It’s the Christmas season again, and everyone’s excited.
You have plans for the perfect Christmas. Spending time with your friends and family, cooking (and eating) delicious Christmas food, and of course, wrapping and unwrapping the gifts under the Christmas tree.
Just one problem – the numbers aren’t working in your favor. The Christmas of your dreams and the Christmas that your bank account can handle are miles apart. The good news is that you’re not out of options just yet – you can always take out a Christmas Day loan.
A “Christmas Day loan” is a personal, emergency loan that you can use to get quick cash for the holiday season. There’s no real difference between a Christmas Day loan and any other kind of personal loan – it’s simply a marketing gimmick.
So, how do Christmas Day loans work, and which are the best loans to finance your holiday expenses?
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What should you consider when taking out a Christmas Day loan?
Like any loans, Christmas Day loans are a form of taking on debt, which means you should proceed with caution.
These loans can and do affect your credit score, especially if you have trouble paying them back on time. Personal loans are also notorious for having high interest rates and lots of extra fees.
Sometimes they can be pretty expensive, plunging you into a financial rabbit hole. So before taking out Christmas day loans, consider the costs involved, the repayment terms, and the total amount you’ll end up paying back.
What is The Cost of Christmas Day Loans?
Knowing the cost of a holiday loan is crucial. Typical personal loan fees include — Interest rates, loan origination fees, early payoff, and late payment fees.
Loan origination — the loan processing fee — is the amount your lender deducts from the loan money to cover admin and processing costs. The processing fee can be a percentage of the loan amount you need or a flat fee.
An interest rate is the monthly or yearly cost you incur to borrow money.
Lenders typically make the most money off of interest, so they may charge an early payoff fee, as well. Early payoff costs are the money your lender can charge for repaying your loan earlier than you’d agreed.
Late payment fees are the penalty you pay for paying off your debt late or missing monthly payments.
All that in mind, the cost of Christmas day loans can vary depending on your creditor. The Federal Reserve currently lists the average annual percentage rate (APR) of personal loans at 8.73%.
Christmas Day loans – what are my options?
Now that we understand a bit about loans and loan repayment, let’s take a look at the kinds of loans you can take out, as well as some pros and cons.
1. Personal Loans
Personal loans are one of the best options for a quick financial fix during the holidays. Typically, a personal loan is a loan that you obtain to meet individual needs – unlike a business loan, auto loan, or home loan, which need to be used for specific purposes.
There are two categories of consumer loans: secured and unsecured.
Secured personal loans need you to have collateral that you can use as a security for the loan. That means that if you default, your lender will repossess the collateral to pay off the debt.
On the other hand, an unsecured personal loan doesn’t require collateral, so you can borrow money from a lender without providing security like a car or your house. However, this comes at the cost of higher fees and interest rates.
You can get these types of loans from your bank, credit company, or online lenders, and you can get approved with any kind of credit score.
There are dozens of loan providers out there, but these are a few of our favorites:
2. Peer-to-Peer loans
Peer-to-Peer loans allow you to borrow from a group of people or companies, so they usually have more relaxed requirements. This makes them a great option for people who are still trying to build or repair their credit score.
Peer-to-Peer loans typically charge higher interest rates and fees, but they can be a great option if you’re looking for options that will work with a poor credit score.
3. Holiday loans from family and friends
Another option for Christmas day loans is taking a loan from your friends or family members. The best part about this kind of personal loan is that it’s informal, and you may only need a contract to get the loan.
Also, holiday loans from relatives can offer low to no interest rates, and you don’t need to worry about your banged-up credit score. Your friend or family member can also benefit from the interest if they have money to spare.
However, borrowing money can strain relationships, so proceed with caution. An easier Christmas Day loan isn’t worth your relationship!
4. Credit cards
A credit card – believe it or not – is also a type of loan. Credit cards can be an excellent alternative if your credit score is good. And credit cards with cashback and rewards on holiday purchases allow you to get some extra perks whole you do your holiday shopping!
You can even get a credit card with a 0% APR introductory offer. Of course, if your credit score is struggling, you may want to avoid these. Rejected credit applications can ding your score further, and if you do get approved, your interest rate is likely to be very high.
5. Home equity loans and Home equity lines of credit
If you’re a homeowner, you can capitalize on home equity to get Christmas Day loans. Home equity loans are secured personal loans. Essentially, you take a second mortgage.
HELOC (Home Equity Line of Credit) works much like your credit card. You can borrow up to 85% of your home’s equity in this loan type and deal with a more flexible loan repayment structure.
6. Cash advance
A cash advance is also an excellent choice for consumers with bad credit. You can use your credit card to get a cash advance at an ATM, or you can visit your bank to get a cash advance. Remember, a cash advance has a limit, and you can’t draw the whole credit card limit as a cash advance. Also, a cash advance has a higher APR.
Christmas Day loans to the rescue
The holiday season can be a strain emotionally and financially. While Christmas Day loans can’t solve all of the stress, they can temporarily relieve some of your financial stress.
And after the holiday is over, make and stick to a plan to pay off your debts and start saving for next year. The more well-prepared you are, the less financial stress you’ll be under during the most wonderful time of the year.
Here at Penny Calling Penny, our holiday articles are only a part of our growing library. We’re dedicated to helping you learn to manage your money, no matter where you’re at on your financial journey. Subscribe to our newsletter so you never miss a Penny, and we’ll see you next time!