Best Holiday Loan Interest Rates From 5.76%

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?

A holiday is a very common reason for Australians to take out a loan. The ABS reports that around $40 million worth of loans were given out for the purposes of travel and holidays in October 2022, a number that has been climbing back up since the lows of the peak pandemic era.

However it still pales in comparison to years gone by. In November 2006, this figure was nearly $80 million.

How do personal loans for travel work?

Taking out a travel loan works like any other personal loan. You borrow a lump sum of money, use this money on your holiday expenses, then pay it off over a specified repayment term (plus interest). These holiday loans are usually unsecured, but there are plenty of lenders who will allow you to use an asset as collateral.

You can use the funds from most unsecured personal loans to pay for a holiday, but some lending providers offer loans specifically tailored for travel. These products may include features like interest free periods, or the ability to spread payments out over a period before you leave.

Which 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:

• Westpac (and St. George, Bank SA and Bank of Melbourne)

• Commonwealth Bank (and Bankwest)

• ANZ

• NAB

• Leading mutual banks like IMB, CUA, Greater Bank, Heritage Bank, Newcastle Permanent and more

• Large retail banks such as ING, HSBC, Bendigo Bank etc.

• Online lenders like Plenti, Jacaranda, Harmoney, MoneyPlace, OurMoneyMarket, and Society one

And dozens more. With so many personal loans available, it’s crucial to consider all your options, comparing interest rates and fees charged to make sure you are getting the best value you can.

How do you apply for a holiday loan?

You apply for a holiday loan like any other personal loan. Most providers will have an online portal where you submit your application. Our guide to applying for a personal loan has more information.

Each lender will have different requirements for what you need to provide to supplement your application. Generally, they will include the following:

• Your personal information

• Several ID documents (usually via a points system)

• Proof of income

• Residency status

• Bank statements with details of your assets and liabilities

Loans specifically for travel will also typically require details about your holiday.

What to consider when comparing holiday loans

Interest rate

When applying for any loan, the most important factor will nearly always be the interest rate you will pay. Interest on personal loans can vary. Rates will depend on the provider, whether the loan is secured, and whether the rate is fixed or variable.

Personal loans that can be used on holidays usually have slightly higher interest rates than those that cannot. Lenders tend to view customers borrowing for a holiday as a riskier prospect than someone borrowing for a tangible asset like a car or home renovation.

Fees

Another important consideration is the fees you will pay on the loan. There are several additional charges you may encounter with a holiday loan, that can total up to hundreds of dollars. These include:

• Application or establishment fees

• Documentation fees

• Early repayment fees

• Monthly service fees

These are important to consider in conjunction with the interest rate. A good way to compare products with these extra costs considered is to refer to the comparison rate, which combines them with the interest rate. If a product has a comparison rate significantly higher than the interest rate, it probably means you will pay a lot in additional fees.

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

The decision of whether you should use a loan for a holiday ultimately comes down to your priorities. If you only go on holidays you already have the money for, you obviously will save yourself the interest payments. If frugality is not your top priority though, and your current savings won’t stretch to cover your exciting holiday plans, a loan is definitely worth considering.

Pros

• A loan can help you afford more expensive holiday destinations

• The interest rate on these loans are normally lower than if you used a credit card.

• There is a wide variety of these loans available, so you are likely to find a product ideally suited to your needs.

Cons

• Holiday loans are normally considered a ‘bad debt’ as there is no capacity to generate returns on the investment.

• Your debts can start to spiral if you borrow beyond your means

• Unsecured loans generally have higher interest rates and fees

What alternatives do you have to 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 be 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. 

Credit card interest rates can be extremely high - typically 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 BNPL

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.

Savings.com.au's two cents

If you’re pining for a holiday and don’t quite have the money you need for it, a personal loan is not the worst way to go about paying for it. There are many reasons people get personal loans, and the memories and experiences of a great holiday are not among the worst. Opening up a line of credit could be another good option. The important thing is to compare loan products to make sure you are getting a good deal with low interest rates and fees.

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

Originally published by William Jolly on (date). Last updated by Harry O'Sullivan on 21 December 2022.