Holiday Loans

Don’t get a holiday loan if you can avoid it. Unlike mortgages or small business loans, holiday loans can qualify as “bad debt,” or debt that doesn’t benefit you financially in the long term.

Going into debt for nonessential expenses — whether in celebration of Christmas or any other holiday — will take a toll on your budget. And if you choose a standard loan term of two to five years, you’ll still be making payments on this year’s stocking stuffers for the next few holiday seasons — unless you pay off your debt sooner. (On the bright side, all lenders we compiled above let you pay off your loan early with no penalty.)

Pros and cons of a holiday loan

If you’re short on cash for the holidays, you can find a holiday loan at any of the following places:

• Banks: Banks tend to have strict borrowing standards, but you’ll likely have an easier time qualifying for a loan if you have good credit and are already a customer.
• Credit unions: Federal credit union loans are among the most affordable because they’re capped at 18%. You’ll typically need to become a member and have good credit to qualify.
• Online lenders: If you’re looking for a bad-credit personal loan, an online lender will likely be your best bet. Keep in mind that these lenders charge rates as high as 36% to borrowers with bad credit.
• Loved ones: You can borrow money from family to cover your holiday expenses. To avoid financial tension, write up a personal loan contract ahead of time and commit to a repayment schedule in writing.

Steer clear of Grinchy lenders

Avoid lenders that don’t run credit checks, have short repayment terms and charge extremely high interest rates and fees. Predatory loans can trap you in a cycle of debt, forcing you to take on more debt to cover the original loan when payments are due.

Holiday loans can help break up your Christmas or other festive spending into affordable payments, but the bottom line is that it always costs money to borrow money. Consider the following alternatives:

Get creative

• Instead of forking over cash for pricey plane tickets, invite out-of-town family to visit you or host a holiday gathering over Zoom.
• Hosts expected to spend an average of $556 on hosting a holiday party last year. Instead of covering these costs alone, tell your guests to bring a dish and their favorite piece of holiday decor. You can even ask a family member to co-host the holiday with you to split the costs.
• Instead of paying for expensive custom holiday cards, make your own or buy standard cards online or at a department store.
• Instead of buying gifts for each of your family members, start new traditions like secret Santa or white elephant. You can also give the gift of experiences, like a day at a local park or beach.

A December to remember

“My grandmother had sixteen grandchildren, so her holiday costs added up quickly. But she was an expert at creating experiences we’d always remember. She hosted cookie decorating parties and always made sure to invite Santa to our Christmas dinners.”

— Lauren Nicholson, LendingTree loan expert

Pay in cash

The best strategy to avoid taking on new debt this season is to create a budget and save in advance for your holiday purchases.

Here are the steps to save up enough cash for your holiday spending:

1. Create a budget. Make a list of all the purchases you plan to make, and research the costs. Be sure to include gifts, travel expenses, decorations and food.
2. Divide the total cost by the number of months you have left to save. For example, if you need to save $600 for holiday spending and you’re starting in August, you need to save $150 each month to meet your goal by December.
3. Stick to your budget. Do your best to stick to your budget, and avoid the temptation to overspend. Remember that your budget will keep you from paying for your holiday expenses well into the new year.

Credit card

If you’re not sure how much money you’ll need for the holidays, consider using a credit card. Credit cards allow you to borrow as much as you need up to your credit limit, and you’ll only pay interest on the amount you borrow.

If you want to save money and have strong enough credit to qualify, consider applying for a 0% APR credit card, which won’t charge you interest during the card’s introductory period (commonly six to 21 months).

Buy now, pay later

Buy now, pay later apps (BNPL) allow online shoppers to break up their purchase into four equal payments, due every other week.

BNPL companies typically don’t charge interest or fees for these short-term loans, but some companies offer longer financing options that do come with interest. To use a BNPL service, look for the financing option during the checkout process.