The short version
- A holiday loan is a personal loan used for travel, usually unsecured.
- Keep the term short, so you're not still paying for the trip long after it ends.
- Check the comparison rate and setup fee, which weigh more on smaller loans.
Paying for travel with a personal loan
A holiday loan is a personal loan used for flights, accommodation, tours and spending money. Any general-purpose loan above can be used this way.
The trip ends long before the loan does, so keep the amount and term small. A loan you're still repaying when you plan the next trip is a sign you've borrowed too much.
How to compare holiday loans
Look at the comparison rate as well as the interest rate. The comparison rate adds the lender's standard fees to the interest rate for an example loan, so it shows the cost of two loans on the same footing.
Then look at:
- The term. A shorter term means higher repayments but less interest overall. A longer term lowers each repayment but costs more in total.
- Fees. Establishment fees, monthly fees and early repayment fees all add to the cost of the trip.
- Security. Most holiday loans are unsecured. A secured loan usually has a lower rate, but puts what you offer as security, such as a car, at risk.
Pros of a holiday loan
- You can travel now and spread the cost, as long as the repayments fit your budget.
- Fixed repayments make it clear what the trip will cost and when it will be paid off.
- Unsecured loans don't put your car or home at risk.
Cons of a holiday loan
- Interest adds to the cost of the trip, and how much depends on the rate you're offered.
- Missed repayments bring late fees and are recorded on your credit report, which can make future borrowing harder.
- Borrowing for one holiday after another can build up debt that's hard to clear.
Who can apply
Each lender sets its own criteria, but most ask that you:
- Are 18 or older.
- Are an Australian citizen or permanent resident. Some lenders accept certain visa holders.
- Have a regular income that covers the repayments.
- Can show your employment, such as your employer and how long you've worked there.
Alternatives
- Saving first. If the cost can wait a few months, saving for it costs nothing in interest, and a high interest savings account pays you instead.
- A low rate or interest free credit card. For a smaller amount you can repay within a year or so, a card's interest free period can cost less. Pay it off before the period ends, as the rate afterwards is usually higher.
- A bank account with no overseas fees, to avoid foreign transaction fees on what you spend away.
What you'll need to apply
Have these ready to speed things up:
- Identification, such as a driver's licence or passport.
- Proof of income, such as recent payslips or tax returns.
- Bank statements, so the lender can check your income and spending.
- Proof of address, such as a recent utility bill.