‘Tis the season! The holidays can be a magical time of year and a wonderful reason to reconnect with family and friends. But let’s be honest — it can also be stressful and expensive. Holiday loans can fill the gaps in your seasonal budget and help you enjoy a stress-free holiday season. Just be sure to compare lenders, borrow only what you need and consider if a holiday loan is the right move for you this year.
What is a holiday loan?
A holiday loan — sometimes known as a Christmas loan — is simply a type of personal loan meant to help you cover seasonal expenses. They’re usually smaller loans, ranging from around $500 to $5,000, and you can find them at your local bank or credit union or with an online lender.
Holiday loans are often used to supplement your gift-buying budget, but you may also use them to cover travel expenses like airfare and hotels or gas and meals if you’re taking a road trip to spend the holidays with family. You can also use the funds for groceries, decorations and other festive expenses.
Where to get a holiday loan
It’s not a bad idea to check with your regular bank or credit union first if you need a holiday loan, but here are other options to consider.
Take the time to consider these key factors when comparing holiday loans.
Rates. Interest rates can vary widely depending on the lender, the loan term and your qualifications. It’s important to compare multiple lenders to find the best rates possible for your financial situation.
Fees. Keep an eye out for mandatory fees, like application or origination fees, which add to the loan’s cost. You could snag a no origination fee loan with a little research. It’s also a good idea to be aware of other possible fees, such as late fees or charges for insufficient funds.
Loan terms. Holiday loans typically have shorter loan terms than larger personal loans. Make sure the payments fit into your budget without causing undue financial hardship.
Customer experience. Consider a lender’s rating and reviews and check sites like the BBB and Trustpilot to gauge what your experience may be.
Turnaround time. How quickly do you need the cash? Many lenders can offer loans in as little as one to two business days.
How much do holiday loans cost?
How much your holiday loan costs depends on the lender and your financial qualifications. For borrowers with good credit — around 670 and above — most holiday loan rates should range from about 6% to 36%, with the best rates going to the highest credit scores.
If you have a poor credit score, you still have options, but loan options are more limited and could come with higher-than-average interest rates. Depending on the loan cost, you may want to consider alternatives to holiday loans rather than taking on more expensive debt.
Calculate your monthly loan payments
Use our loan repayment calculator to compare monthly loan payments based on different interest rates and loan terms.
Getting a loan might be the right move this holiday season if you match the following:
You have good to excellent credit. If you have great credit and can qualify for a low rate, a holiday loan might make sense.
You have a plan to repay it early. If you know you can repay it quickly and only pay minimal interest, a loan isn’t a bad idea. Just be sure you won’t be on the hook for prepayment penalties.
It could help you budget. Shopping with a credit card can make it too easy to overspend. But if you borrow a specific amount — and vow to stick to that budget — you might spend less this holiday season.
When to reconsider getting a holiday loan
A holiday loan might not be the best move in these scenarios.
Loan terms are unfavorable. If you can only qualify for loans with high rates and poor loan terms, you may want to explore alternatives to a holiday loan.
You already have a lot of debt. Consider if adding to your existing debt burden — rather than scaling back your holiday spending this year — really makes sense for your finances.
You tend to overspend. If you’re taking out a loan because you’ve already run through your holiday spending budget, you may want to rethink taking out a loan.
You can’t repay the loan early. If you think you’ll need the full loan term to repay it, taking out a Christmas loan might not be the best idea.
Pros and cons of holiday loans
Be sure to consider the advantages and disadvantages of holiday loans before taking on any new debt.
Pros
Fast funding. You can usually receive a holiday loan within a day or two of applying or possibly even the same day with some online lenders.
Flexible repayment terms. Depending on the lender, you may be able to choose a repayment plan that best fits in with your budget.
Lower rates. Interest rates are typically lower for Christmas loans than for credit cards or department store credit.
Can help build credit. If your credit isn’t great, a history of on-time payments can help to raise your credit score. A holiday loan can also add to your credit mix if, for example, you only have credit cards on your reports.
Cons
Taking on new debt. No matter how you look at it, a holiday loan puts you in deeper debt than before.
May cause overspending. If you’re approved for more than you need, it can be tempting to overspend.
Loan fees. Some lenders charge an origination or processing fee that can take a bite out of your loan proceeds and add to the loan’s cost.
Can hurt your credit score. A holiday loan can also damage your credit score if you have late or missed payments. Plus, the hard credit check to apply for a loan also causes your score to drop a few points temporarily.
How to apply for a holiday loan
Follow these steps to apply for a holiday loan.
Calculate what you can afford. Review your budget and borrow only as much as you need and can afford to pay back.
Explore your options. Look for lenders that offer holiday loans in the amount you need to borrow.
Compare lenders. Compare rates and loan terms from multiple lenders, and watch for origination or other fees, plus credit score and income requirements.
Get prequalified. Most lenders allow you to check your rate with only a soft credit check. A prequalification can help steer you toward more affordable loan options, but your actual rate could be higher after formally applying.
Apply. Once you’ve found the right lender, complete the loan application and submit the required documentation. Depending on the lender, you could get a decision within minutes and funding in a day or two.
