Secrets about holiday loans
2019 July 22
What does a good holiday mean to you? Time with your family on a beach, reading a book by a lake or maybe mountain hiking? Let’s face it - finding the right holiday is the easiest part. These days it’s much harder to take time off work, plan and budget the whole thing and switch off completely.
And what if you’ve already bought a car, paid for your kids’ school trip or had other big expenses this year? Does it mean that you can no longer escape the daily routine and enjoy some quality time away from home?
Long gone are the days when holidays were considered a luxury item. Without quality rest, productivity decreases, efficiency at work suffers, and we often become irritable and impatient with people around us. Just ask yourself: isn’t life too short not to enjoy it?
A well-planned and balanced holiday loan can be the right solution. And you don’t even need to change your daily spending habits.
A secret to a well-balanced holiday loan
You probably have encountered opinions that only irresponsible people consider taking a holiday loan. Actually, it’s quite the opposite! Balanced holiday loan shows that you know how to use the available financial instruments to make your life more comfortable while taking care of other obligations at the same time. You can compare it with Christmas shopping. We know that most of the things we buy will be on sale in just a few weeks, but we still get the presents.
Same applies to a holiday loan. We want our vacation here and now and hence this convenience costs us 20-30% in credit fees.
It’s simple - look for a holiday loan with 20-30% APRC (average annual credit rate) and borrow for up to 12 months. In this case, you know exactly how much more you paid for your holiday and you have it covered by the time for the next holiday.
Let's say you have to alternatives. One alternative is to take a holiday loan, the other is to save money for your holiday.
Alternative 1: you borrow €1000 for 12 months with 20% APRC (NOT INTEREST RATE, BUT APRC). You will have to return €1200 which are split into 12 months so €100 per month.
Alternative 2: you don't want to borrow so you will save €1000. You have to save €85 (taking into account inflation) every month without touching your savings once. And in 12 months you can have your holiday.
The difference between traveling now or in a year’s time is €15 per month. Do you still want to wait?
Why compare APRC? The APRC shows the actual total increase in the price of a credit. At mano.bank APRC varies between 18% and 35% depending on the loan term and the amount you borrow. The shorter the term and the smaller the amount, the more expensive it is. Read more about the importance of APRC when comparing different credit offers here.
There’s more to it!
Just like with any other loan, borrowing for a holiday should be done responsibly. We've put together a short list of things to keep in mind when considering a vacation loan:
Borrow responsibly. Estimate how much money you need for the trip, get couple holiday loan offers from different companies and find out potential monthly installments. Calculate your monthly expenses like rent, food, transport etc. Subtract your usual monthly expenses from your income (after tax). The monthly loan payment can not be higher than the remaining budget after subtracting usual expenses from your income. If an installment is higher - consider borrowing less.
Loan period. You will pay less interest if you choose a shorter loan term, yet short loan term means higher monthly installments. You should decide on a loan term based on your salary. Choose a longer period if your earnings are closer to a minimum wage and consider shorter term if your earnings are higher.
Feel free to spend the money yet don’t waste it. The loan is yours so you can spend it as you like. However, don’t forget this money is borrowed and you will have to return it in any way. So don’t waste the money simply because you have it. If you end up not spending it all, use it for early repayment and reduce your monthly installments.
Local trip in July-August or exotic holiday in September-October? Travelling in summer is more expensive than travelling during other seasons. Why not consider taking your holiday in autumn, when it's already cold and gloomy in Europe, or in early spring while it’s still just getting warm? Off-peak travel means you will enjoy the sun for longer, avoid crowds on a beach and will be able to afford a much better hotel or more luxurious dinners for the same amount of money.
Most common mistakes
Underestimating monthly expenses. Think about your budget for the upcoming months - is something big coming up? Do you already know of financial obligations in the future? If you’re in doubt whether you will be able to afford loan installments every month, it is better not to borrow.
Possible professional changes. If you are planning a career change or you know of possible changes at your workplace, better leave your vacation plans for the future. The job market is unpredictable. You don’t know how long it might take to find a new job and you don’t want to worry about loan installments during such period.
Late monthly installments. Additional charges might apply if you are late to make monthly payments. Being late for more than 30 days will negatively impact your credit score. If you delay the repayment longer, your creditor will need to hire a debt collector and most likely are your debt will double or triple.
While we use our finances throughout the year to meet a variety of planned and unplanned needs, we often forget to take care of ourselves. For a 20-30% cost a credit helps to spread the burden of one-time payment over a longer period and have a well deserved holiday now. Understanding how a holiday loan works will help you to take advantage of it rather than make it a burden.