The Pros and Cons of Taking Out a Loan for a Holiday This Summer

The Pros and Cons of Taking Out a Loan for a Holiday This Summer

The easing of travel restrictions in the UK has caused both excitement and confusion as the general public try to understand where they can, can’t and shouldn’t go. Having had little else to do other than work, walk and binge TV, the events of the past year or so have left many of us in serious need of a break.

There are some who’ve been lucky enough to save extra money for holidays by virtue of having regular expenses such as travel and restaurants ruled out. For others however, the pandemic has caused serious financial hardship, leaving many people with less flexibility.

Taking out a loan for a holiday is one option for those in the latter category. Below we look into how holiday loans work and weigh up their pros and cons.

What is a holiday loan?

As the name suggests, a holiday loan is a type of loan that’s designed to help the borrower pay for a holiday.

These loans are usually for relatively small amounts of money and can be either secured or unsecured. Secured loans use an asset such as your property as collateral and don’t put as much focus on your credit history as a result. Unsecured loans on the other hand aren’t backed up by an asset.

If approved, you could use a holiday loan to enjoy a staycation alone or travel abroad with your family. It’s up to you!

What are the advantages of holiday loans?

There are various perks to taking out a loan to go on holiday – not least that it will allow you to travel. This past year has been stressful for everyone and getting away could help you reset physically and mentally. Other advantages include:

  • Most holiday loans are term loans, which means you’ll spread the cost of the repayments in manageable chunks
  • Making these repayments on time and in full could help you improve your credit score over time
  • You could borrow more than you might with a credit card
  • You’ll avoid nasty credit card charges when spending abroad

What are the drawbacks?

As with any loan, it’s important to consider the risks to make sure a holiday loan is right for you.

  • You could get into further financial difficulty if you can’t afford the repayments
  • You’ll end up paying more for your holiday overall due to interest charges
  • You could be rejected or given a higher interest rate if you have a poor credit history

A final risk is the ongoing uncertainty around travel in general. If your chosen country is suddenly moved to the UK’s red list for example, you could be left with no holiday and a loan to repay.

Holiday loans work for some people but come with disadvantages too. If you’re in a tight spot but want to get away, use the information above to guide your further research.

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