There's no shopping like shopping during the holiday season, but funds can sometimes run low while there are still plenty of items on your shopping list. A holiday loan can help bridge the gap between your gift list and your bank balance. Holiday financing can help to pay for holiday travel, gifts, or even a party for family and friends.
Holiday loans are personal loans issued by financial institutions such as banks and credit unions. To be clear, a holiday loan is not a payday loan or cash advance loan. The Federal Trade Commission (FTC) warns that while short-term loans can provide cash for emergencies, they also come with very high interest rates and fees. A personal loan that you can use for holiday expenses carries a lower interest rate. When shopping for holiday finance options online, verify that lenders are offering unsecured personal loans and not short-term payday loans.
Why Get a Loan for the Holidays?
While the holidays are a joyous time of year, they also can cause a great deal of financial strain, especially on those that are not prepared. From special meals to gifts for family and friends, there are always additional expenses around the holidays that can wreak havoc on even the best budgets. In a 2015 survey, LendingTree found that over 20% of people felt that their bank accounts were at least a little bit tight around the holidays or that they had to dig themselves out of a hole once the holiday season had passed. While it is always best to save money for this time of the year and to avoid over-spending, many may find it impossible to fully enjoy the holidays without an additional source of money.
A holiday loan can help you enjoy the festivities that come along with this time of year. Whether it is for traveling to see family that is sorely missed or your little ones' presents, a holiday loan can bring you joy and relieve financial stress. While it is always best to save for this time of year, a holiday loan can give you an influx of cash that you can then repay over the coming months when your expenses have gone down and your budget returns to normal. It is also a much better option than using credit cards that you don't plan to pay off immediately since these will often carry high interest rates that will make your debt harder to handle.
Holiday Loan Options
Personal loan: It's important to have a budget for holiday spending, but it's easy to fall short of funds during the hectic holiday season. An unsecured personal loan can provide cash at reasonable interest rates that are often half of those that you would see with credit cards. These holiday loans can be used for just about anything and you can receive anywhere between $1,000 and $35,000. These loans can also be used to help pay off other high-interest debts, such as a credit card that you used for some early shopping. Personal loans typically have a fixed interest rate and are structured with equal payments made over a specified time period, making it easier for you to pay off the debt in a timely manner.
Personal line of credit: This option can be risky if you're not careful with budgeting, but it also offers the benefit of paying interest only on amounts drawn against your credit line. A personal credit line can take care of holiday finance needs as needed; after the "draw period," or time allowed for using the credit line expires, you'll have to repay what's owed against your credit line or extend the credit line. In some cases, it may be necessary to refinance from one credit line to another. A personal credit line provides a convenient source of cash to back up your holiday spending plans and allows for you to only borrow exactly what you need, but it can also lead to excessive spending.
Draw up a holiday spending budget and do your best to stick to it. The Consumer Financial Protection Bureau (CFPB) notes that personal credit lines typically have variable interest rates which can change as specified in your loan documents. This creates a 'question mark" in your budget planning as the interest rate for a personal credit line may increase or decrease. Read loan documents carefully before signing to establish how often, and by how much, a variable interest rate can increase at each adjustment.
Holiday Finance: Tips for Success
The National Foundation for Credit Counseling (NFCC) warns that adding holiday debt to existing credit card debt can strain your finances to their limit. Still, over 10% of Americans use credit or borrowed money on just presents during the holidays season, not to mention all of the other expenses that come along with the holidays. Here are a few tips that can help both you and your finances survive the holiday season:
- Set a budget for holiday spending: it's easy to go overboard on holiday spending. Retailers and financial companies love to bombard consumers with special offers and savings tied to credit cards during the frenzy of holiday shopping, making it even easier to spend more than you can afford. While a holiday loan can help you complete your holiday shopping, it also means taking on debt. Planning your holiday finance strategy before shopping can help you stay on track.
- Avoid borrowing more than you can repay. Holiday loans are convenient, but you'll soon have to make payments. If you have doubts about adding another bill to your budget, you may want to revise your shopping list to accommodate a cash-based holiday budget. Even if you can afford the extra payments, make sure that you are borrowing an amount that you can repay quickly. You don't want to add the burden of an additional debt next holiday season on top of your current holiday loan that you are still trying to pay off.
- Say no to impulsive purchases and on-the-spot offers of credit: Establish your spending plan before shopping. Stay within the limits of available cash, your Christmas shopping list, and your holiday line of credit or loan. Don't open additional credit card accounts or fall for last minute sales. FICO notes that too much new credit can harm your credit scores and your ability to borrow money in the future.
After the 2014 holiday season, over 41% of people said that they had at least some financial regret related to their holiday spending. Enjoy the holidays without worrying about buying everything on everyone's holiday list. Smart financial decisions will help you to fully enjoy the holidays without the stress and burden of over-spending on things that you truly don't need. If you do need extra cash, please use your holiday loan wisely to avoid post-holiday debt headaches and regrets.
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