About 64% of American consumers say that their current income and financial situation make it difficult for them to afford holiday shopping.
Whether you want to be able to buy the right present for your children, your spouse, or a parent, looking at their dream gift and realizing it’s out of your price range can be heart-wrenching.
Luckily, there is a solution. For many, that solution is taking out holiday loans.
But is a personal loan for holiday shopping the right choice for you? What do you need to know about the application process in general?
There’s no reason to have to face empty stockings or another year of DIY gifts that leave you frustrated.
This post is here to help you understand the pros and cons of personal holiday loans.
The Benefits of Holiday Loans
The truth is that, as much as we’d all love to be able to say we have the willpower not to shop when we know we really can’t afford to, that’s not usually what happens.
About half of all Americans say that they feel serious pressure to spend on their holiday gifts. But even if you don’t feel like you “have” to spend, it doesn’t mean you don’t want to.
Holiday loans allow you to spend responsibly. Let’s take a closer look at why now.
Only about 40% of Americans say that they currently have some form of a budget in place.
Having a set monthly or even weekly budget has been proven to keep your spending habits under control. It’s also a great way to build up a savings account.
One of the best ways you can stick to your budget?
By making sure you know exactly how much you need to spend on your loan repayment. Variable interest rates mean you’ll need to pay a different amount every month.
This can make setting and sticking to a consistent budget tough.
When you apply for personal loans, you’ll usually enjoy the benefit of fixed payments.
When you have a credit card, it can be so tempting to just keep on swiping — even when you know you shouldn’t.
When you apply for a loan, however, you can avoid this overspending. Once you’ve spent all the money that the lender gives you, you’ll know that it’s time to stop shopping.
In many cases, if you apply for a loan, you may find that you actually spend far less than you usually do on your holiday shopping.
Lower Interest Rates Than Credit Cards
Many holiday shoppers consider putting their gifts on a credit card as opposed to taking out a loan for the holidays.
But while this might seem like a good idea at first?
The truth is that credit cards hit you with higher interest rates and fees. Plus, your credit score is seriously damaged if you fail to make those credit card payments on time (you’ll also be charged late fees.)
Don’t be fooled by the “0% APR financing” pull of credit card companies. If you can’t pay off the balance by the time your “grace period” ends, you may be in major trouble. You don’t want to be in a situation where you can barely afford to make even your interest payments every month on a credit card bill.
That being said, there are some excellent credit cards out there. For many, they do work with holiday shopping.
Check out our credit card guides to help you learn more about the different options that might be a good fit for you.
A Set Repayment Date
Many people take out holiday loans because they like having the security of a fixed repayment date.
It helps them to be more responsible when it comes to their overall spending.
Often, paying back a loan on time helps them to make better decisions in their overall financial lives.
The Cons of Holiday Loans
Of course, as with every kind of debt, there are a few reasons why you might want to think twice about taking on a holiday loan.
If you already have several other loans in place, now may not be the right time for you to take on another one.
Remember that personal holiday loans may have shorter repayment periods than other forms of lending. You may not be able to take out a huge loan, depending on the specific kind of loan you’re applying for.
However, especially for those who sometimes struggle to stick to their budget, a smaller cap on a loan amount may be a very good thing.
You should also take a hard look at your credit score.
Although many lenders will offer you approval even if you have bad credit, as yourself if this loan will help you to repair that score or do more damage to it.
Types of Loans to Consider
Now that we’ve discussed the pros and cons of taking out holiday loans, let’s take a look at some of your options.
A recent study found that many consumers would much rather sacrifice the food they eat than be unable to provide friends and family members with holiday presents.
With the right personal loan, you don’t have to make that choice.
Remember, the best loan for the holidays depends on many factors. You should consider the amount you need, how long of a repayment period you’ll require, and of course, your current financial standing.
So, which kind of a personal loan will get you through the holidays?
Read on to find out.
Do you know that you have money coming in later — but you need to access that money now?
If so, then a payday loan may be the right fit for you. The best way to think of these loans is as a kind of “advance” on your paycheck.
