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                  *Comparison rates based on a loan of $30,000 for a five-year loan term. Warning: this comparison rate is true only for this example and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate, Rates correct as of May 26, 2022. View disclaimer.

                  Travel might look very different in a post-Covid world, but one thing will never change: holidays are expensive. According to statistics from Budget Direct in 2019, the average domestic holiday costs $193 per person per night, which rises to $233 for international visits. Australia is also the 12th most expensive country to catch a flight from.

                  While some of us might have had the ability to save during the pandemic, other keen travellers will find it a bit harder to pay for their adventures upfront. If you’re interested in travelling soon for any reason, it’s worth considering if you should use a personal loan for a holiday.

                  Can you get a personal loan for a holiday?

                  Yes, you can get a personal loan for a holiday, also called a holiday loan or travel loan depending on who’s offering. Holiday personal loans allow you to borrow funds to pay for the usual holiday suspects - flights, accommodation, bookings, insurance policies, and other big-ticket expenses. Since the funds become yours, there are generally very few restrictions on what you can use the money on, so you can even use it on things like food.

                  Using a personal loan for a holiday is actually fairly common. Data from lender Plenti showed it was in the top five reasons for using a personal loan, representing around 8% of personal loan borrowers. Other key reasons were debt consolidation (37%), home improvement (20%) and buying a car (12-13%). Australian Bureau of Statistics (ABS) data shows Australians borrowed $454.9 million for travelling in 2019 before the onset of COVID caused a fall to $129.8 million in 2020.

                  This borrowing peaked in 2006 when Aussies borrowed more than $70 million for travelling in October alone.

                  How do personal loans for travel work?

                  Holiday personal loans work in pretty much the same way a standard personal loan does: you borrow money in a lump sum and repay it with interest over a period of time (usually up to five-seven years) in regular instalments. The only difference is in the documentation you’ll have to provide. As everyone's holiday is different, you’ll need to provide the lender with information on where you’re going and for how long. The lender should tell you exactly what you need to give them, but the information required is usually the same:

                  • Your personal information, like your name, address, contact details etc.
                  • At least 100 points of ID
                  • Proof of income
                  • Residency status
                  • Bank statements and details of assets and liabilities

                  See how to apply for a personal loan here for more details on how this process works.

                  Holiday personal loans can also be secured or unsecured. Unsecured holiday loans are more common since holidays aren’t a tangible item, but there are still plenty of loans that can be secured against things like cars or term deposits.

                  How many lenders offer personal loans for holidays

                  It’s very common for a lender to either have a specific personal loan product for travel or to allow their standard loan to be used for it. Savings.com.au looked at a sample size of more than 220 different personal loan products across the market, and 81% of them let customers borrow for a holiday. Only around 30 or so didn’t.

                  The list of banks and lenders offering holiday personal loans includes big names like:

                  And dozens more. With so many personal loans available, it’s crucial to compare these on the interest rates and fees charged.

                  Holiday personal loans: interest rates

                  Arguably the most important consideration of a personal loan is the interest rate, as this will impact how much you’ll have to repay on top of the amount borrowed for your trip. Nine times out of 10 this will make the biggest difference, and on average, personal loan interest rates hover around 10% p.a on average, with the lowest and highest rates on offer sitting at about 4% p.a and 20% p.a.

                  Based on Savings.com.au’s review of those personal loan products, personal loans that can be used for holidays appear to charge slightly higher rates compared to personal loans that can’t. When separated based on whether they funded holidays or not:

                  • Holiday personal loans charged 10.36% p.a on average, compared to 8.14% for non-holiday loans
                  • The lowest rate charged by non-holiday loans was 3.65% p.a, while holiday loans are 4.45% at the cheapest
                  • The highest holiday-loan rate is 20.25% p.a vs 13.99% p.a for non-holiday loans

                  There are several reasons why they’re more expensive, and one might be that lenders view a customer borrowing for a holiday as slightly riskier than someone borrowing for a physical asset like a car or home renovation.

                  Holiday personal loans: fees

                  The fees on the loan are another important consideration. Given some personal loan fees can be hundreds of dollars, this is quite a lot to have to pay on top of your actual holiday expenses.

                  While there are heaps of different personal loan fees, four of the biggest can be seen below:

                  Fee type Holiday loans Non-holiday loans

                  Annual fee

                  • Average: $32
                  • Minimum: $0
                  • Maximum: $156
                  • Average: $44
                  • Minimum: $0
                  • Maximum: $144

                  Application fee

                  • Average: $186
                  • Minimum: $0
                  • Maximum: $599
                  • Average: $144
                  • Minimum: $0
                  • Maximum: $200

                  Documentation fee

                  • Average: $12
                  • Minimum: $0
                  • Maximum: $490
                  • Average: $6
                  • Minimum: $0
                  • Maximum: $100

                  Early repayment fee

                  • Average: $18
                  • Minimum: $0
                  • Maximum: $300
                  • Average: $30
                  • Minimum: $0
                  • Maximum: $150

                  So holiday personal loans again appear to charge higher fees on average for some fees, although they appear to be cheaper in terms of ongoing fees and early exit/repayment fees. But more importantly, both types of loans also have options available with no fees at all, so try and find one of these in addition to one with a low interest rate.

