Take flight with a holiday loan
Has life been getting a little bit overwhelming?
Most of us wish we could just take off and find ourselves roaming around Europe for a month or lying on the beach on a tropical island, but only 32% of international travel in the last year was used for holiday purposes.
No matter the purpose, travel is one of the most expensive things that Aussies are fans of, as even domestic holidays can cost a pretty penny with a nation so vast. Enter holiday loans - a way to support your desire to travel without eating into your savings.
Wondering whether a travel loan could be the right option for you? We’re here to talk you through the ups and downs, ins and outs of vacation loans.
What is a holiday loan?
A holiday loan functions much the same as any other personal loan, but instead of being focused on paying for a new car, a medical procedure, or home renovations, you use the money for that big trip you have planned!
With a travel loan, you will borrow a lump sum of money which is then paid back over a set period of time, along with interest and any additional fees.
You can use the Mozo holiday loan repayment calculator to work out how much you can afford to borrow for your next grand vacation.
Is a holiday loan the right choice for me?
While the right choice comes down to your specific circumstances, there are some things to take into consideration when thinking about applying for a travel loan.
A holiday loan is not the only option when it comes to financing your next trip, and you might find another form of finance that better suits your needs.
For instance, personal loans tend to start at around $2,000-$5,000 - meaning they aren’t the ideal choice for people looking to spend a smaller amount of money on their next trip. For smaller sums, you may consider using money from your savings or budgeting some extra money to set aside for travel.
Vacation loans are also best suited to those who know exactly how much money they will be needing to borrow, as you lock in a lump sum of money when you apply for a loan. If you would prefer to borrow as you go, you might find a travel credit card is a better fit.
What does a travel loan cover?
You can use your holiday loan to pay for a wide range of things, not just the cost of a flight. With personal loans for travel tending to run between $2,000 and $100,000, you should be able to find one that fits your needs.
The average Aussie aims to spend about $5,000 on an overseas trip (courtesy of CommBank). This can go much higher - or much lower - depending on the location you’re planning to visit, the length of time you want to be away for, and the degree of luxury you like to travel in. Backpacking around Thailand, generally speaking, will be friendlier to your wallet than staying at five star hotels in the Swiss Alps.
Here are some things you can use your holidays loan on:
The good thing about using a personal loan for a holiday is that once the money is in your hands, it is yours to spend as you wish - meaning you have flexibility to put it towards the things that are important to you.
What types of holiday loans are there?
Much like any other personal loan, travel loans come in a range of different kinds - making sure you get the right loan for your needs.
Fixed rates: With a fixed rate loan, your interest rate stays the same for the life of your loan (which can make planning your budget a bit easier). You might lean towards this option if you're worried about a rate hike, but they do tend to be attached to higher interest rates and more rigid conditions with less flexible features.
Unsecured loan: Most holiday loans are unsecured loans, meaning that they are not held against any collateral. An unsecured loan may have a higher interest rate, but it means you aren’t at risk of having your assets repossessed.
Secured loan: The reason most travel loans are unsecured is that secured loans are held against valuable assets. These are very common with car loans or motorcycle loans, where the loan is used to buy something valuable. If you do secure a holiday loan against a possession, you may score a lower interest rate - just watch out for your repayments, as you don’t want to have it taken back from you.
What other features should I watch for in a travel loan?
Once you’ve nailed down the basics of the loan you’re looking for, it’s time to examine the extras.
Some of these might be more essential to you than others, especially if you’re looking for a loan with more flexibility. Others are simply fine print that it’s easy to miss, so make sure you’re reading all the information!
Fees: Finding the fees can lead to a lot of money saved. Almost all loans will have an application fee attached, but some holiday loans can have other fees hidden along the way. Look for things like break cost fees, late repayment fees, and early repayment fees!
Loan term: This is how long the loan goes for. Most personal loans last between 1-7 years, and this impacts how much interest you will pay. The shorter the length of your loan, the less interest you will pay, but the more your repayments will be.
Comparison rate: A comparison rate factors in the interest rate and the fees you’ll be charged with a specific loan. Comparing holiday loans based on the comparison rate (rather than the advertised rate) gives you a more accurate idea of the full cost of the loan. Note that the comparison rate is generally based on a set scenario (i.e. either a $30,000 loan paid off over 5 years or a $10,000 loan paid over 3 years) so your actual loan will vary in its specifics - especially if it’s for a smaller amount.
Extra features: Sweeten the deal for yourself with additional perks like free extra repayments or a flexible repayment schedule, all of which can give you the opportunity to pay off your loan earlier, saving on interest.
How do I apply for a holiday loan?
The application process for a holiday loan will differ from loan to loan.
Generally speaking, much like with any personal loan, you will need to show evidence of your financial standing and credit history for the lender to make an accurate risk assessment.
If you have good credit, you should be able to apply without issue. Most lenders will have options for those with poor credit as well, though it may mean higher interest rates or more rigid conditions.
We’ve highlighted some of the most common questions and answers about travel loans below. To see some standout loans, take a look at Mozo’s best of personal loans.
What do I look for in a holiday loan?
