Key Takeaways:
- Holiday loans are personal loans for holiday expenses
- You should only use holiday loans in extreme emergencies
- Most loans for the holidays have high interest rates
- There are options for loans for the holidays for people with bad credit
The holidays are a time for celebration and spending money. Every year, 33% of adults go into debt to cover holiday expenses. Whether it’s for Christmas gifts, holiday decorations, or entertainment costs, it adds up quickly to celebrate the most special time of year.
What happens if you don’t have the money to cover expenses and don’t have a credit card to put them on? It’s disheartening not to be able to celebrate the way you want, which is why many people turn to holiday loans, a personal loan meant for holiday spending.
What are Holiday Loans?
Holiday loans are personal loans from banks or credit unions. They are typically unsecured loans, meaning they have no collateral. Lenders base your eligibility on your credit history and the amount of debt you currently have outstanding. They usually have low loan limits ranging from $500 to $2,500.
How Can You Use Holiday Loans?
You are free to use the funds from Christmas loans however you need. Since you’re borrowing money, the best option is to use them only for necessary purchases. Holiday-related expenses can get out of hand quickly, and knowing that you’re paying interest to cover the expenses may make you think twice about spending.
When Should You Consider Holiday Loans?
Holiday spending can feel exciting at the moment, but when those bills start rolling in, it can be frightening. It’s best to only consider holiday loans when you have a major issue, including:
- A main breadwinner falls ill
- A parent loses their job
- There is an emergency with the car or house
Options for Loans for the Holiday Season
If you need to borrow money for the holidays, there are a few options, including the following:
Unsecured Loan From Banks or Credit Unions
If you have a good credit score, a stable income, and don’t have a lot of debt, you might qualify for an unsecured loan. These loans rely on your ability to repay them without any collateral.
Banks and credit unions typically require credit scores of 680 or higher and a stable employment history.
You typically receive the funds in one lump sum and make monthly loan payments to repay them. The interest rate is fixed, and your payments stay the same for the entire loan term, which is usually only a couple of years.
Online Peer-to-Peer Lenders
If you are looking for bad credit loans, you may have luck with online lenders offering peer-to-peer loans. Rather than getting the funds from a bank, you borrow from a “peer” or investor who wants to earn interest on your loan.
Peer-to-peer loans have relaxed guidelines but typically higher interest rates to make up for the risk you pose not having a high credit score. The terms of these loans vary, but they usually have a short repayment period of a couple of years or less.
Auto Title Loans
If you have a low credit score, you can also consider an auto title loan, a secured loan offered by title loan lenders. These loans are great for bad credit borrowers because they don’t focus on your credit score. Instead, they focus on the value of your vehicle and whether you have a steady income source.
Auto title loans usually have high interest rates and a short repayment period, so it’s best to only use them in emergencies. However, they provide fast funding, which can be good if you have an emergency that needs funds immediately. You can also keep your vehicle and drive it when you borrow a title loan.
Risks of Using Auto Title Loans for Holiday Cash
Auto title loans are meant for true emergencies because they have the following risks:
- The interest rates are high and can be unaffordable
- You could lose your car if you don’t make your payments
- They have a short repayment period, making them hard to repay
What to Consider Before Taking a Holiday Loan
Before borrowing a loan for holiday spending, ask yourself the following questions:
- Are these expenses necessary? Only consider a personal loan for the holidays for expenses you can’t get around. Think of what is essential to have a special holiday without putting yourself into debt for many years.
- Can I afford the extra monthly payments? Make sure you have room in your budget for another monthly payment. Even if you borrow an unsecured loan, the bank can sue you for the outstanding balance if you don’t pay it.
- Are the high interest rates worth it? Consider the loan’s cost and how much it inflates the holiday expenses. An interest rate of 60-100% may make you think twice about those purchases when you don’t have the money in your bank account.
Alternatives to a Holiday Cash Loan
A holiday cash loan can have long-lasting effects. Here are some alternatives to consider:
- Borrowing money: If you can’t buy your child a Christmas present or need money to pay the rent, a family member or friend may be willing to help in your time of need.
- Limit your holiday budget: Make a list of the necessary holiday expenses and those you can eliminate to reduce the amount you must borrow.
- Use a credit card: If you carry a credit card with a lower interest rate than a personal loan or title loan may cost, use it instead.
- Apply for a buy now pay later loan: A buy now pay later loan allows you to split your purchase into four equal installments, sometimes without interest charges.
FAQ
Is it Hard to Get a Holiday Loan?
If you apply for a holiday loan from a bank or credit union, they typically have strict qualifying requirements, including a high credit score and stable income. Other options for holiday loans, such as title loans or peer-to-peer lending, may not be as challenging to secure.
How Can I Borrow Money Instantly?
An auto title loan can provide you with the funds you need fast. If you provide the necessary documentation early enough in the day, they can often fund your loan within a couple of hours, helping you get cash fast.
What Credit Score Do You Need for a Holiday Loan?
The credit score needed for a holiday loan depends on the type you get. A loan from a bank or credit union may require credit scores of 680 or higher, whereas a title loan or peer-to-peer loan may allow much lower credit scores.
Final Thoughts
If you need to borrow money for the holidays, explore your options. Understand the loan terms and interest charges while limiting holiday purchases. Paying interest to cover holiday expenses can put you further into debt than anticipated if you aren’t careful.
If you need money fast, consider completing a loan application for an auto title loan with Montana Capital. You’ll have an answer instantly and get your funds either the same day or the next business day.
Written by
Samantha Hawrylack
Samantha Hawrylack writes for our company and is an expert in personal finance. Sam received her Bachelors of Science in Finance and her Masters in Business Administration from West Chester University of Pennsylvania. She began her career in the financial services industry and shifted to an entrepreneurial role where she could directly impact clients. Sam has an impressive background in personal finance and business management.