Holiday Loans: When to Use Them for Holiday Spending
It’s probably no surprise that the holidays tend to be one of the most expensive times of the year. Between holiday shopping, gift-giving and traveling, the holidays can be hard on your bank account. If you’re looking for a temporary way to increase your spending power this holiday season, you might consider using your credit card or applying for a personal loan. Both options can help you cover seasonal expenses, but they come with pros and cons that can have lasting impact on your finances.
Holiday Loans versus Credit Cards
If you already have a credit card, it may be tempting to use it for holiday shopping. But credit cards often come with high interest rates that make it hard to get out of debt. Holiday loans are personal loans that are used for holiday expenses. Unlike many credit cards, these personal loans come with a fixed annual percentage rate (APR). That means the interest rate won’t change over time, so you owe the same amount every month.
Credit cards and personal lines of credit can come with adjustable interest rates. As a consumer, it’s important to watch this rate as it may increase during the holiday season.
Holiday loans usually come with a fixed repayment schedule, which generally lasts anywhere from 12 to 60 months. This makes it easier to plan out your expenses. The longer the repayment plan, the lower the monthly payment. But don’t forget, extending the term means you will have to pay more in interest over the life of the loan. You will save money in the longer term by paying off the loan as soon as possible.
These loans may also come with additional expenses, such as an origination fee, which typically ranges from 1% to 6% of the total loan amount.
On the other hand, credit cards and personal lines of credit are revolving lines of credits with set credit limits. Monthly payments for these types of loans will vary based on your statement balance and have a minimum required payment that must be made every month. Credit cards may offer rewards that can be redeemed for cash, travel and store credit. Credit cards with these types of incentives may come with an annual fee and other requirements, so be sure to check the terms and conditions before signing up.
How to Apply for a Holiday Loan
You can apply for a holiday loan at a reputable financial institution, such as a bank or credit union.
Like other types of personal loans, the lender will consider your credit score and other factors when considering your application. The lender will need to run a credit check before issuing the loan when considering your ability to repay the loan. Having a history of making on-time payments and having low amounts of existing debt may help your chances of getting approved.
Use our loan calculator to estimate your monthly payment:
Should You Use a Holiday Loan?
Buying presents for your loved ones can be a great way to celebrate the holidays, but you shouldn’t damage your finances to do so. If you are having trouble making ends meet around the holidays, consider making homemade gifts for your loved ones instead of spending money you don’t have. You can cook a delicious meal, make arts and crafts or do a favor for someone you love. There are so many ways to celebrate without going into debt.
Remember that applying for a holiday loan will affect your credit score. The added interest can also make it hard to get out of debt. That’s why it’s best to avoid buying gifts that are too expensive with a holiday loan. Use your imagination and creative skills to show your loved ones just how much you care.
However, you may need to use a holiday loan for special gifts or once-in-a-lifetime purchases like buying an engagement ring. These kinds of purchases usually don’t happen every year. It may take you several months or years to pay off the loan, but a holiday loan can give you some financial flexibility if it's a special time in your life.
Watch Out for Predatory Lenders
Lots of companies and lenders will try to take advantage of consumers around the holiday season. Beware of pay-day loans, credit cards and holiday loans with high interest rates or adjustable APRs.
When it comes to making ends meet around the holidays, you’ll need to choose from the options that are available to you. Compare the terms of different holiday/personal loans and credit cards to find the best option for your lifestyle. Avoid taking on high-interest debt to make sure you can pay off the loan on time and in full. If you have other outstanding debts, make sure you can afford the monthly payment on top of your other expenses.
The holidays are notoriously expensive, but you don’t have to ruin your finances to celebrate. Before moving forward with one of these lending options, be sure to research interest rates, lenders and your own financial situation and goals.