Holiday Loans: Potential Savings and Risks

The holidays may be fun, but they sure can be expensive. Between food, gifts, charitable contributions, and travel costs, holiday celebrations can result in a hefty price tag. That can put a financial strain on you if you didn’t save money year-round for those extra expenses.

Extra days off from work around the holidays means you might also find yourself spending more than you ordinarily would on meals and entertainment. All those holiday parties or family Christmas card photos may require new outfits so you can look your best. And playing Santa is expensive, too — according to Gallup, U.S. adults anticipated spending an average of $885 on Christmas as gifts in 2018.  

With all those added expenses, it can be easy to run out of extra cash and end up looking for other options to fund your holiday spending. That’s where holiday loans come in.

In this guide:

• How to Get a Personal Loan to Fund the Holidays
• The Benefits of Holiday Loans
• The Downsides of Holiday Loans
• Alternatives to Holiday Cash Loans

Getting Holiday Loans Online

Personal loans can be obtained for a variety of reasons, including home improvement, debt consolidation, and holiday-related expenses. With unsecured loans like these, you don’t have to put up any collateral. Shorter repayment terms mean you probably won’t still be making payments when next year’s holidays roll around.

There is no shortage of personal loan providers in today’s marketplace. You can use websites such as LendingTree to complete one loan application and review several of the best personal loan offers at once, which lets you compare rates and score the most favorable loan for your needs.

Alternately, you can choose to skip the middleman and apply for a personal loan directly with online banking institutions such as LendingClub, Marcus By Goldman Sachs, or SoFi. You also might want to check out the rates on personal loans at credit unions, which can often be more competitive than traditional banks.

Consumers looking for holiday loans should watch out for payday loan companies that advertise such loans. Those should be avoided at all costs because overall interest rates can reach upwards of 300 percent, particularly if you live in a state that doesn’t put a cap on the rates these lenders can charge.

The Benefits of Holiday Loans

As we mentioned, you don’t need collateral for personal loans, and credit approval is available for borrowers with anywhere from average to excellent credit. However, be prepared to face high interest rates if your credit history isn’t particularly solid.

If your credit score is lower than you’d like it to be, making timely monthly payments on a personal loan could help you raise your score.

Personal loans typically have lower interest rates than what you’d find with a credit card, which can help save you money on holiday spending. The fixed and equal payments associated with personal loans make for easier budgeting, too.

The Downsides of Holiday Loans

Some of the personal loans you can get may not have loan terms that are under 18 months or two years. That could put you in serious trouble financially if you have to set up another personal loan before you’ve finished paying for the first. If you opt for a personal loan, make sure the one you select has no prepayment penalties, so you can pay it off faster if you want to.

Other risks of using a personal loan for the holidays include getting an outrageously high APR or borrowing more money than you need — and spending more than you typically would as a result.

Alternatives to Using Holiday Cash Loans

What if you can’t pay cash for your holiday spending? What other financing options do you have?

Paying for your holiday needs with your credit card is often a less-than-desirable idea unless you can score a card with an introductory 0% interest rate on purchases for a certain length of time (typically anywhere from six months to 18 months). 

This provides an interest-free way of getting your holiday spending done, so long as you pay your balance in full before the introductory period comes to an end. In the event you’re unable to do so, interest will be imposed beginning from the date of purchase, which can add hundreds of dollars to your bill.

A home equity loan might be another option, although putting your home at risk for what amounts to luxury spending isn’t the smartest idea.

Another alternative is planning ahead and using layaway, which some retailers still offer. You’ll have to pay off that bill entirely before the items can be picked up, so that can be a motivating reason to work some overtime or cut your finances elsewhere. After all, there won’t be any gifts to give if you don’t pay it off in time.

Conclusion: Choosing the Holiday Financing Plan That’s Right for You

Even though the holidays are fun-filled for many of us, the financial pressure you may feel can make them a stressful time. You always have options for paying your way through the holiday season, whether by working a temporary part-time job, taking on extra hours at your regular job, cutting back on spending elsewhere, or even applying for a personal loan.

If you do select the personal loan option, look for a loan with short repayment terms, compare offers to find the lowest APR you can, and refrain from borrowing a loan amount more than what you actually need. After you’ve paid off that personal loan, start stashing away cash in a savings account — knowing you have a plan for next year’s holiday season can give you peace of mind.

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