Let’s face it. We all love the look on our children’s faces when they open gifts on Christmas morning. What we don’t love is the credit card bill that follows. That’s when holiday loans come in handy. This article answers the following questions:
- What are holiday and Christmas loans?
- When should you apply for these loans?
- How do you choose the right lender?
US consumers are projected to spend an average of $736 each on holiday gifts this year, according to the Visa 2025 Holiday Spending Outlook. That’s a 10% increase from last year, and it doesn’t include holiday travel expenses, lodging, and food. Taking out a holiday loan won’t change those costs, but it could help you spread them out.
What Is a Holiday Loan?
A holiday loan is a short-term personal loan to cover holiday expenses. Lenders start marketing them shortly before Thanksgiving and typically run promotions for them through the end of December. That period spans the heart of the holiday shopping season, which includes Black Friday up to Christmas Eve. In other words, it’s when you’re most likely to need extra money.
Most traditional banks and credit unions prefer a credit score of 670 or higher. However, there are lenders who specialize in working with borrowers who have fair credit (typically above 580), offering options that may be more accessible for those who don’t meet traditional bank requirements.
Holiday loan amounts typically range from $1,000 to $10,000, though the exact amount you qualify for depends on your financial profile. While holiday loans are marketed for seasonal spending, they function identically to standard personal loans. Lenders use this “rebranding” strategy extensively during the months leading up to major holidays.
How Holiday Loans Work
Loans for Christmas are usually fixed-rate installment loans that you can pay off over twelve, twenty-four, or thirty-six months. The interest rate is fixed, and so is the payment, making holiday loan repayments easier to budget. Borrowers receive the funds as a lump sum payment when they agree to the loan terms. Holiday lenders include:
- Traditional Banks
- Credit Unions
- Online Lenders
- Installment Loan Providers
Traditional banks may offer relationship discounts to existing customers. Credit unions often provide more competitive rates to their members, while online lenders usually have more streamlined applications and faster funding times. When selecting a lender, be sure to ask about origination fees. They typically range from 1% to 6% of the loan amount.
What Can a Holiday Loan Be Used For?
Your loan funds should cover your Christmas shopping, but most holiday loans offer flexibility in how you use the funds. Your goal should be to have a festive holiday without breaking the bank. Here are some common ways people use loans for holidays:
Gifts
This is the most obvious use for a personal holiday loan, and it’s not limited to just Christmas presents. December holidays also include Hanukkah, Bodhi Day, Yule, and Kwanzaa. Each of these has a gift-giving component embedded in the cultural experience. A personal loan can help you afford gifts for these holidays without maxing out your credit cards.
Travel Expenses
Traveling to visit family can be expensive, especially if you need to cover airfare or train tickets. Driving might be more convenient, but the cost of gas usually rises during the holiday season. Other travel expenses could include rental cars, hotel accommodations, and meals while traveling. These costs add up quickly, particularly if you’re traveling a great distance.
Entertaining & Hosting
Staying home and hosting the holiday festivities might be cheaper than traveling, but it will still cost you a few dollars. Those costs include holiday supplies, decorations, groceries, baking ingredients, and possibly catering services if you’re hosting a large gathering. You might want to add these expenses up before you send out any invitations.
Budget Cushion
It’s generally a good idea to plan for the unexpected when you take on new debt. The holidays often bring surprise costs, and the end of the year means end-of-year bills. You can use a loan calculator to determine how much it will cost you to borrow enough to cover those. Leave some budget cushion in your planning to ensure you have the funds you need.
Pros of Taking a Holiday Loan
- Quick access to cash when needed: The approval process for holiday loans is usually pretty fast. Some lenders can provide funding in one to two days, making this a convenient option for getting quick access to cash.
- Predictable payments with fixed rates and terms: Monthly payments with fixed amounts are easier to budget than line of credit payments with variable interest rates. You can add that to your loan checklist when you’re searching for holiday funding.
- A loan may be more affordable than high-interest credit cards: Some personal loans offer more competitive terms depending on the borrower’s credit profile.
- Helps preserve emergency savings: A holiday loan allows you to keep your savings intact for true emergencies like unexpected medical bills, car repairs, or job loss. This is more appealing than depleting your emergency fund to cover holiday expenses,
Cons of Taking a Holiday Loan
- Adds short-term debt for non-essential spending: Holiday spending may be important to the spender, but financial experts still consider it “non-essential.” Taking on short-term debt for non-essential expenses is generally a bad idea.
- Interest and fees make holiday purchases more expensive: A $3,000 loan at 12% APR over 24 months will cost you approximately $380 in interest. That’s cheaper than a credit card, but it’s still more expensive than paying cash.
- Missed payments can damage your credit: Lenders report personal loan payment history to the three major credit bureaus: Experian, Equifax, and TransUnion. FICO uses those reports to calculate credit scores. Late payments will lower your credit score.
- Risk of overborrowing or overspending: Lump sum payments are nice when you have holiday shopping to do or bills to pay, but they can also tempt you to spend more than you should. Overborrowing can lead to this.
Is a Holiday Loan Right for You?
Figuring out your personal budget should be the first step you take before submitting any loan applications. This is done by adding up all your expenses and subtracting them from your total income. You may find that you don’t need a loan to accomplish your holiday goals. If you’re still uncertain about borrowing, review the following scenarios.
When It Might Make Sense
- You qualify for favorable terms: Borrowers with very good or excellent credit qualify for lower interest rates and more favorable loan terms. Compare your loan rate with the current APR on your credit card to see if a holiday loan makes sense.
- You have a repayment plan in place: It’s a common mistake to just assume loan payments will be affordable and go into it without a plan. That’s not recommended. Christmas loans make sense only when you have a repayment plan in place.
- You borrow only what you can repay quickly: You don’t need to take the entire amount you’re approved for. If you can borrow only what you need and pay it back quickly, the loan makes sense. If not, don’t do it.
When to Think Twice
- You’re prone to overspending during the holidays: Are you familiar with the term “debt trap?” That’s when an individual gets overleveraged and needs to borrow more money to pay back existing debt. That will not add to your holiday cheer.
- Your credit score results in high interest rates: Rates can vary by credit profile. Comparing your specific credit card APRs and quoted installment loan rates can help you make an informed decision.
- You need a long loan term to make payments manageable: Holiday loans are meant to be short-term and generally repaid within twenty-four months. If you need to stretch the term further than that, you might want to reconsider taking out a loan.
What to Consider Before Applying for a Holiday Loan
Start shopping for a lender early in the season if you can. You’ll want to compare interest rates, fees, and repayment terms from multiple lenders before making a final decision. It’s also a good idea to check your credit score before submitting your first loan application. Knowing where you stand with the credit bureaus can help you know what to expect from lenders.
Many lenders offer prequalification, which uses a soft credit inquiry that won’t impact your credit score. This allows you to compare potential offers without multiple hard inquiries that could temporarily lower your score. Look for prequalification offers while you’re loan shopping. You may start to see them in your email inbox after you visit a few lender websites.
Watch out for origination fees, late payment fees, and prepayment penalties that you’ll owe if you pay the loan back early. The latter are rare with personal loans, but read the contract thoroughly to make sure they’re not there. If you have questions, ask your loan officer or customer service department. If they don’t respond, find another lender.
Frequently Asked Questions
