What is a holiday loan?
Holiday loans refer to personal loans that are designed to cover expenses related to holidays. They can help you fill the gap between your holiday plans and your available funds.
These loans are offered by various institutions including banks, credit unions and online lenders. They usually come with fixed monthly payments that need to be made over a predetermined period of time, which usually ranges from 12 to 60 months.
How do holiday loans work?
The Annual Percentage Rates (APRs) for holiday loans are set and do not change over the course of the loan, unlike credit cards and personal lines of credit that have variable rates that can change unpredictably.
These loans are unsecured and don’t require any collateral. As a result, financial institutions primarily consider factors such as your credit score, income, and debt-to-income ratio to determine whether you are eligible for a holiday loan or not.
For what purposes can you utilize a holiday loan?
As holiday loans belong to the category of personal loans, their usage is quite versatile. Although borrowers need to inform their lenders about their intentions, personal loans can be utilized for various reasons.
For instance, you can use a holiday loan toward the following purposes:
- Purchasing presents for loved ones
- Traveling for the holidays
- Buying holiday decorations
Keep in mind that certain lenders may have restrictions on how you can use your holiday loan. It’s best to check with your lender to find out their specific terms and conditions regarding the usage of funds.
IIs a holiday loan a good option for you?
Although the holidays are a festive season, they can also bring financial pressure. According to a 2023 survey conducted by LendingTree, about 36% of Americans incurred holiday-related debt. The extra expenses related to holiday meals, travel, and gifts for loved ones can easily exceed one’s budge.
Take a moment to weigh the advantages and disadvantages before hastily applying for a holiday loan:
- Pros
- Typically better terms than credit cards. Borrowers with good credit may be able to secure a lower APR compared to credit cards.
- Fixed APR and monthly payments. You can break up holiday expenses into predictable monthly payments with set interest rates.
- Fast funding when needed. Holiday loans can provide quick access to funds, often within the same business day.
- Funds can be used for a variety of expenses. From travel costs to gifts, holiday loans can be used to cover a wide range of holiday-related expenses.
- Typically no collateral required. Unsecured holiday loans don't require any collateral, so you don't have to risk losing any assets.
- May improve your credit score. Having a variety of credit types and making on-time payments can positively impact your credit score.
- Cons
- Interest adds to holiday expenses, making them more expensive overall.
- Taking on debt for unnecessary expenses can lead to an increased debt load.
- Repayment terms can be lengthy, stretching beyond the holiday season and into the following year.
- Some lenders have minimum loan amounts, typically starting at $1,000 for online lenders.
- Origination fees are common with holiday loans, ranging from 1% to 8% of the total loan amount.
- Poor-credit borrowers may not qualify for a holiday loan, or may only qualify for high APRs.
Below are the requirements to apply for a Holiday Loan.
- Social Security Number
- Proof of age (must be 18 years or older)
- Checking account information
- Bank statements or income stubs
- Accurate contact information
