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When are Holiday Loans a Good Idea?

Chris Gottschalk

Chris Gottschalk About The Author

Dec 12, 2023 3:51:57 PM

Everyone wishes they had a little extra money during the holiday season, whether its for presents or to make travel just a bit easier. While many people turn to credit cards to take care of their holiday expenses, there is another option—getting a holiday loan.

Holiday loans have a lot of advantages over other types of funding, but they have some significant drawbacks as well. The more you know about holiday loans, the better you’ll be able to determine if they’re the right option for you.

Here’s what you should know about holiday loans

Are holiday loans a good idea

What is a Holiday Loan?

As you might expect, a holiday loan is a loan you take out to get more funding for the holidays. You can use a holiday loan for pretty much any type of holiday expense, such as:

  • Groceries
  • Presents
  • Decorations
  • Airfare
  • Hotels

What type of loans can you use for holiday loans?

Technically, there’s no such thing as a “holiday loan.” If a credit union or bank advertises a holiday loan, it’s usually an unsecured personal loan. The No Hassle loan First Alliance Credit Union offers is an example of this.

However, personal loans aren’t your only option for holiday loans. A personal line of credit is a good way to get some extra funds for the holidays. Instead of getting a lump sum of cash, you'll have access to a pool of money from which you can draw as much or as little as you need to cover your holiday expenses, you only have to pay interest on the money you borrow, and when you repay the money it becomes available to borrow again.

You can also use a home equity loan or a home equity line of credit as a holiday loan. However, these types of loans have one big drawback—they’re secured loans, which means you’re using your house as collateral. While it’s nice to celebrate the holidays in style, it isn’t worth risking your home if something happens and you’re unable to pay back the loan.

There is one exception to this, though. If you already have a home equity line of credit (HELOC), you may want to consider using it to pay off some of your holiday expenses. You’ll get a better interest rate than you would with a credit card, personal loan or personal line of credit, which means you’ll have an easier time paying back the amount you owe.

Apply for a holiday loan at First Alliance Credit Union

The danger of using payday loans as a holiday loan

You should know that a payday loan, or a check advance loan, might seem like a good way to get some extra cash for the holidays. However, these types of loans also come with interest rates over 150% and fees that all but guarantees you’ll need to take out another, larger loan to pay off the first one. If you’re ever unable to pay, don’t worry—they have notoriously aggressive collections practices and have no qualms about ruining your credit score to get their money back.

The bottom line: stay away from payday loans. 

The Pros and Cons of Holiday Loans

So now that you know what a holiday loan is, you need to know what the benefits and drawbacks are when you get one.

The Pros of Getting a Holiday Loan:

Holiday loans have several pros:

  • Holiday loans have lower interest rates than credit cards, so you’ll potentially end up paying less
  • If you get a holiday loan for all your holiday spending, you’ll know exactly how much you’ll be able to use
  • Holiday loans have fixed monthly costs, so it’s easier to work the payment into your monthly budget

The Cons of Getting a Holiday Loan:

  • When you take out a holiday loan, you’re adding to your debt load
  • You may end up having to pay fees on the loan, which will increase the amount you have to pay back
  • If the loan has a minimum amount, you may end up having to borrow more than you really wanted

What to know about holiday loans

Questions to ask Before Getting a Holiday Loan

If you’re considering taking out a holiday loan, take some time to prepare beforehand to make sure you’re prepared to not just borrow the money, but also to pay it back. Ask yourself these questions:

How much do I want to borrow?

The first question you need to answer is how much do you need? This is important, since you don’t want to borrow more than you require. However, you also don’t want to borrow less than you’ll need and have to make up the difference through other means, like a taking on credit card debt.

What’s the term of the loan?

The term of the loan will determine how much you have to pay back each month, as well as the interest you’ll pay over the life of the loan. Usually, a loan with a longer term will have lower monthly payments, but you’ll pay more in interest. If you opt for a shorter term loan, though, you’ll have higher monthly payments but pay less interest.

How much are the monthly payments on the holiday loan?

Once you figure out what your monthly loan payments will be, you’ll want to look at your budget to make sure you can afford them. You might want to keep your monthly payments as low as possible by getting a long-term loan, but remember, the longer the term, the more you’ll pay in interest. Also, the higher the loan rates are, the more you'll end up paying.

Ideally, you should pay as much toward the loan as you can afford each month. However, if the loan you’re considering doesn’t have an early repayment fee, you may want to get a long term loan with a low monthly payment and put any extra money toward it each month.

Got questions about getting a loan for the holidays? Ask us! 

Get a Personal Loan for the Holidays at First Alliance Credit Union

If you’re having trouble covering holiday expenses, a holiday loan might be the answer you’re looking for. Most holiday loans are personal loans, but you might also want to look into personal lines of credit and home equity lines of credit if you already have one. You’ll need to consider the pros and cons of a holiday loan before you get one, and ask yourself questions about how much you’ll need and what the monthly payments will be.

If you’re looking to get a holiday loan, become a member of First Alliance Credit Union today. You can apply for a personal loan or personal line of credit, and you can even apply for a No Hassle loan that will give you $1,000 with same-day approval.

We do our best to provide helpful information but we cannot guarantee the accuracy or completeness of the information presented in the article, under no circumstance does the information provided constitute legal advice. You are responsible for independently verifying the information if you intend to use it in any way. Additionally, the content is not intended to be reflective of First Alliance Credit Union’s products or services, for accurate and complete details about our product and service information you must speak to an advisor at First Alliance Credit Union.