Home > Personal Loans > Loans for Holiday Gifts: What You Need to Know

Comments 0 Comments

[UPDATE: Some offers mentioned below have expired and/or are no longer available on our site. You can view the current offers from our partners in our credit card marketplace. DISCLOSURE: Cards from our partners are mentioned below.]

Unless you’ve been saving for months or have lots of wiggle room in your budget, you’re probably trying to figure out how the heck you’re going to pay for extra holiday expenses. If you’ve thought about taking out a small loan, there are several things you need to consider before borrowing money.

Why People Borrow for the Holidays

Gifts, travel, outings — there are plenty of reasons someone might find themselves short on cash to do everything they want during the holidays.

“These loans offer the money some consumers need to experience the holiday they dream of, but if repayment is not carefully considered then it is a fleeting benefit,” said Danielle Peck of Clearpoint Credit Counseling Solutions in Syracuse, New York.

Options like borrowing from a family member, using a credit card, taking out a payday loan or applying for a personal loan marketed as a “holiday loan” may appeal to those who haven’t saved or don’t have the money within their regular budget to spend on holiday extras, Peck said. When you’re weighing options like that, it’s important to focus not only on what that loan will give you but also what you’ll have to do in order to repay it.

“Though there are exceptions, many of these loans have high interest rates which can make them quite costly. They also tend to have a short repayment period,” Peck said. “Conversely, if a credit card it used, the repayment can be nearly indefinite when only the minimum payment is made, and interest rates can be as high as 30%!”

The Costs of Borrowing for the Holidays

Whenever you’re looking at a loan or credit card to finance something, it’s crucial to have a plan for repaying it. That means understanding the interest rate, how long you’ll have to pay it back, when the payment is due and how much money you’ll need to pay off the debt. If you don’t make a plan, you could find yourself even more cash-strapped than you were when you decided to borrow the money — that’s often what happens when people take out short-term loans. Take the time to do the math, because it’s easy to overlook just how expensive loan interest can be, and the added cost may not be worth what you’re buying with the borrowed money. You can use this free credit card payoff calculator to help you make a plan for dealing with credit card debt.

How Holiday Debt Can Affect Your Credit

Taking on debt or opening a new account can hurt your credit score, so if you know you’ll need a loan in the next several months, adding holiday debt to your credit reports may not be a good idea. While your payment history is the most important aspect of your credit scores, your level of debt is the next most influential. High debt balances, particularly credit card balances near their limits, can knock dozens of points off your credit score, so spend with care. (You can see how your loans and credit card use affects your credit by getting two free credit scores, with updates every 14 days, on Credit.com.)

For shoppers with a good credit score and the discipline to repay debt within a specific time frame, a credit card with a promotional interest rate may help you cover high end-of-year costs. For example, Citi Simplicity offers 0% annual percentage rate (APR) on purchases and balance transfers for 18 months, after which the APR switches to 15.74% – 25.74%. There’s also Discover it, which offers six months 0% APR on purchases and 18 months 0% APR on balance transfers, with an APR of after. (Full Disclosure: Citibank and Discover advertise on Credit.com, but that results in no preferential editorial treatment.)

Alternatives to Holiday Loans

In general, the best approach to making ends meet during the holidays is one that doesn’t involve debt. Instead of relieving the financial strain you feel, taking on debt to buy gifts or travel will likely add to it, making it even harder to improve your money situation in the new year. Peck offered some suggestions for people thinking about borrowing money during the holidays:

“They may consider spending less, giving homemade presents (such as baked goods or coupons for services, like babysitting) and opening a savings account to help plan for next year,” Peck said. “Other options include getting a side-hustle to make extra money during the holidays or even suggesting a year off from exchanging [gifts] among your circle and instead finding free or low-cost things you can do together.”

Note: It’s important to remember that interest rates, fees and terms for credit cards, loans and other financial products frequently change. As a result, rates, fees and terms for credit cards, loans and other financial products cited in these articles may have changed since the date of publication. Please be sure to verify current rates, fees and terms with credit card issuers, banks or other financial institutions directly.

