Expert view by Maggie Gallagher
loan for holiday

Holiday loans are designed to help you if you need a little extra cash to pay for your holiday. They work in the same way as other short-term loans, but they’re specifically designed for people who need cash to fund their annual holiday.

What are Holiday Loans?

A holiday loan is a type of personal loan used to cover the costs of your holiday. These loans are unsecured, so there’s no collateral required. If you need $2,000 to pay for some Christmas presents, you can apply for an online personal loan for holiday up to $35,000.

Personal Loans for Holiday

The best part about a personal loan for holiday is that you have the freedom to use the money for whatever you want, whenever you want. You’re not constrained by your debit card or credit card limits, and you don’t have to worry about withdrawal fees. As long as you make your monthly repayments on time, it doesn’t matter what you spend the money on. That’s why Personal Loans perfectly suit holiday expenses.

How Holiday Loans work

Holiday loans, or Christmas Loans work much the same as personal loans. They are usually unsecured, and don't require collateral so long as you meet the lender's qualifying conditions. However, some lenders may require you to provide collateral, such as a vehicle or property. Your credit rating, income level, and other factors affect the interest rate, loan amount and monthly payment. Some lenders allow you to pre-qualify for a holiday loan with no impact on your credit score by providing a few pieces of financial information. Doing this allows you to compare loan offers and see how each of their terms may affect your budget.

How much Holiday Loans cost

There are many lending institutions that offer holiday loans, which come with different APRs, depending on your credit history. Banks and credit unions typically offer holiday loans at around 10% APR, while payday loan providers often offer loans at 25%.

Here’s an example:

If you borrowed $5,000 from one of those lenders I just mentioned, and took out a 10% holiday loan with payments due every six months, the total cost for borrowing would be about $490. APRs for higher risk borrowers can be as high as 25%, but the total cost of borrowing would be close to $800 in this scenario.

It’s important to remember that these estimates don’t include other fees charged by the lender. For example, some bank issuers charge a fee for making payments over the phone or online. Payday lenders often charge high fees and penalties if you’re late on a payment, too. It’s important to shop around for the best interest rate when taking out a loan; balance both the APR and service fees when deciding on a lender.

What are the advantages of Holiday Loans?

When you want access to money quickly but don’t want to use a credit card, a holiday loan is the way to go. Here are some of the benefits:

  • Low APR, fixed monthly payments.
  • Fast funding — typically you can get the loan approved and funds in your account the same day.
  • Holiday loans no credit check are also possible for same day funding.
  • Funds can be used for a variety of reasons from travel expenses to Christmas gifts.
  • Unlike with a credit card, there’s no risk that you will lose any of your assets if you don’t pay off the loan.
  • You can get a Holiday loan bad credit.
  • A holiday loan could improve your credit score because most issuers like to see different types of credit on your report and healthy payment history.

What to watch out for?

What are the disadvantages of a holiday loan?

  1. You pay interest

The interest you pay on a loan will increase the overall cost of your holiday. You may find that it is better to use a credit card or savings to pay for it instead. As described below, an advantage of a loan is that it can improve your credit rating. However, a missed payment or default can affect your credit score.

  1. Your credit score may be affected

A missed payment can negatively affect your credit score, as can unpaid debt. On the other hand, making payments on time and paying off the loan when it's due should have a positive effect on your score. All things considered, the disadvantages of a holiday loan outweigh the benefits for me. I would rather use my credit card or save up if I want to take a holiday.

Alternatives to Holiday Loans

Instead of borrowing money for holiday shopping, think about making the cash yourself or borrowing interest-free. Here are some ways to do that:

  • Sell items you don’t need

Have you got some items lying around in your home you don’t use anymore? You could make a few bucks by selling them on sites like Facebook Marketplace, letgo or Offer Up. Sell anything from $5 to $50 and it quickly adds up. Plus, you can use the extra cash to offset Christmas spending. If you have friends in your area who also sell items on these sites, make sure you offer to buy their items; this way, you don’t have to worry about shipping. It doesn’t cost anything and you may be able to save a little money too!

  • A personal line of credit

It is a predetermined amount of money that you can withdraw over and over for a given time period. Unlike a loan, you are not required to take the full amount available to you, which can help you keep holiday purchases to a minimum.

  • P2P Loan

Peer-to-peer loans and marketplace platforms provide alternative options for people with less than perfect credit. Interest rates may be higher than those on a holiday loan or credit card, but rates are lower than those from banks.

  • Credit Card

Credit cards are an attractive option for using during the holidays because they offer promotional APR offers. For instance, if you have a long 0% APR period, you can consolidate your debt without accruing any interest.

  • Make cuts in spending

If you're stressed about money, look at your everyday routine and see which areas can be cut back on. Chances are, the people you spend time with are feeling the same pressure as you. Instead of hosting a lavish dinner party, why not try hosting a potluck? For those who want to give gifts this year, suggest drawing names for a 'secret Santa'. It might feel uncomfortable at first, but honesty is always best. I recommend making cuts in your routine to save money.

  • Buy Now, Pay Later

Buy Now, Pay Later (BNPL) financing allows you to pay off your balance, usually over monthly or bi-monthly installments. Many retailers offer this option as a payment choice that doesn’t require an upfront credit check and doesn’t affect your credit. This is a good idea if you want to avoid the hassles involved with borrowing funds for the holidays, and if you save up a little extra cash enough to purchase some gifts without taking on debt.

How to Plan Your Budget for Holiday?

Figure out how much money you need to cover expenses.

  • Include expenses like holiday travel and gifts.
  • Figure out how much you want to spend on the holidays, then divide that by the number of months you have left. So, if you want to save $600 for the holidays starting in September, you’ll need to save $200 per month over three months.
  • Pay for holiday expenses without borrowing money, so that you aren’t caught worrying about finding financial help for Christmas when it should be a time for relaxation with your loved ones.

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