of this happens within seconds so if you’ve just seen a holiday offer that looks perfect for you and your family, you can get access to the money you need instantly to get onto your travel agent and book your vacation.

Our service is free and you’re under no obligation to take out any loan we find for you.

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