What exactly is a vacation loan?

Everyone would like to be able to switch off from everyday life. As a holiday is usually a rather expensive pleasure that not everyone can afford right away out of pocket, banks offer the so-called holiday credit. This works similar to a normal loan, but apparently has a different purpose than, for example, a home loan.

What exactly is a vacation loan?

With a vacation loan, just like a loan for a car, a loan can be borrowed from a bank. This can bridge financial difficulties caused by, for example, unemployment or an unscheduled job loss due to illness. This type of “small loans” are usually available from a total of 500 €.

The loan will then cover the travel and accommodation costs. In some cases, extra money is left over for use for food or activities. As a rule, it is not checked exactly for which purpose the loan was used in detail, so that when applying for the loan, the complementary travel planning does not yet have to be presented.

Requirements for a loan

Requirements for a loan

The conditions for a holiday loan, as well as the conditions and interest, vary from bank to bank. However, not all banks offer a vacation loan, as some consider it unnecessary or the risk too great.

Holiday loans are also a popular marketing tool, among other things, because they convey to customers that it would be particularly easy to borrow in this bank. This also explains why the application process of a holiday credit is significantly simplified for most banks.

In principle, however, it is always important to make a comparison between the individual loan providers in order to obtain the best possible conditions. An important prerequisite for a successful application is also a regular income from an employee or employment relationship. Especially good conditions get those who earn a lot.

But some banks also guarantee loans to their clients despite a poor income. In this case (bad credit rating) it may be more difficult to find a low-cost provider, but not impossible.

Conditions and amount of the monthly repayment rate

The terms and conditions of holiday financing depend on the different banks and the desired characteristics. In a credit comparison portal, the ideal financings can be found at the most favorable conditions.

The monthly installment to be paid depends on the originally granted loan amount and the term. The longer the term, the lower the monthly rate. However, due to the interest overall, a higher final amount is to be expected than with self-financing.

With a larger loan amount, rates tend to be significantly higher, as the risk to banks increases depending on the size of the amount due to the possibility of default. It also applies that the credit rating implies the interest amount. A good credit rating thus guarantees optimal interest conditions.

Example calculation – comparison independent of creditworthiness and creditworthiness

Example calculation - comparison independent of creditworthiness and creditworthiness

When calculating interest rates, banks always decide between credit rating and credit rating. The policies of each bank set this once. As a result, different interest rates are calculated at different banks.

Here are two examples:

    • Conditions :

Sum of the loan: 3000 €
Duration of the loan: 12 months

    • Regardless credit

Annual percentage rate: 5.35%

Monthly rate: 257.30 €
Credit costs: € 87.60

    • Depending credit

Annual percentage rate: 5.35-10.8%
2/3 interest (two-thirds of bank customers receive this credit-based loan rate): 7.89%

Monthly rate: 260.81 €
Credit costs: € 129.72

What are the different forms and what should be considered?

There are two different types of holiday financing: on the one hand, the normal installment loan with a freely-chosen bank or one’s own bank and, on the other, holiday financing with a tour operator. Travel agents in particular are interested in offering financing to their customers as they want to boost sales. But you can very quickly fall into a trap. Therefore, it is advisable to always compare offers exactly, since financing through a travel agency is in most cases significantly more expensive and therefore not worthwhile.

Depending on the type of trip, either a vacation loan with a shorter or longer term is recommended. In general, everyone should be eager to repay the loan as quickly as possible in order to maintain the chance of future credit. However, if a larger scale journey is undertaken, longer term credit is an advantage, as the monthly rates will not be too high. In addition, some banks offer a one-time repayment of the entire credit line.

Apart from holiday loans, some travel companies also offer installment financing. Depending on their condition, these can be a real alternative to “small loans” and should therefore also be considered.

What are possible pitfalls

If you want to finance your holiday with a loan, you should first think about the necessary framework, otherwise the supposed dream holiday can quickly turn into a disaster if the money goes out all at once.

In the case of a too short calculation, it will be difficult to fully enjoy the holiday. On the other hand, however, it is also not advisable to set the frame too high, because then the entire amount of course increases and at the same time by the interest on the total cost of travel clearly exceed the originally planned travel sum.

What to do if bad Private credit / credit rating?

Vacation loans are possible even without Private credit, but the choice in this case is more limited. For example, there are intermediaries who broker customers to banks that offer holiday loans without any additional costs. The loan amount to be awarded may be lower than other holiday loans or the duration may be longer. This ensures that even people with low credit ratings get credit for their vacation, which they pay off over a longer period of time than usual. This has both advantages and disadvantages (see point 9), which should be carefully considered before making a final decision.

General tips to keep in mind

It should be noted that the terms usually end after twelve months. This pursues the goal that several vacation loans do not have to be paid off at the same time. In addition, it may well be worthwhile to cover only part of the travel costs through the financing and to accumulate the other part early by saving. Because so the rates are kept low and it is in the near future again the opportunity to take a vacation.

Advantages and disadvantages of a holiday loan

The benefits of having a loan to finance the next vacation are clearly obvious. Anyone who would like to switch off from stress, but does not have the necessary change, is happy about the possibility to start the well deserved vacation despite the lack of funds.

However, it must be clearly stated that in this case the leave is not completed with the return but only with the final repayment of the loan. In retrospect, this can cause stress that you would not otherwise have.

In addition, it should be pointed out that in a holiday loan, unlike a car financing no material value is behind it. This means that once the holiday is over, the borrower has no added value.

Current figures and interest rate developments

Current figures and interest rate developments

Currently, loan interest rates are at a significant drop. The interest rates are at a record low, so taking a holiday loan would be especially worthwhile. The current low interest rate phase on the German financial market can be explained by the good economic development.

It is particularly important to understand that loan interest rates vary little between different providers, as they are influenced by many factors. These factors include, for example, market conditions, maturity, amount and credit quality.