The 3 worst ways to finance your holiday
Australian holiday-goers are being warned against the traps of financing their upcoming trip with expensive credit options like payday loans, cash advances and even holiday loans.
“There’s nothing wrong with drawing on credit to splurge whilst overseas but all those mojitos and massages could add up to big bucks if you go for the wrong type of credit,” says Mozo Director Kirsty Lamont.
For instance, one payday lender Mozo looked at was charging a staggering $380 per $2,000 borrowed over a 2 month period. That's an annual percentage rate equivalent to 149%, more than 7 times higher than the most expensive personal loan in the Mozo database.
Here are the 3 worst ways to fund an overseas holiday, according to Lamont.
Pay day loan: Payday lenders may market themselves as seamless money borrowing platforms but Lamont says in reality they are by far the worst way to finance your holiday. “Let that $380 charge speak for itself.”
Cash advance: Using your credit card to withdraw cash is the second worst way to fund a holiday. “The average cash advance rate is nearly 20% and there’s no interest free period with cash advances, so you’ll end up paying a significant amount for the luxury of taking out cash from an ATM.”
High interest credit card: It’s all too easy to spend more than you can afford on a credit card, and end up falling down the slippery slope of debt. “If you find you can’t afford to repay what you’ve spent on the holiday, that interest free period will quickly come to an end and you could see that credit card interest pile up,” warns Lamont.
The best way to finance your holiday…
A cheap personal loan:
While some forms of credit should be avoided by Aussie travellers at all costs, Lamont says this doesn’t mean borrowing is off the table completely.
“If you don’t have the funds available for your trip right now, one option a savvy traveller could go for is a low rate personal loan.”
According to Mozo’s database the lowest rate personal loan currently available is 5.99%. Compare that to the 149% interest rate mentioned above and a borrower looking to fund their vacay is up for some serious savings.
Mozo compares personal loans from over 40 banks and lenders. View today’s cheapest rates at our personal loan comparison hub now.