Still paying off last year's holiday loan when the time comes to book the next one could mark the start of a spiralling debt problem, writes Laura Slattery
No-frills airlines, cut-price internet deals and a higher standard of living have all pushed the prospect of regular holidays higher up consumers' wish lists.
Having exhausted the standard list of mini-break and package-holiday destinations, Irish holidaymakers' itineraries are getting grander and so remain stubbornly expensive. And parents with school-aged children will be sadly used to the prices on package deals leaping minutes after the final school bell of the year rings.
For many consumers, the question of how to finance their overseas breaks will be on their minds as they dream of escape.
Travel has traditionally been the third most popular reason why people take out personal loans, behind home improvements - which are increasingly being financed using lower-interest mortgage top-ups - and cars.
As early bookers will usually be able to pay for their holidays in instalments before they depart on their break, it should be all too easy to avoid the holiday hangover of repaying a personal loan or credit card bill.
But for disorganised last-minute merchants and people with longer-term travel plans who are intent on borrowing, the main aim should be to minimise the amount that they pay in interest.
The first thing borrowers should look at is the total cost of credit - in other words, the sum of the total repayments plus set-up fees minus the original amount of the loan.
The Pricewatch table on page 8 shows the best-value personal loans available generally to consumers, as surveyed by the Irish Financial Services Regulatory Authority (Ifsra).
The top-ranked financial institution for a personal loan of €2,000 being repaid over 12 months is AIB, with an APR of 9.8 per cent. However, members of EBS Building Society may be able to do better, as interest rates at EBS start lower at 6.9 per cent APR, while some credit unions also offer competitive rates to members.
Although Premier Direct has higher monthly repayments than One Direct, it winds up cheaper because it doesn't charge a set-up fee for the loan, whereas One Direct charges a fee of €72.
But only around 50 per cent of applicants will be able to avail of One Direct's 9.99 per cent APR rate. Some applicants may pay as little as 7.75 per cent APR; however, others deemed risky customers will pay up to 19.9 per cent APR. In short, the total cost of credit for one-year loans of €2,000 shouldn't be much more than €100 and could be even lower than that.
This price for not saving in advance may be acceptable to many. But Ifsra cautions against the temptation of longer term loans, which will have lower monthly repayments but a higher total cost.
Consumers should match the term of the loan with its purpose, Ifsra advises. If you're still paying off last year's holiday when the time comes to book the next one, it could mark the start of a spiralling debt problem.
Borrowing against the equity in your home to pay for a round-the-world trip also comes with a similar health warning from Ifsra. The regulator says that it makes little financial sense to still be paying interest on a first-class flight to Tokyo 20 years later, even if the interest is being charged at home-loan rates of less than 3.5 per cent.
And if consumers need to borrow a relatively small amount of money - less than €1,000 - an authorised overdraft may be a more suitable way to borrow than a personal loan.
Students, meanwhile, are apparently relying on a long-standing source of interest-free credit: their parents.
According to a new survey by Ulster Bank, one-third of college students plan to spend this summer abroad, but only 14 per cent of these plan on borrowing from a financial institution to fund their trip.
Some 42 per cent of the Dublin, Cork and Limerick students questioned said they were borrowing from their parents, while 47 per cent had the foresight to save.
But even the 14 per cent who are borrowing from financial institutions should be able to avoid paying any interest if they choose carefully.
Bank of Ireland's "straight talking" student account offers loans of up to €2,000 on an interest-free basis, as long as the loan is repaid within nine months. Ulster Bank and NIB, meanwhile, offer interest-free overdrafts.
If the results of a recent survey by Recruit Ireland are anything to go by, students would be well advised to circumnavigate the globe now, before they get sucked into a corporate culture of presenteeism, where holidays are something to be slotted into a quiet weekend and the only tans in the office are suspiciously streaky.
Some 28 per cent of respondents to the employment agency's survey said they did not take their full holiday entitlements and, of those, almost six in 10 claimed they were "too busy at work" to take the time off. A further 11 per cent said it was "not the done thing" in their company and 10 per cent believed it would affect their promotional prospects.
"There are two reasons why people are not taking their full holidays," says Aoife Curtin, a spokeswoman for Recruit Ireland.
"The first influence is the employee themselves - some of them are almost too dedicated and don't have the correct work-life balance," she says. "The other influence is an organisational one, where there is a culture of long working hours dictated from the top down. It will filter through to all employees and they will feel like they cannot take their full entitlement."
Employers' lax attitudes to holiday pay entitlements may deter some workers from taking time off.
There are several formulas for working out how much paid time off you are due. The standard rule of thumb is four working weeks a year, but employers may calculate the entitlement of part-time and contract workers differently.
Employees who work fewer than 117 hours a month earn their paid holidays at a rate of 8 per cent of the hours worked, while employees who work more than 117 hours earn their paid holidays at a rate of one-third of the working week for each month worked.
Full-time employees also have an automatic entitlement to benefit from nine public holidays, while part-timers must have worked at least 40 hours over a five-week period before the holiday to qualify.
Employees who are refused their correct entitlement to holiday pay and public holidays can complain to the Rights Commissioners under the Organisation of Working Time Act, 1997.
But employers who do break the law by refusing to give holiday pay not only boost the stress levels of workers who clock in 52 weeks a year, they also encourage those who make occasional getaways to get into debt to cover the cost.
Thankfully, the maturing of Special Savings Incentive Accounts (SSIAs) from May 2006 to mid-2007 should dent a hole in the Republic's rising levels of unsecured debt.
According to a Bank of Ireland survey of how its customers plan to spend their SSIA bonanza, one in five savers have their funds earmarked for a holiday.
With windfalls of up to around €20,000 to play with, it is likely that the usual worries about peak-time prices, single supplements, airport taxes and bureaux de change rates will fall by the wayside.
