As the holidays approach, many people find themselves in a financial bind. If you’re among them, you might be considering a loan to get you through the season. As you explore your options for Christmas gifts and travel, you may come across lenders advertising “Christmas loans”—though these offers should be approached with caution. Should you get one this holiday season?
What is Christmas Loan, and how does it work?
A festival loan is a type of personal loan offered by online lenders and credit unions during the festival season. It can be a secured or unsecured loan, depending on the lender’s requirements. Borrowers’ terms and eligibility are determined by a variety of factors that vary by lender, including credit and income. To receive the most competitive interest rates, borrowers need to have good credit scores.
Some lenders require a minimum credit score, whereas others don’t check your credit at all. Lenders that don’t require a credit check typically charge high rates. In fact, these no-credit-check Christmas loans are essentially payday loans with fees equivalent to interest rates of 400% or higher.
If you decide to take out a Christmas loan, it’s important to shop around for lenders and find the right one.
Are Christmas Loans worth it?
A Christmas loan can relieve some financial stress and give you some peace of mind this holiday season. At the same time, though these loans are often easy to obtain and fast to process, they don’t provide a long-term solution. The Consumer Financial Protection Bureau (CFPB) states that consumers who take out an unaffordable payday loan often end up taking out another one to pay it back, thereby getting stuck in a debt trap.
Things to consider while shopping for a Christmas loans
Check your credit: Before taking out a loan, it’s useful to know what your credit score is and what’s on your credit report. The stronger your credit, the better rate you’ll likely get on a loan.
Keep up with payments: Christmas loans are instalment loans, and you will need to plan for this in your budget and be sure you can afford the payments.
Fast funding option: If you choose an online lender, generally the application and funding process is quick and easy and can receive the loan the same business day.
Check multiple lenders: Compare multiple options before choosing a lender so you can find the best rates and terms.
Pros and cons of Christmas loans
Before getting a Christmas loan to cover your holiday spending, consider these pros and cons
Pros
- Fast funding
- Some loans don’t require a credit check
- Short-term loans with fixed payment line
- Fast and simple loan application
Cons
- Potentially high interest rates
- May be a payday loan
- Could lose collateral
- Expensive fees
Nutshell
If you find yourself spending more than you can afford, try taking out a Christmas loan. However, before you take on debt, it’s important to understand the potential risks, like high fees and interest. If you find yourself spending past your means, check back in with your budget as a reminder of what you can afford this year. By setting limits upfront, you may be able to make it through the holiday season without carrying debt into the new year.