                  Is it a good idea to use a personal loan for a holiday?

                  Personal loans can be a handy way to fund a trip, especially since you’re probably going to be spending a lot of money treating yourself anyway. Holidays aren’t usually a time to be frugal! There are worse things to borrow money for, but just because holiday personal loans are convenient doesn’t mean they’re always a good idea.

                  For starters, holidays can be considered a ‘bad debt’, as they aren’t something that can generate a return on investment. For example, borrowing for something like a house, a renovation or to start a business can actually earn you more money in the future, and even borrowing for a car can make your daily life easier. But a holiday is just going to cost you money, so any interest costs, fees and missed repayments are just going to sting even more.

                  There’s also the potential for your debts to spiral by borrowing for a big holiday. Credit Bureau data from 2019 showed three out of five Australians took between one month to two years to pay off their holiday credit card debts. While they’re different from a personal loan, the basic principle is the same: borrowing $10,000 for a major holiday at 10% p.a over five years would cost an extra $2,748 in interest before fees. If you can’t meet your repayments, the costs are even higher.

                  Holiday personal loans can be worth it for a fun holiday that creates good memories, but you need to be aware of the costs.

                  How else can you borrow for a holiday?

                  Use a line of credit

                  Line of credit personal loans are very similar to a credit card, as you’re given a pre-agreed borrowing limit and are only charged interest on the amount you spend. Standard personal loans on the other hand charge interest on the whole loan amount, so line of credit loans can cheaper, especially since they charge lower interest rates than credit cards too…

                  See also: Line of credit home loans.

                  Use a credit card

                  Credit cards are a very popular option for travelling. Not only can you use them for simple everyday purchases, but they also offer travel benefits like frequent flyer points, airport lounge access, free travel insurance and more. Unfortunately, they can also be very expensive. Money.com.au research found 19% of credit card debt was due to holidays (pre-Covid), while Experian also found that more than half (51.3%) of Aussies put up to $4,000 on their credit card to pay for a holiday.

                  Credit card interest rates can be extremely high - 17% on average according to Commsec, which is much higher than the average personal loan interest rate. Plus, they can also charge some high international fees.

                  Credit cards can be fine to use for a holiday, but it’s imperative the balance is paid off in full. Read up on how credit cards compare to personal loans and how credit cards compare to debit cards and travel money cards to work out which product you’ll use.

                  Use buy now, pay later

                  Some of the country’s top buy now, pay later (BNPL) brands like Afterpay, Zip co, Humm and others can be used to fund travel expenses, particularly flights and accommodation. Afterpay for example recently announced a partnership with Webjet, letting Afterpay customers book flights to the value of $2,000 to pay for in instalments.

                  This is a relatively new phenomenon, and while using BNPL is generally cheaper than credit cards, it too can lead to debt and missed repayments, while also putting some question marks over future loan applications. Buying now and paying now is generally preferable to paying later if you have the money to do so.

                  Related: Buy now pay later vs personal loans.

                  Pros and cons of holiday personal loans

                  To summarise all of the above, here are the pros and cons of holiday personal loans:

                  Pros

                  • They are a secure and easy way to borrow funds for a holiday
                  • The interest rates can be lower than products like credit cards
                  • Fixed limits and terms mean you can’t borrow beyond your means
                  • They’re a simple product
                  • Plenty of loans to choose from
                  • Lenders are dropping rates post-Covid

                  Cons

                  • You’re still borrowing money for a ‘bad debt’
                  • Holiday loans charge higher rates on average, and they can still be above 10% p.a
                  • Some loans have quite high fees
                  • You’ll generally have to start making the repayments as soon as possible, which could be on your trip
                  • There are fewer perks compared to credit cards

                  Savings.com.au’s two cents

                  If you’re aching for a holiday and need to borrow money for it, personal loans are far from the worst way to do so, while a line of credit can also be a pretty good option. If you can use personal loans for something as positive as a wedding, you can use one for a holiday, as memories can be priceless. As long as you get a low interest rate with low fees, flexible repayments and borrow within your means, personal loans can be safe.

                  But your priority should always be to save up for a holiday first and pay for it with cash. Commonwealth Bank data found holidays were the most popular savings goal for Australians (27%) followed by homeownership (19%), so it’s good to see we have our priorities straight. Setting aside the money you need in a bank account can ensure you’re able to pay for your trip without being charged excessive interest rates or fees and aren’t at the mercy of a bank.

                  Originally published by William Jolly on (date). Last updated by Dominic Beattie on 21 December 2022.

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