Holiday Loans

Holiday loans are simply personal loans that are used to cover holiday expenses, like plane tickets or Christmas gifts. Traditional holiday loans are unsecured, meaning they don’t require any collateral. LendingTree’s online loan marketplace lets you shop for competitive rates and terms for loans of up to $50,000. 

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What is a holiday loan?

Holiday loans are personal loans that you can use to cover any holiday-related expenses. These loans can bridge the gap between your gift list and your bank account.

Holiday loans are issued by financial institutions like banks, credit unions and online lenders and come with fixed monthly payments over a set period of time, typically 12 to 60 months.

How do holiday loans work?

Holiday loan APRs are fixed, meaning that you lock in your interest rate when you take out the loan, unlike credit cards and personal lines of credit, which have variable interest rates that can fluctuate unexpectedly.

Holiday loans are also typically unsecured, meaning they don’t require collateral. Because of this, financial institutions rely heavily on factors like your credit score, income and debt-to-income ratio to determine your eligibility.

Beware of predatory lenders around the holiday season

A holiday loan is not a payday loan. Payday loan lenders prey on consumers who want quick holiday money with no credit check, then trap them in an expensive cycle of borrowing with short repayment terms and extremely high APRs. When shopping for holiday finance options online, verify that lenders are offering loans at affordable rates and that any fees are reasonable for your financial situation.

What can you use a holiday loan for?

Because holiday loans are a form of personal loans, the ways in which you can use your loan are flexible. Personal loans can be used for a variety of purposes, though borrowers do have to disclose their plans to their lender.

For instance, you can use a holiday loan toward the following purposes:

  • Purchasing presents for loved ones
  • Traveling for the holidays
  • Buying holiday decorations

Some lenders have specific parameters around how funds from a loan cannot be used, though this varies from lender to lender. To learn how your loan can and cannot be used, contact your lender.

Should you get a holiday loan?

While the holidays are a joyous time of year, they also can cause a great deal of financial strain. In fact, roughly a third (36%) of Americans took on holiday debt, a 2021 LendingTree survey found.

From special meals to gifts for family and friends to holiday travel, there are always additional expenses around the holidays that can wreak havoc on even the most generous budgets.

Before you rush to take out a holiday loan, consider the pros and cons:

ProsCons

  Better terms than credit cards, typically. Good-credit borrowers will likely be able to secure a lower APR than with a credit card.

  Fixed APR and monthly payments. You can break up holiday expenses into predictable monthly payments.

  Quick money when it’s needed. Holiday loans can offer fast funding, sometimes as soon as the same business day.

  Funds can be used for many reasons. You can use a holiday loan to pay for anything from travel expenses to Christmas gifts.

  No collateral required, typically. Unsecured holiday loans don’t require collateral, so you don’t risk losing any assets.

  Could improve your credit. Credit score issuers like to see a variety of credit types on your profile, as well as healthy payment history.

  Interest on top of holiday expenses. The cost of borrowing makes holiday purchases more expensive.

  Increased debt load. It’s not advisable to take out debt for and pay interest on unnecessary expenses.

  Years-long repayment terms. You may be making payments long after the holiday season ends — and the next one begins.

  Loan minimums. Holiday loans typically start at $1,000 with online lenders. You may find smaller loans at banks and credit unions.

  Potential fees. Many holiday loans have an origination fee, ranging from 1%-8% of the total cost of the loan.

  Some borrowers may not qualify. Poor-credit borrowers may end up with high APRs, if they qualify at all.

Cost of a holiday loan

The biggest drawback of taking out a holiday loan is the cost of borrowing. While good-credit borrowers may secure more favorable terms and lower APRs than they would on credit cards, it’s still not advised to take out debt for unnecessary expenses or assets that won’t appreciate in value.

Holiday loan APRs can be as high as 36%, so be sure to consider the total cost of borrowing before seeking holiday loan help.

On this note, if you’re struggling with your credit score, you can still qualify for a personal loan by looking for the best holiday loan for bad credit. However, poor-credit borrowers should keep in mind that they may get loan offers with much higher APRs.

Here’s an example that compares a 36-month, $5,000 holiday loan with an APR of 10% with a loan with an APR of 25%. Note how the interest charges more than double with the higher APR. The monthly payment on the loan is higher, as well.

