Christmas evokes times of cheer, presents under the tree, and gatherings with family and friends to celebrate the holidays. With all of the joy, however, come costs that can add up fast. You may be considering alternative payment methods if your holiday budget exceeds your bank account balance.
A Christmas or holiday loan can help cover Christmas gifts, plane tickets and accommodations, holiday dinners and drinks, and other expenses that often accompany the holiday season. With good credit, you may qualify for a personal loan with reasonable interest rates to use for your holiday spending, but you may have cheaper options elsewhere.
What Is a Christmas Loan?
A Christmas loan is a personal loan used to cover holiday-related expenses. Sometimes referred to as a holiday loan, you can find Christmas loans at banks, credit unions, and other lenders.
Some lenders may set specific guidelines on how to use loan funds, but often you can use the money for any reason. Typically, people use Christmas loans to cover holiday-related expenses like:
- Christmas gifts
- Travel
- Decorations
- Food
- Celebrations
How Do Christmas Loans Work?
Christmas loans can help bridge the gap between your holiday needs and budget for gifts and other expenses.
Banks and other financial institutions often advertise these loans at the beginning of the holiday season in November and December.
Loans typically come with fixed APRs, based on your creditworthiness and other factors, and terms ranging anywhere from 12 months to several years. Some lenders may set a minimum for how much you can borrow, whether you need that much or not.
Holiday loans are unsecured loans, meaning they don’t require collateral to secure funding. Instead, borrowers secure loans through a credit inquiry. Loan terms, rates, and requirements vary between lenders.
Some lenders may allow you to prequalify for a loan and check rates before applying, which won’t negatively affect your credit score. Like other personal loans, lenders may charge origination fees and other fees when you take out a Christmas loan.
Should You Get a Christmas Loan?
A Christmas loan could be good if you need money to pay for holiday-related expenses not covered by savings. Your financial situation often plays a significant role in whether it makes sense to take out a loan.
Reasons to Get a Christmas Loan
Reasons to Not Get a Christmas Loan
Shop for personal loans for the holidays and compare rates.
Pros and Cons of Holiday and Christmas Loans
The holidays are a time of joy, but they can also be stressful, especially if you are financially strained. A Christmas loan is an option if you’re struggling to cover all the expenses this holiday season, but it may not be the best option depending on your situation. Consider these pros and cons before applying for a loan.
Pros of Holiday Loans
Cons of Holiday Loans
How Much Will a Holiday Loan Cost Me?
When you take out a loan, the amount you borrow isn’t typically the amount you end up paying.
Even the best personal loans for the holidays come with interest, and depending on the rate you receive, you could end up paying much more than you borrowed. Rates vary, with some lenders charging up to 36% interest in some cases. Unless you qualify for lower rates, you could pay more interest than you would with a credit card or other funding sources.
Paying off your loan early can help you save money in the long run. Some lenders charge prepayment penalties if you pay off your loan before the end of the term. The fee makes up for the interest the lender would’ve earned over the term.
Lenders may also charge an origination fee, which is an upfront fee for processing your loan application. Origination fees are based on a percentage of your loan total, usually ranging from 1% to 6%, and deducted from the original loan amount. Some lenders do not charge an origination fee, so you can look into those as well.
Use our personal loan calculator to estimate monthly payments and interest charges to determine if a Christmas loan is a good idea.
How to Get a Christmas Loan
Lenders often have their own process for applying for a loan. Follow the general steps below when applying for a Christmas loan.
Check Your Credit
Knowing your credit score and history will give you an idea of whether you’re eligible for a personal loan and the rate you may qualify for. Lenders rely on your credit score, credit history, debt-to-income ratio, and sometimes your income to determine loan eligibility.
Prequalify for a Loan
Many online lenders let you check rates and prequalify for a loan through a soft credit inquiry, which doesn’t affect your credit. Getting prequalified isn’t a guarantee you’ll get approved for a loan, but it’s an indication of your creditworthiness in the eyes of lenders.
Submit a Loan Application
After shopping for the best rates, choose the best fit for your needs and fill out and submit an application. Most lenders allow you to apply online, but some banks and credit unions may require you to apply in person.
During the process, you’ll need to provide personal and financial information like a copy of your driver’s license or other government-issued photo ID, social security number, contact information, bank statements, and more.
Lenders perform a hard credit inquiry during the application process. It’s a deeper dive into your credit and financial history to gauge the risk of lending to you.
If approved for a loan, you may receive your funds as soon as the same business day or shortly after.
Christmas Loan Alternatives
Holiday loans are just one way to finance holiday-related expenses, but they may not fit your needs. Consider the following alternatives when choosing the best option for your situation.
Credit Cards
Some credit cards come with introductory 0% APR offers on purchases for a designated time. Using an intro APR card can help you cover holiday expenses now and pay them off over time without interest charges. Make sure you repay the full balance before the introductory period ends, or the card will revert to its normal interest rate.
Personal Line of Credit
Some lenders allow you to carry a personal line of credit you can borrow from over and over as needed. With a line of credit, you’re not required to receive the complete line amount, so you only borrow what you need.
Buy Now, Pay Later (BNPL)
Online and retail merchants may allow you to pay for purchases through a buy now, pay later service. BNPL lets you finance your purchases and make short-term installment payments, often without a credit check.
Adjust Your Holiday Budget
There’s no obligation to take on debt just to pay for holiday expenses. If you are in a situation where you may not have enough money set aside for the holidays, consider adjusting your budget, so you’re not overextended financially.
Frequently Asked Questions
Where can I get a Christmas loan?
You can find Christmas or holiday loans at banks, credit unions, and other financial institutions that offer lending products. Some lenders offer personal loans that you can use for various purposes, including holiday expenses.
What credit score do I need to get a Christmas loan?
Credit requirements for Christmas loans vary depending on the lender. Each lender sets its own credit and other requirements when determining eligibility for a loan. Lenders typically reserve the best interest rates for borrowers with excellent credit who meet other requirements.
What is BNPL?
BNPL stands for buy now, pay later, a type of financing offered through many online and retail vendors. When making a purchase, the vendor may give you the option to use a BNPL service to pay for it. BNPL is essentially a short-term installment loan with frequent equal payments over a short period.
