The holidays are just around the corner, and that means you’ll soon be setting up your Christmas tree, buying and wrapping presents, and making plans to visit family. While it’s a festive and cheery time of the year, it’s also expensive.
According to a Gallup poll, consumers plan on spending an average of $932 this year on the holidays, estimating a $100 increase from last year, including money spent on gifts, decor, and meals.
Many people don’t have that kind of money saved in their bank accounts, leaving them scrambling to pay for holiday expenses. If that’s the case for you, you might be considering using a credit card to finance your purchases. But there may be another option that’s a better choice: a holiday loan.
What is a holiday loan?
A holiday loan is a personal loan you take out to cover the cost of your expenses, such as gifts or Christmas travel.
They’re usually unsecured, meaning you don’t have to put down any property as collateral. Instead, personal loan lenders review your credit score and income to decide whether or not to issue you a loan and to determine what interest rate you’ll receive.
Holiday loans have fixed repayment terms, and can be spread out over several months or even years.
Benefits of a holiday loan
If you’re thinking about taking out a holiday loan, there are three key benefits:
They have lower interest rates than credit cards: Personal loans tend to have much lower interest rates than credit cards; some lenders, such as Even Financial, offer rates as low as 4.99%. With a lower interest rate, you’ll save money, making a holiday loan a cheaper financing option than a credit card.
You can choose a long repayment term: Personal loan lenders offer repayment terms as long as 84 months, giving you a more affordable monthly payment. You’ll pay more in interest with a longer term, but it may be worth it to you to get a lower payment.
You can get money quickly: With many holidays loans, you can get the money you requested in as little as one business day so you can start your holiday shopping right away.
Downsides to holiday loans
While holiday loans can be helpful for some, they’re not for everyone. There are some drawbacks you should consider before applying for a loan:
You may not qualify for a low rate: To qualify for the lowest advertised rates, you’ll need to have a good to excellent credit score and a stable income. If your credit is less-than-stellar, you may have difficulty qualifying for a loan. Even if you do get approved, you could get stuck with a loan with a high interest rate.
You could be in debt for years: When you take out a holiday loan, you can choose your repayment term. Typically, personal loans have repayment terms that range from 12 months to 84 months in length. While choosing a longer term gives you a lower payment, you’ll pay more in interest over time. And, you could end up re-paying the holiday loan for several years.
If at all possible, avoid taking on debt for the holidays. Instead, trim back your budget, pick up a side hustle, or cut back on your planned holiday spending so you can pay for it with cash.
How to get a holiday loan
If you decide that a holiday loan is right for you, you can apply for one with a bank, credit union, or online lender. With online lenders, you can apply online and receive a decision right away. If approved, you can get your money in just a day or two.
When you apply, you’ll have to provide some basic information about yourself, including:
- Phone number
- Email address
- Social Security number
Some lenders will require you to submit a copy of your ID, such as a driver’s license, and proof of income, such as a recent pay stub.
Taking out a holiday loan
If you’re short on cash but still want to enjoy the holiday season, taking out a holiday loan can be a quick way to get the money you need. And, with some personal loan lenders offering low interest rates, holiday loans can be a cheaper option than credit cards, helping you save money.
For more ideas on planning for the holidays, here are four ways to save while hosting family.
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