If you find yourself worrying about how you’re going to pay for all those Christmas purchases as you frantically run through malls trying to track down the perfect gifts, you’re not alone. Many people struggle to pay for the mounting costs of Christmas.
Deloitte’s 2016 Holiday Survey found that Christmas spending was expected to rise to $1 trillion – a 4% increase over 2015. According to the International Council of Shopping Centres, the average U.S. adult spent $419 on holiday related items last year with many people spending much more.
The expenses of the season have some people wondering if the answer to their holiday budget woes might be Christmas loans. But should you be taking out a loan to help pay for the cost of the Christmas season?
Should You Borrow for Christmas?
In past years, you may have gone into debt by putting Christmas purchases on your credit card. Since your credit card charges you a significant amount in interest, you might be thinking that it makes more sense to borrow money via a personal loan at a lower interest rate to help you pay off your Christmas debt faster.
While Christmas loans might offer you a lower interest rate, the better bet is not to go into debt at Christmas at all if possible. You might think that a particular Black Friday deal on a flatscreen TV is amazing, but once you add in the interest that you’ll be paying in order to finance that purchase via a credit card or Christmas loans, you likely won’t be saving that much.
It’s far better to buy friends and family gifts that are within your budget or to save up in advance so that that you have enough to get you through the holiday season. Even taking on an addition job in December in order to pay for your Christmas purchases could be a better bet than financing your Christmas costs via a Christmas loan.
What Are Christmas Loans?
While some of the advertisements that you see online for Christmas loans are for normal personal loans, many of them are advertising payday loans. These loans charge a significant amount of interest which can be well over 200% or 300% APR. These types of loans generally don’t check your credit and send you the money quickly, but require you to repay them in as little as a few weeks or months.
These type of loans can often get borrowers in trouble since they struggle to repay the loans and the interest in time. If you must borrow money for Christmas, a far better bet is to take out an unsecured personal loan.
What Are the Costs of a Personal Loan?
It is relatively easy to apply for a personal loan for Christmas expenses via traditional and online lenders. You can often do so online in a few minutes and get a quote without it affecting your credit. if you have excellent credit, you can often find an unsecured personal loan for a reasonable interest rate of just 3%-4% for terms of up to 10 years.
Many lenders don’t have pre-payment fees so you can technically pay your Christmas loan off in a couple of months rather than over several years. But many of these loans also have minimum borrowing requirements which means that if you’re looking to borrow several hundred dollars or even a few thousand dollars, it might be more difficult to find a lender who is willing to lend you such a small amount.
Also, if you have bad or poor credit, you might face significant borrowing costs and interest rates that could be over 20% or event 30% APR. Before you borrow, check to see if your lender charges any fees as things like origination fees could add a significant expense to your loan.
Rather than taking out loans for Christmas, it may make more sense to get creative with gift giving instead. Consider hosting a white elephant gift exchange rather than buying everyone a gift at your family gathering this year. Troll Pinterest or blogs for DIY gift ideas. Stick to a budget to avoid going into debt.
If you must borrow money to pay for Christmas expenses, try to steer clear of high interest credit cards and payday loans and seek out a personal loan lender who will give you a fair rate. Just make sure that they aren’t charging any fees that will add significant expenses to your loan. Once Christmas has passed and you’ve rung in the New Year, make a resolution to pay off your debt quickly and save up for next year!
Author: Jeff Gitlen
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