Holiday loans

How do holiday loans work?

Holiday loans, also known as travel loans, are unsecured personal loans that allow you to use the funds to finance a holiday. It won't matter if you are planning a quick and luxurious retreat, or a months long trek through multiple countries.

Because lenders care most about your ability to repay, rather than the type of holiday you want, a holiday loan can help you finance everything from flights, through to accomodation, through to the money you spend day to day on food and souvenirs.

Make sure you do a personal loan comparison to find the right loan, so you can spend more money on your holiday and less money on interest.

Holiday personal loans come in 3 main types:

Term loans

The most common form of holiday loan is a term loan. This is what you would know as a standard personal loan - you borrow a set amount of money, receive it in a lump sum, and have a set amount of time (the term) to repay the lender.

Lines of credit

A line of credit personal loan provides you access to an amount of credit you can access when you need. You pay interest only on what you withdraw, and repaying the funds you used allows you to withdraw them again. With a line of credit, the term is ongoing and repayments are flexible.

Tailored travel loans

Some lenders also offer loans that are specifically tailored to travel. You may be able to spread payments for a tour or travel package out over the few months before you leave, or you could be given an interest-free term on a travel loan.

Finder survey: What do Australians typically use personal loans for?

How do I compare holiday loans?

You can use Finder's tables to quickly compare interest rates, fees and estimated monthly repayments from lenders across Australia. When making your decision, keep these things in mind:

• Fixed or variable interest rate. A fixed rate allows you to lock in a specific rate for the life of your loan, whereas a variable rate may change over the course of the loan. Though you run the risk of the rate increasing, a variable rate loan often has fewer restrictions. For example, you can usually repay the loan early without penalty or make additional repayments throughout the loan term. Fixed rate loans generally have shorter terms, up to 5 years, whereas variable rate loans can last for as long as 7.
• Cost of repayments. When calculating the cost of your repayments, you should take into account the interest rate you will be charged as well as any ongoing account keeping fees. This is because these will contribute significantly to the overall cost of the loan. If you are able to afford higher repayments, doing so could reduce the amount you pay over the life of your loan. Using a repayment calculator can help you plan how you can repay the loan ahead of time.
• Loan term. Personal loans generally have a minimum term of 1 year and a maximum term of 7 years. A longer loan term may reduce the size of the repayments you need to make, but will generally mean you pay more in interest over the life of the loan.
• Additional features. Take a look at the features being offered by some lenders and decide if you want to take advantage of them. Some lenders offer cheaper travel insurance with their holiday loans as a package deal. It may be worth looking into this and comparing the costs with other insurance providers.

How much can I borrow with a holiday loan?

The exact amount you can borrow for your travels will depend on things like the lender you choose and your credit score. Generally, you'll be able to borrow anywhere from $2,000 to $100,000. As with all loans, make sure you can safely afford your holiday loan repayments, and account for the following costs:

• Establishment fee. This is an upfront fee at loan set-up.
• Monthly fees. Ongoing fees, such as monthly or account keeping fees may also be charged.
• Early and extra repayment fees. If you wish to have the freedom to make additional repayments on your loan or to pay it off early, ensure that you find a lender that does not charge these fees.
• Late payment penalties. Most lenders charge a fee if you miss a payment on your loan.

How can I get a holiday loan?

Applying for a holiday loan is like applying for any other unsecured personal loan. You can usually do this online, over the phone or in a branch.

How to apply for a travel loan online

To apply for an unsecured personal loan you should:

1. Compare. First, compare your options using the table on this page.
2. Click. Once you have chosen a loan, click "Go to site" to be taken to the lender's website. You can also click "More info" to find out more about the loan you're interested in.
3. Check the eligibility. Eligibility criteria differ between lenders, so check that you meet the criteria before you apply. Like other forms of personal loan, you will almost always be required to be a citizen or permanent resident of Australia, and you will always be required to be at least 18 years old to qualify for finance. You'll need to provide some form of ID, such as an Australian driver's licence or passport.
4. Apply. Be aware that you will also need to provide certain information to apply. This may include personal details such as your name and address, financial details including your income, assets and debts, and your employer's name and contact details.

Frequently asked questions about holiday loans

• Can I get a travel loan with bad credit?

  Like other forms of personal loans, a good credit rating is not necessary, however increases your chance of approval and having a lower score will increase the interest rate the lender is willing to give you. This is because the lower credit scores are seen as riskier by lenders, but you may be able to improve your chances if you can offer a home or car as security - in which case it is important to ensure you can afford the repayments throughout the life of the loan.

  While there are some forms of unsecured bad credit finance, these will likely carry much higher costs than standard personal loans. If you have a poor credit rating, it might be better to delay your holiday plans and take some steps to improve your score before taking out a travel loan. This will put you in better standing for lower cost finance in the future. It may also give you time to put some savings aside for your holiday.

• Are there restrictions on how I can use my travel loan?

  With an unsecured personal loan, there are generally no restrictions as to how you can use the funds – as long as they are legitimate. When you apply for a loan, the lender will ask you to list how you will use the funds as part of the application process. If the loan is for a holiday, you would select "holiday" or "travel".

• Can I start repaying my loan when I get home from my holiday?

  Unfortunately, most personal loans require you to start making repayments right away. These are usually weekly, fortnightly or monthly, depending on your circumstances. This might be difficult for people who are planning on going on a longer-term trip, such as a year-long travel experience.

  Personal loan lenders usually determine your eligibility for a loan based on your income and your ability to repay. If you are hoping to go on a longer trip (and therefore potentially leave your current employment) it is essential that you have enough money saved to meet repayments as you travel. Calculate how much of your loan you will be expected to repay before you return to employment and ensure that enough money is set aside. It's also a good idea to set some extra money aside for extenuating circumstances, such as having more time out of employment than you expected when you return.

Sources

Written by

Rebecca Pike

Editor, Money

Rebecca Pike is Finder’s money editor, with over 7 years of experience in mortgages and personal finance. A frequent TV and radio commentator, she frequently appears on Sunrise and 7News, Today and 9News, as well as Sky News, Channel 10 and across radio and print. Rebecca previously served as Editor of Mortgage Professional Australia. She has a Master’s degree in Journalism as well as ASIC-recognised certifications in Tier 1 Generic Knowledge and Tier 2 General Advice Deposit Products, which comply with ASIC guidelines. See full bio

Rebecca's expertise

Rebecca has written 300 Finder guides across topics including:

• Home loans
• Personal Loans
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• Cost of living
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