What Is a Holiday Loan?
A holiday loan is a personal loan used to pay for expenses associated with celebrating a holiday. Since these loans are often used to cover the cost of Christmas presents, they are also called Christmas loans. Banks, credit unions, online lenders and even payday loan lenders offer Christmas loans, although some have much more favorable loan terms than others.
No matter where you get your loan from, taking out a Christmas loan typically involves borrowing a lump sum of money with the intention of using it to cover gifts and other festive expenses and agreeing to pay back the loan — plus interest — over a designated period of time.
Because Christmas loans are meant for holiday costs, some have lower borrowing limits and shorter repayment times than personal loans used for other goals, such as loans for debt consolidation or home improvement. For example, lenders may limit you to borrowing $2,000 or $10,000 when you take out a Christmas loan, and your loan repayment timeline may be just a year or two.
Pros and Cons of a Holiday Loan
There are both benefits and disadvantages of using a holiday loan to fund gift-giving and other costs during the festive season.
Pros of a Holiday Loan
- A holiday loan could be less expensive than financing gifts with a credit card.
- Many holiday loans are installment loans that come with fixed rates and set repayment periods, so you will know upfront when you’ll be debt-free and what your total borrowing costs will be.
- Lenders may allow you to apply online for a holiday loan, and you may get quick approval and fast funding.
Cons of a Holiday Loan
- Some holiday loans are similar to payday loans and charge very high rates and fees.
- You will have to pay interest on the money borrowed, which makes purchases more expensive.
- It could take you months, or even years, to repay your holiday spending.
When You Might Consider a Holiday Loan
Taking out a holiday loan can be helpful if you’d otherwise be unable to afford to celebrate an event that is very important to you. While you can use the money for gifts, decorations, traveling to see family or any other holiday expenses, you’ll want to fully understand the true cost of doing so — it’s often smarter simply to pare down your holiday expenses, when possible, to avoid the loan altogether.
Other advantages of a holiday loan may be that you won’t have to take money out of savings or investment accounts and may be able to take advantage of deals on items you hope to purchase on big sale days like Black Friday. Sometimes, the savings from a deep discount may even offset any interest you have to pay on your loan. All that said, know what you’re getting into, look into alternatives, and if you do take out the loan, make sure you can repay the loan in full and on time.
How To Get a Holiday Loan
To get the best loan terms, there are a few key steps you need to take. We’ve outlined each below.
Research and Compare Lenders
Many different lenders offer holiday loans, including payday loan lenders, banks, credit unions and online lenders. It’s generally best to borrow from a lender offering the most favorable terms possible who will provide good customer service. To find the most affordable loan, you should research several different lenders and compare the financing options each offers.
You can search specifically for lenders offering holiday loans or Christmas loans. However, since personal loans can be used for any purpose, you don’t necessarily need to stick with lenders that market their loan products this way.
Check Eligibility and Gather Necessary Documents
Lenders have different eligibility requirements for Christmas loans. It’s important to make sure you’re eligible for the loan for which you apply, especially if you have bad credit. You’ll also want to be ready to provide any information your lender may request during the application process.
Some of the different documents you may require to apply for loans include the following:
- Proof of identity, such as a driver’s license or other state-issued ID
- Pay stubs
- Bank statements
- Tax returns
- Proof of address, such as a utility bill or mortgage statement
Most lenders offering Christmas loans will check your credit report and score to determine if you have good credit or poor credit. Lenders will also want to know your income. Some allow you to connect to your bank account directly to provide proof of your earnings rather than requiring you to produce bank statements.
Get Prequalified
Prequalification allows a lender to review your financial credentials to determine if you’re likely to get approved for a loan and to decide what rate to offer you in the event you borrow. Many, but not all, lenders allow you to get prequalified for a holiday loan and see your rate and terms without a hard credit check (which is called an inquiry). This is beneficial because having too many inquiries on your credit record can hurt your credit score.
Many lenders can prequalify you for a holiday loan in minutes. You will typically need to provide some basic information about your financial situation and undergo a soft credit check. Once prequalified, you’ll see what you would pay to borrow from a particular lender so you can decide whether to move forward.