Image: AzmanL

Comments on articles and responses to those comments are not provided or commissioned by a bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by a bank advertiser. It is not a bank advertiser's responsibility to ensure all posts and/or questions are answered.

Please note that our comments are moderated, so it may take a little time before you see them on the page. Thanks for your patience.

Credit.com receives compensation for the financial products and services advertised on this site if our users apply for and sign up for any of them.

Hello, Reader!

Thanks for checking out Credit.com. We hope you find the site and the journalism we produce useful. We wanted to take some time to tell you a bit about ourselves.

Our People

The Credit.com editorial team is staffed by a team of editors and reporters, each with many years of financial reporting experience. We’ve worked for places like the New York Times, American Banker, Frontline, TheStreet.com, Business Insider, ABC News, NBC News, CNBC and many others. We also employ a few freelancers and more than 50 contributors (these are typically subject matter experts from the worlds of finance, academia, politics, business and elsewhere).

Our Reporting

We take great pains to ensure that the articles, video and graphics you see on Credit.com are thoroughly reported and fact-checked. Each story is read by two separate editors, and we adhere to the highest editorial standards. We’re not perfect, however, and if you see something that you think is wrong, please email us at editorial team [at] credit [dot] com,

The Credit.com editorial team is committed to providing our readers and viewers with sound, well-reported and understandable information designed to inform and empower. We won’t tell you what to do. We will, however, do our best to explain the consequences of various actions, thereby arming you with the information you need to make decisions that are in your best interests. We also write about things relating to money and finance we think are interesting and want to share.

In addition to appearing on Credit.com, our articles are syndicated to dozens of other news sites. We have more than 100 partners, including MSN, ABC News, CBS News, Yahoo, Marketwatch, Scripps, Money Magazine and many others. This network operates similarly to the Associated Press or Reuters, except we focus almost exclusively on issues relating to personal finance. These are not advertorial or paid placements, rather we provide these articles to our partners in most cases for free. These relationships create more awareness of Credit.com in general and they result in more traffic to us as well.

Our Business Model

Credit.com’s journalism is largely supported by an e-commerce business model. Rather than rely on revenue from display ad impressions, Credit.com maintains a financial marketplace separate from its editorial pages. When someone navigates to those pages, and applies for a credit card, for example, Credit.com will get paid what is essentially a finder’s fee if that person ends up getting the card. That doesn’t mean, however, that our editorial decisions are informed by the products available in our marketplace. The editorial team chooses what to write about and how to write about it independently of the decisions and priorities of the business side of the company. In fact, we maintain a strict and important firewall between the editorial and business departments. Our mission as journalists is to serve the reader, not the advertiser. In that sense, we are no different from any other news organization that is supported by ad revenue.

Visitors to Credit.com are also able to register for a free Credit.com account, which gives them access to a tool called The Credit Report Card. This tool provides users with two free credit scores and a breakdown of the information in their Experian credit report, updated twice monthly. Again, this tool is entirely free, and we mention that frequently in our articles, because we think that it’s a good thing for users to have access to data like this. Separate from its educational value, there is also a business angle to the Credit Report Card. Registered users can be matched with products and services for which they are most likely to qualify. In other words, if you register and you find that your credit is less than stellar, Credit.com won’t recommend a high-end platinum credit card that requires an excellent credit score You’d likely get rejected, and that’s no good for you or Credit.com. You’d be no closer to getting a product you need, there’d be a wasted inquiry on your credit report, and Credit.com wouldn’t get paid. These are essentially what are commonly referred to as "targeted ads" in the world of the Internet. Despite all of this, however, even if you never apply for any product, the Credit Report Card will remain free, and none of this will impact how the editorial team reports on credit and credit scores.

Your Stories

Lastly, much of what we do is informed by our own experiences as well as the experiences of our readers. We want to tell your stories if you’re interested in sharing them. Please email us at story ideas [at] credit [dot] com with ideas or visit us on Facebook or Twitter.

Thanks for stopping by.

- The Credit.com Editorial Team