Qualifications for a holiday loan
Requirements needed to qualify for a holiday loan are similar to other personal loan requirements.
Be over 18 and a US resident. Most lenders require you to be at least 18 and a resident of the US to qualify.
Have a job. You’ll usually need to be employed and able to show proof of income through pay stubs or W-2s to qualify. However, some lenders consider alternative forms of income and offer loans to freelancers or gig workers or those receiving government or unemployment benefits or other forms of income.
Have a good credit score. Credit scores of 670 or higher typically qualify for the best rates, but some lenders accept lower scores.
Have a low debt-to-income (DTI) ratio. Lenders also typically look at your DTI ratio — your monthly debt payments compared to your income — to determine eligibility. Anything below 43% is usually considered acceptable, although some may accept higher DTI ratios.
Can you get a holiday loan with bad credit?
It can be more difficult to get a holiday loan if you have bad credit, but it’s not impossible. You may need to look into online or installment loan lenders with more lenient credit requirements to qualify. And you can most likely expect to pay higher rates than people with better credit.
Another option is to look into a personal line of credit or payday alternative loan (PAL) from your current bank or credit union. For example, Huntington Bank has a personal line of credit up to $500 for existing customers, and there’s no credit check required. Plus, if you can pay it off within three months, there’s no interest charges.
What are holiday tax loans?
A holiday tax loan is a way to borrow money based on the tax refund you expect to get. These holiday tax refund loans aren’t typically available until December, but you could receive your loan proceeds within a day if approved.
Loan amounts generally don’t exceed around $1,200, and you may have to pay interest and finance charges. But you won’t have to make monthly payments — the loan proceeds and fees will just be deducted from your refund.
Holiday loan alternatives
Cash advance apps. If you find yourself a little short before payday, a cash advance app could help you buy those last-minute gifts without paying interest.
Buy now, pay later (BNPL). Many stores and online retailers have BNPL plans so you purchase larger gifts and pay for them in installments — often at no interest.
Credit cards. If you use a credit card to pay for gifts or travel expenses — and are able to pay it off within a month or two — it can save you the hassle of applying for a loan. Or, you could apply for a card with a 0% introductory rate and enjoy interest-free financing for 12 months or more.
Friend or family loans. If you’re struggling to meet expenses, a friend or family member might be willing to lend you the money. Be sure to agree on the terms, whether you’ll pay interest and what happens if you’re late to avoid any misunderstandings ahead of time.
6 tips to minimize holiday spending
If you cut back a little on your spending this season, you might find you don’t need to take out a holiday loan at all. Here are a few ways to lower your costs during the holidays.
Take advantage of sales. Holiday sales seem to start earlier than ever each year, which gives you more opportunities to save. Plan ahead and have a strategy so you aren’t stuck looking for deals at the last minute.
Use coupon codes. Before you buy anything online, look for discount codes that you can apply to your purchase. Or, use a browser extension like Honey to do the work for you.
Make DIY gifts. Use what you’re good at to give homemade gifts. They don’t have to be fancy, and they’re more personal. Painting a picture, knitting a scarf or baking your famous holiday treats are all thoughtful gifts.
Throw a holiday potluck. If you traditionally host holiday gatherings, mix things up this year. Ask your guests to bring a dish or drinks to share. You won’t spend as much, and you’ll have more time to actually enjoy your holiday party.
Use old gift cards. Got a gift card you can’t use? Maybe it’s perfect for someone on your list, or you can use it to buy a present. You’re not cheap — you’re thrifty!
Don’t buy for everyone. If you’re the kind of person who buys a gift for everyone you know, consider scaling back this year. A thoughtfully worded card is a tasteful gesture that won’t break your budget.
Bottom line
Going into debt during the holiday season isn’t a good idea — especially if you don’t have the best credit or you’ll struggle to pay it back. But, if you plan to make purchases on credit, a personal loan might help you save on interest. Just be sure to compare lenders and consider all your options.
Frequently asked questions
Will applying for a holiday loan show on my credit report?
Yes. Every time you submit a formal loan application, it appears on your credit report and may slightly lower your credit score.
Can a holiday loan cover travel expenses?
A holiday loan may be able to cover travel costs. However, if you’re only eligible for a small amount through a short-term loan, you may want to consider a travel loan instead. Just keep in mind that travel loans, like holiday loans, can be an expensive choice and may be difficult to repay.
Can I get a holiday loan instantly?
Lenders that offer financing at checkout are the closest thing to instant financing — you won’t have to wait to receive the funds to make a purchase. But some lenders offer same-day funding, and most online lenders can get you the funds within 24 to 48 hours after approval.
Lacey Stark is a freelance personal finance writer for Finder, specializing
in banking, loans, investing, estate planning, and more. She has 20
years of experience writing and editing for magazines, newspapers, and
online publications. A word nerd from childhood, Lacey officially got her
start reporting on live sporting events and moved on to cover topics
such as construction, technology, and travel before finding her niche in
personal finance. Originally from New England, she received her
bachelor’s degree from the University of Denver and completed a
postgraduate journalism program at Metropolitan State University also
in Denver. She currently lives in Chicagoland with her dog Chunk and
likes to read and play golf. See full bio
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