Holiday loans and travel loans: what they cost

When Borrowing for Travel Makes Financial Sense

Saving is always the lowest-cost way to pay for a trip, but there are legitimate scenarios where a holiday loan is the better move.

Price-sensitive timing

Airfares and accommodation to popular destinations can move a lot. If you have found a deal that will not last, booking now with a loan can cost less than waiting, but only if prices would rise by more than the interest you pay. Run the numbers before assuming it.

Life-stage travel

Some trips have natural windows. Travelling with young children before they start school, visiting elderly relatives overseas, milestone anniversaries, or taking a gap year between career changes, these opportunities do not always align with when your savings are ready.

Income-rich, savings-light situations

If you have recently made a large purchase like a home and your savings are depleted but your income is strong and stable, a short-term holiday loan can be perfectly sensible. The key is ensuring repayments fit comfortably within your budget.

Responsible Travel Borrowing: A Practical Framework

A holiday is discretionary spending, so the test before borrowing for one should be stricter than for a car or a consolidation loan.

The 10% guide

Keep the repayment to no more than 10% of your monthly take-home pay. For someone earning $5,000 net per month, that means repayments of no more than $500. A $10,000 loan at 8.99% p.a. over 24 months has repayments of about $457 a month, within that line.

An emergency buffer

Have at least one month of expenses in accessible savings before taking on a holiday loan. Borrowing for discretionary spending with no emergency reserve leaves you exposed if unexpected costs arise.

No existing high-interest debt

If you are carrying credit card balances or other high-interest debts, deal with those first (a debt consolidation loan may help) before funding travel. Borrowing for a holiday while paying a higher rate on existing card debt makes little financial sense.

Holiday Loan vs Credit Card vs Buy Now Pay Later

Many travellers reach for their credit card when booking flights and accommodation, but this can be an expensive habit. Here is how the three most common ways to pay for travel compare:

A personal loan at 8.99% p.a. for $10,000 over 3 years means fixed monthly repayments of $318 and total interest of $1,446. You know exactly when the debt will be cleared and what it costs.

The same $10,000 on a credit card at 20% p.a., cleared over the same three years, needs $372 a month and costs $3,379 in interest, more than twice as much. Pay only the minimum and it takes far longer and costs more again.

Buy now, pay later services can work for smaller travel components like flights but become unwieldy for larger bookings. Late fees accumulate if you miss instalments, and having multiple BNPL obligations can affect your credit assessment when you apply for other finance, including a home loan.

Tips to Reduce Your Holiday Costs

Even with a loan, you can stretch the budget further. Book flights during airline sales, consider travelling in shoulder seasons rather than peak holidays, and set fare alerts months before your travel dates. Package deals combining flights and accommodation can be cheaper than booking separately, and for domestic trips a road trip with a group can cut the per-person cost.