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Your Guide to Holiday Loans

Written by
Ashley Altus, CFC
Ashley Altus is a personal finance writer who covered financial planning with a focus on money management and household finance for OppU. She is a Certified Financial Counselor through the National Association of Credit Counselors. Her work has appeared with O, the Oprah Magazine; Cosmopolitan Magazine; The Smart Wallet; and Float.Today.
Fact Checked by
Tamara Altman
Dr. Altman has over 25 years of experience in social science, public health, and market research, statistics, evaluation, and reporting. She has held positions with, and consulted for, many government, academic, nonprofit, and corporate organizations, including The Pew Charitable Trusts, the National Park Foundation, Stanford University, UCSF, UC Berkeley, and UCLA.
Read time: 6 min
Updated on July 27, 2023
Two women standing and huddled together over a cell phone. Both are holding shopping bags.
Holiday loans can cover gift giving, travel, food, and décor. But do they fit your needs? Discover what you need to know about holiday loans.

After the COVID-19 pandemic put a damper on holiday celebrations last year, you may be eager to make up for it this year. But the holiday season can feel financially stressful if you’re short on cash.

With some planning, a holiday loan may help you budget, if you don’t borrow more than you need and pay it back quickly. Learn about your loan options below if you’re interested in taking one out to cover holiday expenses.

What is a holiday loan?

Consider holiday loans like personal loans that are used to cover holiday expenses. You may use a personal loan in a financial pinch. Borrowers can use holiday loans to pay for gifts, decorations, or food, as well as travel expenses.

How do holiday loans work?

Most holiday loans are unsecured loans, which means lenders approve borrowers based on their creditworthiness.  For an unsecured holiday loan, lenders will review a borrower’s financial information such as their credit score, debt-to-income ratio, and credit history. Borrowers with the highest credit scores receive the lowest interest rates.

Borrowers can complete loan applications and apply for holiday loans at banks, credit unions, and online lenders. If approved, the borrower will receive the loan as a lump sum amount. The borrower will then be responsible for making on-time installment payments with interest until the loan is paid off in full.

What to look for in a holiday loan

Not all holiday loans are created equal. Before deciding on a loan, consider the following factors.

No. 1: Interest rates

Similar to other types of credit, borrowers with high credit scores will receive the most favorable interest rates. Interest rates will also vary depending on the type of lender. In order for a holiday loan to be beneficial, the interest rate you pay on the debt should be lower than other forms of credit, such as credit cards.

No. 2: Repayment terms

Depending on the loan amount, repayment terms on a holiday loan can range from 12 to 60 months, according to U.S. News & World Report. Borrowers will want to consider how long they’ll need to repay the loan once the holidays are long gone. The longer the repayment terms, the more interest you’ll end up paying in the long run.

No. 3: Loan fees

In addition to interest charges, borrowers may also have to pay fees with their holiday loans. This may include origination fees, prepayment penalties, and late fees. Look for a holiday loan’s annual percentage rate to understand the total cost of borrowing.

Alternatives to holiday loans

A holiday loan is one option for borrowing money during this time of year. Below are four ways you can finance your holiday spending.

No. 1: Buy now, pay later

Buy now, pay later services offer shoppers installment loans to pay for purchases. The total purchase item is divided into a series of installments. The first payment is due when you make the purchase. Depending on the servicer, borrowers may have to pay interest or late fees. While a buy now, pay later loan can be convenient, some servicers don’t report a borrower’s payment history to the major credit bureaus, so on-time payments wouldn’t benefit your credit history.

No. 2: Personal Credit Line

Borrowers can receive a line of credit from their financial institution, such as a credit union or bank, and withdraw funds as needed. These are generally treated as a revolving line of credit, which means as you pay back the amount you borrow, the available credit returns to the original amount. Most borrowers will need excellent credit in order to qualify for a line of credit.

No. 3: Credit cards

Credit cards give shoppers a convenient way to make all types of different purchases. If you decide to use a credit card to pay for your purchases this holiday season, it’s best practice to pay off the entire balance at the end of the billing cycle in order to avoid potential interest charges.

No. 4: Give homemade gifts or talents

Instead of taking out a loan this holiday season to pay for gifts, consider other nontraditional gifts to give to family and friends. Make the most of your talents and hobbies by choosing a gift that shows them off, instead of taking on holiday debt.

Pros and cons to a holiday loan

Borrowers should consider their full financial situation before taking out a holiday loan. While a holiday loan may be an appropriate option for some, they’re not for everyone. Below are some of the pros and cons to consider.

Pros Cons
No collateral. Because holiday loans are a type of unsecured debt, borrowers don’t need to risk losing one of their assets. Increase of debt. Even a small-dollar holiday loan can add to your debt-to-income ratio.
Receive cash quickly. Depending on the lender, once a borrower is approved for a holiday loan, the funds may be deposited into their checking account via direct deposit within a few business days. You’ll have to pay more over time. Taking out a loan may require you to pay interest and possibly other fees, which will make the holidays more expensive in the long run.
Spread out expenses. It can be difficult for individuals to come up with a lump sum to pay for holiday-associated costs. A holiday loan allows for those costs to be spread out in fixed monthly payments. Long repayment terms. Depending on the loan amount, you may be paying back the loan long after holiday festivities have concluded in the new year.
Avoid credit card debt.  A holiday loan can give a borrower a fixed interest rate and monthly payments. It may be difficult to qualify. Borrowers with low credit scores may have trouble finding a lender who will approve them.
Build positive credit history. Holiday loan lenders may report payment history to credit bureaus. By making consistent, on-time payments, borrowers have the opportunity to build a positive credit history, which could boost their credit score. Damage your credit history. If you’re unable to pay the loan back, it could negatively impact your credit score. The lender can also send the loan to collections if the borrower misses several payments.

How to get a holiday loan

No. 1: Review your credit score

If you haven’t done so already, obtain a free copy of your credit report at Your credit report will give you a clearer understanding of your financial situation and help you shop around and review different loans and lenders that fit with your credit profile.

No. 2: Prequalify for the loan

When you find a holiday loan that may be a good fit for your financial situation, check to see if the lender allows you to prequalify. Prequalifying can help you find a lender that fits with your credit profile without having to undergo a hard credit check.

No. 3: Apply for the loan

Collect your personal information such as your banking statements and proof of income. You may need this information to complete the loan application.

The bottom line

The holiday season can definitely stretch your budget when it comes to gift-giving. Before taking out a holiday loan, consider the repayment terms, interest rate, and annual percentage rate. Also, consider alternatives to ensure you’ve reviewed all your borrowing options.

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