When you are borrowing money for any reason, including a holiday, there are really three key things you’ll want to look at:
- Competitive interest rates: The number one ingredient of any holiday loan worth its salt is a competitive rate. With holiday loans you can opt for a variable rate that could fluctuate over the life of loan or choose the certainty of a fixed rate, even if it means paying slightly more.
- Flexible repayment options: Be on the hunt for a loan that allows your repayments to match up when it suits you, not the bank. You can opt for weekly, fortnightly or monthly repayments. It’s also handy to look for a personal loan that provides you with the flexible option of an extra repayments facility so that you can put any additional cash towards paying off your loan faster if you’re able to. The faster you pay that loan off, the less interest you’re going to have to pay.
- Low fees: With holiday loans you’re likely to come across several types of fees. Firstly, you might need to pay upfront fees like application or set up fees. Sometimes these fees are a flat fee so you’ll pay the same amount whether you’re borrowing $1,000 or $20,000. Ongoing fees are things like service fees and are generally in addition to interest fees. Then there are one off fees like late payment fees and loan discharge fees for when your loan comes to an end.
Should I get a holiday loan or use my credit card?
Weighing up whether to use a travel credit card or a take out a holiday loan will come down to your borrowing needs.
If most of your holiday is going to be put on credit and paid back over a period of time, you’ll want to choose the lowest interest option. There are low interest credit cards that can have interest rates lower than a personal loan but only if you pay off the balance in the quickest time possible. If you just pay the minimum balance each month you could find your holiday will cost you a lot more than a holiday loan where you’ll have fixed monthly repayments.
Credit cards often have other travel benefits that personal loans don’t have like travel insurance or interest free days but to really get value from these benefits you need to pay your balance off in full each month.
To learn more about the pros and cons of each option check out our dedicated credit card versus holiday loan guide.
How much can I borrow on a holiday loan?
One of the major positives about using a personal loan for your holiday needs is that you can borrow more than you’d be able to on a credit card. In most cases you can apply for holiday loans for as little as $2,000 or as much as $50,000 which means almost any travel dream can come true.
Mozo lets you investigate and compare the $5000 personal loans and $10000 personal loans available.
Can I get a holiday loan through a peer to peer lender?
Yes, peer to peer (P2P) lenders provide an alternative way to finance your holiday to credit unions and banks. They are a good option if you’ve got a good credit history as you’ll be eligible for their most competitive rates and they are even an option if you’re new to borrowing and don’t have much of a history already built up. You might have to pay higher interest rates, but generally these loans have flexible features so you can pay back your loan faster and pay less interest. You can can learn more about peer to peer lenders with our extensive P2P guide.
Should I get a secured holiday loan?
If you own your car or house, you might have the option with some lenders of using these assets as security for your holiday loan. Why do this? Well, secured loans often have lower rates and fees so you’ll be able to save money in interest by opting for this type of loan. The drawback? Well, if you default on the loan your provider has the right to seize the assets you’ve put on the table.
If that sounds like too great of a risk to you, or you don’t have any assets you could use to secure your loan, there are a range of unsecured loans in our database to choose from instead. But you’ll likely have to pay that bit more in interest and fees.
Will there be any conditions on how I spend the money?
When you apply for a personal loan, you might be asked the reason for the loan like ‘holiday’ or ‘travel’ but as long as you can prove to the bank or lender that you’ve got the means to pay the money back there shouldn’t be any conditions on what you can use the money for. As soon as the money is deposited into your account you’ll be able to use the money to pay for flights, a five-star hotel or to load up a prepaid travel card to use abroad.
Just remember though, that as soon as the funds are deposited you’ll be required to meet the monthly or weekly repayment schedule, so if you are going on an extended holiday be sure that you set up automatic repayments so that you don’t accidentally forget to make a payment.
How are repayments calculated on holiday loans?
The monthly repayments on your holiday loan will be calculated based on the loan amount and term as well as the interest rate and any associated fees. Luckily, to help you work out how much you possible repayments will be you can try Mozo’s personal loan repayments calculator.
Stephanie is planning to spend a couple of months country-hopping through Europe over summer but needs a holiday loan to make her eagerly-awaited trip happen. After shopping around, Stephanie secures a 9.50% variable interest rate on a $5,000 loan which she’ll pay back over three years.
Using the repayments calculator, her monthly repayments will amount to $160 and that over the life of the loan, she’ll pay $766 in interest.
How do I apply for a holiday loan?
If you’ve done all your due diligence and found a competitive holiday loan in the table above that suits your travelling needs, the process to apply is really simple. Start by clicking on the blue 'go to site' button which will take you to the providers' application website where you can apply right now without having to leave the house.
Just bear in mind that there are a few important documents to have on hand when applying, like:
- Proof of identity - Passport, driver’s license and or Medicare card
- Proof of income - You’ll need to provide several of your most recent pay slips
- Financial details - Make sure you have copies of your income, assets, debts, expenses and liabilities.
How do I pay for things when on my holiday?
Once you’ve sorted out your loan and paid for big ticket items like a cruise, airfares, tours or accommodation you’re going to want access to some cash for things like food and souvenirs.
Head over to Mozo’s travel money hub to discover a range of travel money products along with helpful tips and tricks to make your travel budget stretch as far as possible on your trip.