Holiday loans: The cost of borrowing

Loan amount$5,000$5,000
Loan amount$5,000$5,000
APR10%25%
Monthly payment$161$199
Total cost of the loan$5,808$7,157
Total interest paid$808$2,157

Before borrowing a holiday loan, use our personal loan calculator to estimate your monthly payment and total cost of borrowing. By crunching the numbers now, you can determine if a holiday loan is worth the cost.

How to apply for a holiday loan

Take these steps before applying for a holiday loan.

Check your credit score

Holiday loans are typically unsecured, so lenders rely heavily on factors like your credit score and debt-to-income ratio to determine eligibility. Before applying for any form of credit, it’s a good idea to check your credit score to understand your position as a borrower.

Get prequalified

LendingTree lets you prequalify with lenders in our network at our online marketplace. You’ll just need to input basic financial information and consent to a soft credit check, which will not affect your credit score.

Applicants may get holiday loan offers from up to five lenders. Choose the best offer, typically the loan with the lowest APR, and then formally apply through the lender.

Submit a formal loan application

Each lender has its own application process, but you can expect to provide employment and income information, proof of identification and bank statements. If approved, you could receive your funds as soon as the same business day.

Alternatives to holiday loans

Holiday loans aren’t the only way to finance your Christmas expenses. Consider the alternatives below, such as credit cards and buy now, pay later (BNPL) plans, to decide which option makes the most sense for your unique financial situation.

Budgeting for holiday spending

It’s easy to forget what a financial drain the holiday season can be when you’re busy enjoying the summer months. But if you account for holiday spending in your budget year-round, you won’t have to stress when cold weather hits. Follow these steps to budget for the holidays:

  1. Determine how much money you need to cover expenses. Account for things like holiday travel expenses and gifts. Once you’ve set your budget, do your best to stick to it.
  2. Divide that by the number of months you have left to save. For instance, if you want to save $600 for the holidays and you’re starting in September, you’ll need to save $200 per month to reach your goal in three months.
  3. Pay for holiday expenses without borrowing money. This way, you don’t have to stress about finding financial help for Christmas when you could be enjoying the holidays with loved ones.

Personal line of credit

Personal lines of credit offer the benefit of paying interest only on the amount drawn against your credit line. After the draw period, you’ll have to repay what’s owed against your credit line or extend the credit line.

One caveat: Personal lines of credit typically have variable interest rates. Read your loan documents carefully before signing to establish how often and by how much a variable interest rate can increase at each adjustment.

Credit card

Credit cards are a convenient way to cover your holiday expenses. They let you borrow money without putting up collateral, and they’re accepted at most retailers.

However, it’s easy to overspend when you have a high credit limit. Remember that you’ll have to pay interest on any purchases that aren’t paid off by the time the statement balance is due.

Borrowers with good credit could consider searching for a card with a 0% APR introductory offer, which can give you time to pay off your holiday spending without interest as long as the balance is paid in full by the time the promotional period is over.

Buy now, pay later

Instead of getting a long-term personal loan, you can use a BNPL app to cover the cost of gifts or decorations.

Most BNPL sites offer pay-in-4 plans, which typically come with zero interest. These plans involve splitting the cost of your purchase into four payments across a period of six weeks. You’ll make the first payment immediately, and every two weeks thereafter, you’ll make a payment on your loan until it’s paid off.

Frequently asked questions

Whether a holiday loan is a good fit for you depends on your unique financial situation. If you have good credit and qualify for low interest rates, a holiday loan may be a decent option for you, especially if you’re unable to save and pay for the expenses up front. Be sure to shop around and compare rates, fees, amounts and terms to get a holiday loan that best fits your circumstances.

Yes — getting a holiday loan with bad credit is possible, though it may be challenging to qualify with some lenders. Other lenders are willing to work with poor-credit borrowers, though you may get stuck with higher interest rates.

Before applying for a loan, consider improving your credit score so you can boost your creditworthiness in the eyes of lenders.

The number of hoops you’ll have to jump through in order to get a holiday loan depends not only on the lender’s qualification criteria but also on your own creditworthiness.

If, for instance, you have a low credit score and a low income, you may have a challenging time finding a personal loan lender. Other factors that are considered include the purpose of the loan and your payment history.