Holiday Loans for Bad Credit

Updated: March 21, 2024 Author:

Quick answer: Holiday loans are a form of personal loan designed for you to cover the cost of a trip away or vacation. There are no restrictions placed on where you can take your holiday, whether domestic or abroad, but you must make sure you can meet the repayment schedule. A holiday loan is a useful tool for those with bad credit who want to be able to go on holiday but don’t have sufficient savings readily available. 

    What is a holiday loan?

    This form of personal loan is unsecured, meaning that you don’t have to put down collateral such as your home as part of the application process. While the repayments on personal loans are often spread out over periods of 5-10 years, it is typical for a holiday loan to come with a 12-month repayment schedule. 

    The reason the timeframe is so much shorter is that holidays and vacations are seen as a typical annual expense, and therefore one which is likely to be incurred the following year. These forms of short-term credit will require a good credit score in many cases, although there are a growing number of lenders who specialise in helping those with bad credit. 

    What are the advantages of a holiday loan?

    Holiday loans give you the freedom to go on vacation and spend quality time with loved ones even if you don’t currently have access to enough savings to cover your trip. By being able to spread the cost of a large annual expense over the course of the whole year, you give yourself a greater degree of financial freedom than trying to pay everything at once. 

    Here are the three primary reasons holiday loans can be an option worth considering: 

    • Freedom to Spend: You can spend the amount you borrow on any aspect of your holiday you wish, with no need to report what you spend it on. For example, you might want to use it to book your airfares and hotel in advance to secure a better price by booking earlier. Alternatively, you may wish to use it largely as spending money once you arrive at your destination. A holiday loan gives you the freedom to choose 
    • Flexible Repayments: While the time you have to pay the loan within will typically be 1 year, you do have the option to choose a shorter repayment period. If you feel you can keep up with the larger monthly repayments that this will generate, reducing the repayment period is a smart way to pay less in interest and to potentially boost your credit score in the process
    • Simplified Budgeting: When you spread the cost of your holiday into regular monthly payments it can help you manage your budget more effectively. While you will pay interest on the amount you borrow, spreading the cost in this way can help you meet your other bills and repayment obligations

    Can you get a holiday loan if you have bad credit?

    While having a good credit score will always make it easier to apply for a loan and borrow money, you can connect with lenders who specialise in bad credit. The downside of having a bad credit score is that you will typically be placed on a higher interest rate and end up repaying more than you would if your credit score were higher. That said, the flexibility that a holiday loan will give you will help offset this to a degree. 

    Lender will give you a soft quote as the loan is unsecured. This means that the soft credit checks they will conduct won’t negatively impact your credit score. During the application process they will consider additional factors, such as your current level of income, financial obligations, and the affordability of the repayments. 

    What can’t you spend a holiday loan on?

    Holiday loans, like all forms of credit, have restrictions on what you can and can’t spend them on. In this case you will not be able to: 

    • Use your holiday loan to fund or partake in any form of illegal activity 
    • Fund a business or engage in any form of business-related activity 
    • Buy or lease land or property, whether for yourself or someone else 
    • Use your holiday loan as a deposit or downpayment on a property 
    • Invest in any form of holiday club, timeshare, or ownership agreement 
    • Anything that could be considered speculative: gambling, investing, etc.  

    Provided you don’t engage in any of the above activities and keep up with the agreed repayments, repaying a holiday loan in full can improve your credit score. This is because you have demonstrated to the credit rating agencies that you can consistently meet your financial obligations and live within your means.  

    What are the alternatives to holiday loans?

    If you find that you don’t want to take out a holiday loan, or are unable to secure one, there are two common alternatives that are still open to you. 

    Holiday savings plans are offered by most major brand name holiday parks in the UK and abroad and are an attractive option for families looking to get away. You will be able to pay monthly, sometimes even weekly if you wish, and spread the cost of your holiday throughout the year. It is worth noting, however, that many of these schemes will require a non-refundable deposit and will factor your credit score into the equation. This means that you may be charged a higher rate of interest or find that you cannot get approval for more expensive trips away. 

    The other option that many turn to is credit cards. If you have a credit card with sufficient available balance, using it to fund your holiday can be an attractive option for some. The downside to this approach is that you will have to repay the amount you have spent in full the following month if you want to avoid paying interest. Withdrawing cash abroad for food, drink, transport, and other incidentals can result in additional fees and interest immediately being charged on the amount withdrawn. This will not be the case if you fund your holiday with a specialist holiday loan.