It might ease the financial burden of shopping during December, but watch out for overborrowing.
With some holiday loans, you don’t have to make any repayments for an introductory period. The annual percentage rate (APR) these loans charge vary. Minimum and maximum loan amounts and loan terms can also differ, but they typically run between $1,000 and $3,000. Since not all holiday loans are the same, comparing the details could save you money on this costly loan.
How do holiday loans work?
Lending institutions that provide holiday loans can have different eligibility criteria. For instance, while some lenders require that you have good credit rating, others will offer these loans to individuals with less-than-perfect credit.
Once you pick a suitable lender, you can apply online or in person. Bear in mind some lenders only operate online, with no physical locations. The time it takes to review your application depends on the lender you choose, with some providing almost immediate responses. Upon approval you may be able to collect cash from a physical location or the lender could transfer the money directly into your bank account.
You can use proceeds from these loans for any holiday-related expense. After you get the money, you must start making repayments as per a predetermined repayment schedule.
Compare short-term loan providers
Loan details to consider before applying
Knowing how to differentiate between available options is important in picking the right holiday loan. Keeping these points in mind should help:
- Processing time. This is particularly important if you need money in a hurry.
- Loan amount and term. Minimum and maximum loan amounts can differ from one lender to the next. Loans terms can also vary. If you’re looking at borrowing a large sum for a prolonged period, you may have limited options.
- Repayment holidays. To ease your financial burden during and soon after the holiday season, some lenders offer repayment holidays. What this basically means is you don’t have to start making repayments until after an introductory period.
- Interest rates. The APR has a direct effect on how much you end up repaying. If you have good creditworthiness, you can get a competitive APR. If you’re seeking a short-term loan and have a low credit score, prepare to pay a noticeably higher APR. Remember that not all lenders charge the same APR.
Benefits and drawbacks
- Quick. If you pick a suitable loan provider you can get your hands on the money you need by the next business day.
- Safe. Reputable online providers of holiday loans use high levels of encryption to keep your personal and financial information safe.
- Prepayments. Making extra repayments towards your holiday loan or paying it ahead of time should not cost you extra if you work with the right lender. You should check this aspect before applying.
- High APR and fees. Some lenders charge high APRs and fees that can make your loan expensive. This is usually emphasized if you have poor or bad creditworthiness.
What to consider before applying
If you’re thinking about getting a holiday loan, it’s important that you have a plan to repay it before you even apply. This is because making late payments or defaulting on your loan can see you paying added fees, and can have an adverse effect on your credit rating.
Once you get a loan contract, review it carefully. Accept the contract only after you go through all the fees and charges you might have to pay. If you don’t find the terms and conditions acceptable, you don’t have to sign the contract.
Alternative ways to pay for the holidays
- Tweak your budget a few months leading up to the holiday season. Starting in July or August, take an honest look at your budget and find small changes you can make to save up some money for the holiday season. Maybe this means eating at home more instead of dining out, canceling your cable TV subscription or giving up nail or hair treatments until you’ve saved enough cash to use during the expensive months of November and December.
- Get a part-time job. From retail stores to delivery companies to restaurants, many companies see an influx of customers during the holiday season and hire additional workers to offset the demand. This is a great way for you to earn some extra money to put toward your holiday gift shopping and party expenses.
- Put aside your tax refund. Sure, this will take a lot of will power on your part, but one way to plan ahead for the expensive holiday months is to put aside your tax refund in a savings account to use specifically in November and December when your holiday debt takes a toll on your finances.
- Sell unwanted clothing, electronics, and more. With apps like OfferUp and Poshmark becoming increasingly popular over the last year, an easy way to make some extra money to put aside for the holidays is by selling clothing, electronics, furniture or anything else around your home that you no longer use or need.