What is a Christmas loan?
Christmas loans, also known as holiday loans, are really just a marketing term. They are personal loans marketed to people who want to finance purchases during the holiday season. As with any personal loan, your rates, terms, and available loan amounts will vary according to your income and credit.
The average American will spend about $1,000 on gifts during this Christmas (source
). That doesn't include the cost of parties, decorations, or travel. In total Americans will spend around $1 trillion on holiday spending this year.
Not surprisingly, many Americans resort to financing Christmas related expenses.
Christmas loan terms
They may be designed to finance a short-term need, but Christmas loans are not typically short-term loans. Terms usually range from 1 to 5 years. Although it is nice to have several months to repay the loan, taking several years to repay the cost of a single Christmas is not a good idea. So it is best to find Christmas loans that allow you to repay the loan early without paying penalty fees.
Christmas loan interest rates
Christmas loans also tend to have lower interest rates than credit cards. The latest data from the Federal Reserve
puts the average interest for a 2-year personal loan at 9.34%. Compare that with the average interest rate for credit cards (16.97%) and the three-digit interest rates you can expect to pay with a payday or cash advance loan.
How to compare Christmas loans
Whenever possible, avoid getting into debt to pay for holiday expenses. However, if you've decided you need a Christmas loan, it is important to shop around and find the best rates possible. Where do you begin?
Follow these steps when applying for Christmas loans:
- Decide how much you need to borrow.
- Find out what your credit score is.
- Apply with multiple lenders that offer pre-approvals without a hard pull on your credit.
- Check your offers and choose the loan with the lowest rates and shortest terms you can afford.
- Complete an application form.
When comparing Christmas loans, focus on the annual percentage rate (APR) and the length of the loan—and not just the monthly payment. If you don’t get the best deal available to you, you could end up paying significant additional interest amounts over the life of the loan.
SuperMoney's loan offer engine
makes it easy to compare rates, terms, and fees. With a single form, you can find out what rates and terms you qualify for and what your monthly payments will be.
The best Christmas loans for bad credit
If you need some extra cash this Christmas, it can be hard to get it if you have bad credit. The good news is that you don't need to resort to high-interest loans to address your cash needs. There are the three best Christmas loans for bad credit.
There are lenders out there who offer regular personal loans to people with subpar credit:
What to do before considering personal loans for Christmas
If you think you need a Christmas loan
, take a step back and consider your options. For starters, if you have a good relationship with a loved one, you may be able to borrow some cash from them and pay it back without a high-interest rate. Borrowing from friends and family can get awkward, but it can make things easier
for you financially.
Also, make sure you have a budget for your Christmas shopping
so that you know exactly how much money you need to borrow. If you ask for more than you actually need, it can leave extra cash burning a hole in your pocket.
Consider your full financial picture. If you're struggling to make minimum payments on current debt, a new personal loan will only make things worse.
If you have some time, consider working to improve your credit score
leading up to Christmas, or at least for next year. Review your credit reports
for accuracy, and correct any errors. Make sure you're current on your monthly payments. On-time payments are the most important factor in developing good credit, accounting for 35% of your FICO credit score.
You can get a free copy of your credit report from each of the three credit bureaus at AnnualCreditReport.com
FAQ on Holiday Loans
What are holiday loans?
A holiday loan is simply a personal loan issued by a financial institution, like an online lender, bank or credit union, that is used to finance holiday expenses.
How do holiday loans work?
Holiday loans are primarily taken in the form of an unsecured loan. Many people pay for their holiday on a credit card as it often provides insurance. This means that if the holiday company folds, you'll get your money back. However, credit cards often charge much higher interest rates than holiday loans.
How can I get a holiday loan?
- Check your credit score with the credit bureaus to be sure you can qualify.
- Shop the banks, credit unions, and P2P platforms for the best deals on holiday loans.
- Keep these factors in mind: Interest rate, fees, APR, and any prepayment penalties.
- Ask about the term of the loan.
What are the best holiday loans?
Here are some of the best holiday loans. OppLoans, Avant, NetCredit, RISE, Jora Credit, CashCentral and CashNetUSA.
What do you need to qualify for holiday loans?
Typical minimum requirements for a personal loan include being a U.S. citizen or permanent resident, being at least 18 years of age, and having a low debt-to-income ratio. Your credit score may also impact your ability to get a personal loan. While it's possible to get a personal loan with a low FICO score, the best loan rates and terms go to those with good or excellent credit.
Find the best holiday loan
As you work through your options, including the aforementioned holiday loans, choose the one that works best for you and your needs.
Don't ignore the cost, though, and make sure you pick one that won't keep you in debt longer than necessary.
But before you make any decisions, take the time to do your research—you'll be glad you did.