Be aware that payday loans have relatively short repayment periods, and that they’re for smaller amounts than other kinds of loans. Though depending on the lender, you could be approved to borrow up to $5,000, most people borrow only a few hundred dollars.
This is often just the right amount for those who need help getting through the holidays.
Often, payday loans have a relatively high interest rate. This is why you need to ensure you’re able to pay back the loan in full as soon as possible.
One of the most positive things about payday loans?
You often don’t need to undergo a large process as you can apply for payday loans online. A serious credit check is also not necessary order to be approved for them. This is especially helpful for those with a poor credit score. A payday loan is also an excellent way to rebuild your credit.
Plus, you can be approved for these loans incredibly quickly. Often, you’ll be approved for the payday loan the same day you apply for it.
Online Installment Loans
You might also want to consider installment loans when you’re looking for the best ways to finance your holiday spending.
These personal loans are ideal for those who may need to borrow larger amounts. Maybe you’d like to shower the one you love with more of a lavish gift, or perhaps you’re giving them something like a car or even property.
The good news is that, as with most personal loans, you can use the money from an installment loan to buy anything you want. You usually don’t need to “prove” to the lender that you’re planning on spending the money on a specific item or experience (like a trip.)
Installment loans give you a lump sum of a certain amount of money.
In turn, you’ll pay a fixed monthly payment that includes paying back the principal amount and interest over the course of the loan term. This is especially helpful for those who need to know exactly how much they’ll need to pay every month.
As with payday loans, if you don’t have excellent credit, you may still be able to get approved for online installment loans.
Now, let’s talk about what you’ll likely need in order to be approved for any kind of personal loan.
Understanding the Personal Loan Application Process
So, you’re ready to take out a personal loan for holiday shopping.
What exactly does the application process entail?
The good news is that it’s nowhere near as lengthy, invasive, and complicated as you might think. You can also easily apply for a loan online, which, given the already fast holiday pace, is a huge relief to many.
You also likely won’t have to put up collateral, meaning that the lender can’t seize your home or other personal property, when you apply for a personal loan.
First of all, you’ll need to be over the age of 18 and prove that you’re an American citizen/have a proof of residence. Remember, you may not need to undergo a credit check to be approved, depending on the lender you’re working with.
However, it’s still a smart move to pay down as much debt as possible before taking on another loan.
You may need to show proof of income, like a paystub or a letter of employment. You’ll also need to show that you have a bank account, and possibly provide bank statements for the past few months.
In many cases, that’s all you need to apply for a personal loan.
Key Things to Remember
Finally, let’s quickly go over some of the most important things to keep in mind when you’re shopping for the right holiday loan.
First of all, never be afraid to shop around to find the best rates. If another lender offers you a lower interest rate, don’t be afraid to use that as a bargaining chip!
Also, as tempting as it is, never take out more money than you know you need. All this does is trap you in an endless cycle of debt that will be incredibly difficult to get out of.
Think about the least amount of money you could get by with, and borrow that amount.
The average holiday shopper spends about $1,250 on gifts each holiday season, but you can opt to spend more or less than that.
Make sure you also study up on any potential early repayment penalties associated with the loan. The same goes for any fees, like origination fees.
Above all, be certain you’re working with a lender you know you can trust. Look for past reviews of these lenders, and pay attention to how well you feel like concepts are explained to you.
Finally, remember the golden rule. If something seems too good to be true, then it probably is. Go with your gut, and move onto the next lender.
Are You Ready to Take out Holiday Loans?
We hope this post has helped you to realize that personal holiday loans are the right choice for many people who want to be able to shower their loved ones in gifts without taking on more credit card debt.
Do you think a personal loan for the holidays is right for you?
If so, you need to ensure you get the best possible interest rates and repayment plans.
That’s where we come in.
We offer competitive rates on personal loans that are right for borrowers even with less-than-perfect credit scores.
We can also help you learn more about other types of personal loans, like student loans, car loans, and everything in between.
This holiday season, don’t let your finances stand in the way of the perfect gift. Instead, let us help you to get the personal loan you need.
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