We know the holiday season is approaching, and a lot of people often face the dilemma of financing their holiday visits and adventures. You may be wondering if the best option is to take out a personal loan to pay for your holiday expenses. Don’t go too far; we have all the information you need to make the right decision.
While taking out a personal loan is a great option to pay for your holiday expenses, it is important to weigh the pros and cons carefully before you make a decision.
In this article, we will explore whether taking out a personal loan to pay for your holiday expenses is a wise financial decision, as well as other alternatives that could work for you instead of personal loans.
Pros of Taking Out a Personal Loan for the Holidays
Taking out a personal loan for the holidays often makes sense for the following reasons:
- Fast funding: One of the perks of taking out a personal loan is that it offers quick funding. If your loan application is approved, there are so many lenders that disburse funds within the same day you applied. Nevertheless, ensure you pay close attention to the terms of your lender before taking out the loan.
- Lower APRs: Typically, a holiday loan comes with lower APRS than credit cards, which makes it a great option for so many people. For those with good credit, you will most likely have a lower APRS when taking out a personal loan for the holidays. Secured loans: Christmas loans are unsecured loans and don’t require putting up any assets as collateral.
- Fixed Payments: Generally, personal loans come with a scheduled monthly payment plan that enables you to know the due date you are to repay the loan. With this fixed payment schedule, it is easy to plan and make arrangements for how to repay your loan.
Cons of Taking Out a Personal Loan for the Holidays
While we consider the advantages of personal loans for holiday expenses, it is also important to highlight the drawbacks involved.
- Credit Check: It is common for most lending institutions to perform a credit check in order to determine their loan rates and check the borrower’s eligibility. Let’s say you have an excellent credit history; most lenders will consider you worthy of taking out the personal loan. But on the other hand, if you have fair or poor credit, it may be difficult to qualify for a personal loan. Even if you do, expect to be charged a high interest rate.
- Long Repayment Terms: The majority of holiday loan terms are usually five years and above; this can leave you with no option but to pay off your holiday expenses longer than expected. So, when taking out a personal loan for the holidays, consider the repayment terms and be sure it favors you.
- Accumulation of Debt: Taking out a personal loan for your vacation can lead to increased costs and debts. Paying the interest rate on holiday loans automatically increases the total cost of the amount you borrowed. Most lenders also charge other fees, such as an origination fee, before a loan is approved.
How to Take Out a Personal Loan for the Holidays
Before taking out a personal loan for your holiday travel, the first thing you need to do is calculate exactly how much you’ll need pending the time you will be staying there. When making your calculations, ensure you factor in the basic things that would aid your stay.
In essence, calculate your expenses down to the penny. The ideal thing to do is to not exceed the amount you have calculated for the holiday cost, so you don’t strain your budget.
Once you’ve made your calculations, prequalify with at least three lenders to obtain the rate that suits your needs and budget. If you have bad credit and have no other options, think about getting a small loan.
A small dollar loan may not involve a credit check and is intended to help people who might not otherwise qualify for a loan. Select banks and credit unions offer small dollar loans with a maximum of $2,500.
Alternatives to Taking Out a Personal Loan to Cover Holiday Costs
There are several ways to avoid accumulating debt upon debt by taking out a personal loan to cover your holiday expenses. You may not necessarily need to take out a personal loan for a vacation; you can try out the following alternatives:
• Budgeting and saving
This is one of the easiest ways to pay for your holidays without having to stretch your financial capacity. Make a plan ahead of time by designating a specific amount of your monthly income for your holiday. This strategy also assists you in preventing debt accumulation.
• Credit cards with rewards
Using your credit card for holidays can help you earn rewards or cash back, which will lower the total cost of your holiday costs if you have one with points or cash back incentives. So, rather than taking out a personal loan, you can utilize the cash back you get from your credit card.
• Part-time jobs
This is also another intuitive way to save enough money for your holiday visit. You can come up with a side business or take on temporary part-time work that would help you make extra money, especially for the holidays. From the wages you earn from your part-time job, you can get money now and not have to worry about paying it back later since you’re paying it out of your personal pocket.
• Holiday club accounts
Some banks may allow you to open a holiday club account in which you can deposit a certain amount of money each month to save up for upcoming vacations. With this, you will be guaranteed peace of mind, knowing that you have enough funds somewhere that can be used for your holiday expenses.
• Reducing expenses
Rather than taking out a personal loan, you can also cater for your holiday costs by temporarily cutting back on discretionary spending in the month before your vacation. Look for places where you can save costs, such as going out to eat less often or stopping unnecessary subscription services.
With these alternatives and effort from your end, there is no doubt that you can enjoy the holidays without having to worry about incurring additional debt from taking out a personal loan.