Review Loan Terms
When a lender prequalifies you for a Christmas loan, they will typically give you different borrowing options to consider. Some factors to look at when researching loan options include the following:
- Loan amount, including the minimum and maximum you can borrow
- Loan fees, including origination fees, application fees and prepayment penalties
- Repayment timeline
- Monthly payment
- Annual percentage rate (APR), which includes interest and lender fees
- How fast your loan can be funded
- Whether the interest rate is fixed or variable
Loans with lower rates are typically more affordable, especially if they also have shorter payoff times. Just remember, the longer you take to pay off your loan and the higher your rate, the more interest you will pay. If you want a bad credit loan, you may also have to pay a higher rate to borrow in the first place.
Apply for a Loan
After comparing loan offers, you’ll need to move forward with applying for a loan from a lender offering you the best rates.
This means accepting one of the loan offers a lender made, completing the full loan application process and signing a promissory note agreeing to pay back the money you’re borrowing on a set schedule.
Receive Funds and Start Making Payments
Once you have signed your documents, your Christmas loan lender will disburse your funds. Often, the money will be deposited into your checking account via direct deposit, or you may be sent a check.
In many cases, you can get the money the same business day you are approved for a loan or the next business day, so there shouldn’t be a delay in starting your holiday shopping.
Alternative Holiday Financing Options
While taking out a Christmas loan is one option to pay for holiday spending, it is not your only choice. There are some other methods you could use to pay for gifts and other holiday expenses including the following:
- Creating a dedicated holiday savings fund: If you save money throughout the year, you may not have to borrow for holiday expenses. You can avoid having to shop around for a loan, pay interest or make ongoing monthly payments.
- Utilizing credit cards with rewards or 0% interest offers: Many credit cards offer a 0% introductory APR for new customers. If you can apply for a card, charge holiday purchases and repay the balance before interest begins accruing, you will not incur any added costs. However, 0% APR cards typically charge a higher standard rate than personal loans, so you could end up paying more interest if you don’t pay the balance off before the promotional rate expires.
- Exploring seasonal part-time jobs or side gigs: Working some extra hours over the holidays could allow you to avoid borrowing while still providing supplemental capital for holiday gifts and celebrations.
Each of these options has the benefit of potentially being more affordable than a Christmas loan, so it’s worth considering them before applying to borrow.
The Bottom Line
Holiday loans provide an option to cover costs during the festive season if you don’t have enough savings, but it’s important to research loan options carefully and be sure to understand the added expense of paying interest for holiday gifts or celebrations.
When possible, aim to save up the costs of holiday expenses throughout the year. If you’re unable to do so, be sure to consider Christmas loans as well as other options, such as 0% APR cards, to find the financing solution that’s right for you.
Frequently Asked Questions About Holiday Loans
Many lenders allow you to apply for a personal loan and get funding as soon as the same business day you are approved. However, it is important to consider not just the speed of funding but also loan terms to make sure you’re getting a favorable rate and not paying unnecessary fees. Some payday loan lenders advertise instant access to money, but their rates often tend to be very high.
The timeline for getting a holiday loan can vary by lender. Some loan providers offer approval within minutes and may be able to fund your loan the same business day. However, it can take time to shop around, compare rates and apply for financing. If you know you must borrow for the holidays, it’s generally best to start the process early.
Online payday loans are expensive and are often made by unlicensed lenders who may use dishonest advertising tactics. However, there are legitimate online lenders with good customer ratings that may offer financing at more affordable rates than brick-and-mortar banks. It’s important to consider a lender’s reputation as well as loan terms and conditions when deciding whether to borrow from that particular financial institution.
Many lenders offer easy, fast approval for loans, but the right one for you will depend on your circumstances. For example, you may want to focus on a lender offering same-day funding if you need access to money quickly. Or you may want to seek out a lender that looks beyond your credit score if your primary concern is getting approved for a loan despite imperfect financial credentials.
Editor’s Note: Before making significant financial decisions, consider reviewing your options with someone you trust, such as a financial adviser, credit counselor or financial professional, since every person’s situation and needs are different.
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