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What to consider if you’re taking out a loan for a holiday

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Taking a loan can be a risky endeavour, especially if you get to a point where you are not able to honour your repayment instalments. However, there are times when a loan is inevitable, like when you need a loan for a holiday. Holiday loans refer to personal loans that you can use for expenses like taking a vacation, buying gifts and souvenirs, and paying for travel expenses. Such loans are usually unsecured, and for this reason, they look attractive to borrowers and sound like a giveaway.

Nonetheless, before you sign along the dotted line, there are some things you should consider:

1. Keep the loan as small and short as possible

Don't borrow more than you've budgeted for; you'll end up taking longer to pay off the debt and you'll therefore pay more interest. Remember that the interest you pay is money you will never get back.

2. Shop around for the best holiday loan Compare the different offers available on the market in regards to interest rate, length of repayment period, and repayment amount per month. Not all lenders provide loans specifically designed for a holiday, but they do provide personal loans that you can use as you wish.

3. The advantages of a personal loan Personal loans are more accessible to obtain than other types of loans if you have a good credit score. A personal loan provides a budget for you to stick to during your trip. You shouldn’t have to use a credit card unless there is an emergency. Of course, personal loans also come with disadvantages in the forms of interest and fees.

4. Do not take a loan at the last minute

While some companies will approve your loan within hours, others might take several business days. If you wait until the last minute to apply for a loan, the chances are that you may not receive your money in time.

5. Use comparison rates not just advertised rates

The advertised interest rate is one way to help you compare personal loans. But advertised interest rates can give you an unrealistically low picture of the true cost of the loan. That’s why you should also look at the comparison rate, which combines the advertised rate and the various fees (such as application fees and ongoing fees). The comparison rate will give you a more accurate picture of how much you’d have to pay over the life of the loan.

While it might be suitable in some situations to use a personal loan to finance a holiday, you should weigh up the pros and cons carefully. Loans can sound appealing when you apply for them, but if they are likely to put a rain cloud over your peace of mind later, consider other options.

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