How Canadians Can Use Loans for Holiday Expenses

Everyone loves a holiday. Unfortunately, the sad reality with the current state of the Canadian economy is that not everyone can afford one. So if you’ve been eyeing holiday loans to cover travel expenses and manage your seasonal spending, you’re not alone. 

Plenty of Canadians want to explore their loan opportunities, which is why they turn to us at Smarter Loans, a platform to compare the best loan offers. However, before you make any big decisions, it’s a good idea to look into how you can use a loan for holiday expenses in Canada before you start applying. 

Today’s blog will help you learn more about when to consider a holiday loan, your options, why comparing rates is important, repayment tips, and how to borrow responsibly. 

When Should You Consider a Holiday Loan?

Have you been eyeing a trip to the Maldives or daydreaming about lazing about on Grand Beach in Manitoba, but the price seems too exorbitant? Or are you strapped for cash and worried about making it to visit your parents in Vancouver or Ontario during the holiday season? These are all situations where you can consider holiday loans. 

For most people, holiday loans are a good way to cover unexpected expenses and spread out total holiday costs. With these loans, you’ll have access to extra spending immediately that you can repay over a period of months. We know just how convenient this can be when you’ve made travel promises to family, friends, or yourself. 

Loan Options for Holidays 

We hate to break the bubble, but there is no specific’ holiday loan’ that you can apply for in Canada. However, there are a few other loan types that you can use to fund your trip expenses. 

Below, we share a few vacation financing options you can consider.  But just know that before you get approval, you’ll be evaluated on your existing debt levels, credit score, income, and more. So bear this in mind before you start picturing yourself in your travel attire, boarding a plane, or hopping in your vehicle. 

Personal Loans

Many people choose to use personal loans for travel. When you can’t quite fund your travel plans with your savings or have no savings to speak of, a personal loan could be a good choice. With this type of loan, you’ll borrow a fixed amount of money and pay it back with monthly installments. 

Usually, these will need to be paid over a set period, and the longer the loan period, the lower your installments will be. This type of loan also works if you know your travel budget and can confidently say where every cent and nickel will go on holiday. 

However, you need to be cautious about personal loans as repayment periods can start when you’re still on holiday. This is something you don’t want to happen. So be sure to keep this in mind before you sign on the dotted line and book those travel tickets. 

Home Equity Lines of Credit (HELOCs)

Home equity lines of credit (HELOCs) are low-interest loans (technically, more of a form of financing) that let you pay interest only on what you use. This can be hugely beneficial for holiday spending. But, there’s a downside. 

With this line of credit, you’ll need to secure it against your home. This means that if you don’t make payments for your holiday spending on time, you could lose your home. This is especially a worry since HELOCs offer individuals relatively high credit limits. So if you don’t practice a hefty level of restraint while on holiday, you could end up in hot water when the fun is done.

Personal Line of Credit

You could use a personal line of credit for your holiday expenses if you don’t have a house or don’t want to put it up as collateral. This is a form of financing, but in Canada, it also falls within the ‘holiday loans’ category, like HELOCs. 

With a personal line of credit, you’ll only pay interest on what you borrow. This makes it a good option if you’re unsure how much you’ll need to cover in terms of costs while on holiday. However, as is the case with HELOCs, you need to be careful, as you’ll likely have easy access to a larger source of money. 

This makes it tempting to overspend or splurge on luxuries while away. And while this feels good at the time, you could regret these decisions when you return home.

Comparing Rates 

When looking into holiday loans, it’s important to compare rates and not forget the annual percentage rate (APR). You can think of the APR as the price tag on the entire trip rather than a sticker on a gift. The APR shows the actual cost once fees are added. 

If you look at the APR from the outset, you’ll be able to easily determine if a personal loan or line of credit is the smartest choice for last-minute holiday splurges, gifts, flights, and other holiday expenses. 

You should also look closely at fixed and variable rates. If you secure a fixed personal loan, the rate will remain the same. This is often preferable when your budget is already juggling travel plans and family gatherings. 

You should also keep in mind that although lines of credit and HELOCs are variable and offer lower rates at first, these rates can shift, which could impact your post-holiday finances. 

Repayment Tips 

Below, we share a few repayment tips you might find helpful if you want to stay on top of your post-holiday loan commitments: 

• Map out a holiday loan repayment schedule: If you don’t want to be blindsided, map out when your installments are due and how much you need to pay each time before your holiday even begins. This can make it far easier to budget around gifts, travel, and seasonal events. 
• Set up automatic payments: We know you might not like the idea, but it’s worth it to set up automatic repayments for your holiday loans. Automating repayments helps prevent late fees and keeps your loan payments on track. It also removes the unnecessary stress of having to remember when loan payments are due when you’re on holiday.
• Consider making extra payments: If you want to squash your holiday payments faster and potentially secure another loan in the future, try making additional payments. Even a modest top-up to your loan amount can reduce the principal more quickly and lower interest over time. This can also give you more breathing room when the holiday period wraps up. 

Besides the above, you can also look into pausing new spending on any credit lines you have once the holidays wrap up. This can prevent your balance from growing and help you focus on paying down a single amount. 

Responsible Borrowing Advice

Holiday loans can be exciting because they let you look forward to some much-needed time off. However, if you borrow irresponsibly and manage the loan badly, you could regret applying. 

That’s why you should follow a few tips. Have a look below for our borrowing advice: 

• Make sure you create a realistic holiday budget. This will let you learn exactly what you’re working with. To do this, list all your expected costs, including hotel stays and meals, flights, transportation, and entertainment. With this budget in hand, you’ll know how much to borrow and what your spending shouldn’t go over. 
• Review your current debt before you take on more. Many people make the mistake of failing to consider the big picture when taking out holiday loans. We recommend you take a close look at your current debt to see if you can afford more for a holiday. You don’t want your holiday loan to stretch your monthly budget too far. 
• Evaluate your credit score. Before you apply for holiday loans, check your credit score, as it can help you estimate the rate you might qualify for. This can be beneficial for your budget planning. You can check your credit score in Canada for free through Borrowell or Credit Karma.

Key Takeaways

Now that you have a better understanding of holiday loans and which types you can consider, you may want to explore your options. 

With Smarter Loans, you can compare several personal loan options across lenders to find the best one for your holiday needs. However, we urge you to keep the tips we shared on repayment and responsible borrowing in mind. It’s also a good idea to compare rates. 

At the end of the day, if you decide to borrow, make sure you’re not placing yourself in financial risk. If you do this, you can borrow for your holiday without worrying that in the future you will think your past choices were a terrible decision.