Can a holiday loan ease seasonal spending stress?

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A Note From Jordan:

It seems like time moves faster every year and the holidays come out of nowhere. Between gifts, holiday parties and decking the halls at home, there are big bucks to be spent. But with high inflation and growing concerns of a looming recession, some may consider turning to holiday loans to pay for this season’s expenses. 

While a holiday loan can be useful in some situations, it can be risky for certain borrowers.  We dig into when you should consider using a holiday loan or if you should ditch the idea altogether. 

Happy holidays,

Jordan

Jordan Tarver

Deputy Editor, Loans

When Should You Take Out a Holiday Loan?

If cash is tight, you might be considering a loan to get you through the holiday season. Holidays loans are personal loans that you can use to cover just about any legal personal holiday expense. You’ll receive a lump sum upfront, which you’ll pay back over time with fixed monthly payments.

However, because holiday loans can increase the cost of your purchases due to interest charges, only consider one if you:

• Have a solid credit score. Lenders consider your credit score when determining the interest rate of your loan. Borrowers with high credit scores typically get low interest rates while borrowers with low scores usually get high interest rates. If you have a credit score of at least 720, you may qualify for the best holiday loan rates, which will reduce the overall cost of your loan.
  
  
• Can afford the loan. It’s never recommended to take out a loan if you can’t afford to repay it monthly. Use the Forbes Advisor personal loan calculator to estimate your payments and determine if you can afford a holiday loan.
  
  
• Don’t have other unpaid debt. If you have existing debt weighing you down, a holiday loan is likely not the best option. Adding another loan under your name is only going to make repayment of all your debts more cumbersome.

If you don’t fit the bill for a holiday loan but still need financial assistance this holiday season, consider these alternatives:

Buy now, pay later (BNPL) services. Some online and in-store retailers offer BNPL services, which let you finance your purchases over time—sometimes with no interest. This could be a good option if you’re shopping at a store that offers it and you can afford the proposed terms. However, it’s not a good idea to get greedy with this service and use it at multiple stores. Doing so can make it hard to track the various repayments.

No-interest credit cards. Some credit card providers offer no-interest financing during an introductory period to prospective borrowers with strong credit. As long as you repay your balance before the introductory period ends, you won’t owe any interest. After the intro period ends, any unpaid balances will be charged the standard interest rate for your specific card.

Friends and family. If you need to borrow money but don’t want to take out a traditional holiday loan, consider borrowing from friends and family. While this is an informal transaction, it’s still a good rule of thumb to draft and sign an agreement that outlines repayment terms, interest and any potential fees.

 Debt Consolidation Loans For
Bad Credit

If you have bad credit and high-interest debts you want to pay off, it’s worth considering your options. Bad credit consolidation loans might work well for certain debts, especially those with sky high interest rates like payday loans or title loans.

Debt Consolidation Loans

Still Have Questions?

How do I apply for a holiday loan?     

Use our five-step process to understand how to apply for a holiday loan. Also review common personal loan requirements.

How do I know if I can afford a holiday loan?

Use the Forbes Advisor personal loan calculator to estimate your monthly payments and the overall cost of your loan. Then, reconcile your estimated monthly payment with your current budget to determine if a holiday loan is right for you.

Debt Consolidation Loan Vs. Balance Transfer Credit Card

A balance transfer card can be a powerful tool in your debt-busting arsenal. A 0% APR offer on a credit card can save money by having all of your payments during the intro period go towards knocking out the principal balance instead of some being siphoned away to pay interest charges.

Best Balance Transfer Credit Cards

2022's Best Debt Consolidation Loans For Bad Credit

A debt consolidation loan can be a smart way to streamline your monthly debt obligations and get out of debt faster. However, this debt reduction strategy isn’t right for everyone. And if you have bad credit, qualifying for a debt consolidation loan with an attractive interest rate could be a challenge.

Minimum credit score

560

APR range

7.96% to 36%

Loan amounts

$1,000 to $50,000

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