Holiday loans are personal loans issued from a bank, lender, credit union, or other financial institutions. These assist in covering expenses incurred during the holidays, hence the name. They differ from cash advance, payday loans, and different types of short-term loans.
Lenders determine the borrowing amount and interest of a holiday loan based on the credit score of a person. This loan is unsecured, and therefore, doesn’t require any collateral like a house or a car. Besides this, a person applying for holiday loans must have two qualifications.
Primarily, the person should have an age of more than 18 years and a low debt-to-income ratio. A credit score may play a large part in receiving this type of personal loan. However, a person with bad credit can of avail the below mentioned holiday loans and options.
Holiday loan options for people with bad credit
● Personal loan
Availing a personal loan for the holidays isn’t the most suitable option; however, bad credit limits the loan options. Such type of loan is based upon the credit history of the borrower. The lender may decide the amount and interest rate based on the credit score.
A personal loan is available as a money borrowing option to people with bad credit history by many financial institutions and lenders. This type of loan remains unsecured against any collateral. At times, people with bad credit history get offered guarantor loans instead of a personal loan.
● Guarantor loan
A guarantor loan is secured with the help of a second person, a.k.a the guarantor. Therefore, the latter would require to repay the borrowed amounts if the borrower fails to make the repayment. A guarantor loan allows the borrower to take a few £100 to £1000.
A guarantor loan is often given to people with good credit history and over 21 years of age. However, the involvement of a guarantor that fulfils both criteria may provide a borrowing option. In most cases, a guarantor is a relative, friend, or family member.
A spouse can become a guarantor; however, lenders often a single criterion. The spouse acting as a guarantor must have a separate bank account. Thus, making sure that the repayment isn’t missed or failed.
Default in repayment of a guarantor loan can lead to two significant repercussions. Primarily, the lender could ask for the amount from the guarantor. Secondly, and majorly, the lender can demand full repayment of the borrowed amounts. It could become difficult for the borrower, especially with recent unemployment and even put the burden on the guarantor.
Typically the interest rate of a guarantor loan goes north of 30% to 50% annual percentage return (APR). On the other hand, secured loans for people with good credit history go as low as 5% APR.
● Secured loans
A secured loan is not the best holiday loans for bad credit, but it is possible to acquire. A person creates a mortgage on the home by providing it as part of security. People often take it with a borrowing requirement of more than £10,000.
Anyone planning to avail of a secured loan must know that they come at the risk of the home. But they provide an option to pay debts and expenses with the borrowed amount. However, the borrower needs to make the repayments with interest.
Two of the most common types of secured loans include homeowners and logbook. The primary is against a home, and the latter is against a car, collateral, or some other valuable asset. Moreover, secured loans act as second charge mortgages because the borrower is technically repaying another mortgage after ownership.
Many times people take secured loans to improve their credit history. The credit rating improves if the borrower makes regular repayments and doesn’t overpay. But there are many other ways like clearing small credit card debts, getting employment, and decreasing the debt-to-income ratio to improve credit ratings.
Even lenders provide leniency in credit score to the borrower while offering any form of secured loan. An unsecured loan is preferred over a secured loan because it doesn’t require collateral. But most of them don’t provide the privilege of offering lump-sum amounts. They also come with a higher APR compared to secured loans.
● Credit union loans
A personal loan often comes with a one to five-year tenure and requires a good credit score in most cases. However, a credit union may provide loans to its members for durations lower than five years.
Moreover, the credit union or commercial bank may charge interest on unpaid amounts. Therefore, the borrower is relieved from the burden of interest for a considerable duration. Credit unions offer membership to locals or the same company workers. Other methods to join a credit union include the assistance of a dealer while purchasing a car, or sending online applications. Visiting a credit union and opening a deposit account can also help to become a credit union member.
Emily Rhodes operates as a Senior Content Writer at Easyadvanceloan for 5 years. She oversees the financial planning and monitoring of the cash flow. Emily also helps the firm forecast its financial standing by analysing the operational data and latest reports. It requires detailed research and predicting the trends before arriving at a conclusion. Emily Rhodes’s credible predictions and the best usage of problem-solving and analytical skills help the firm revise financial policies for growth. She ensures the best of her expertise by working in tandem with the CEO and Chief Operating Officer. Academically, Emily is a postgraduate with MBA in Finance from a reputed university.