The holidays are when many people love to give gifts and celebrate with their family and friends. The holidays are also when people tend to spend more money than any other time of the year. Getting a personal loan to help cover holiday expenses can be an excellent option for some people. However, this time can also be very stressful for many with bad credit, as the opportunities for loans are fewer. Christmas loans for bad credit come in many shapes and sizes. So it’s important to know what you’re agreeing to before signing for one.
There are different kinds of personal holiday loans that are available to people regardless of their credit history. And in this article, we’ll take a look at how they work and where to find them. We’ll also discuss how you can use them wisely to make your holiday season bright.
What Is a Christmas Loan?
A Christmas loan is a personal loan that helps a borrower cover holiday expenses. Some lenders appeal to borrowers that need extra money around the holidays for shopping and festivities.
A Christmas loan, like any loan, can come in two forms:
A secured loan is a loan that requires collateral. Loan collateral is a valued property—usually a car, real estate, or cash savings. A secured loan can be easier than others to obtain. They provide some “security” to the lender in the form of collateral. If a borrower defaults on a loan, the lender takes the collateral to recoup the lost funds from the loan.
Unlike a secured loan, an unsecured loan requires no collateral and is determined only by the borrower’s creditworthiness. A review of their credit report and score is mandatory for almost all unsecured loans. So having a good credit history is essential. Because the risk is higher to the lender, unsecured loans carry higher interest rates and fees than secured loans.
Because of the nature of the holiday season, people with bad credit are usually strapped for time and money. This is why you need to understand the ins and outs of a Christmas loan for bad credit.
Do You Have Bad Credit?
Before you consider any loan, you should know where your credit stands. Your creditworthiness is one of the most critical factors in a loan decision. Lenders will want to confirm that you’ll be a trustworthy borrower before offering you a loan.
In today’s world, the best way for any lender to determine creditworthiness is by examining your credit score. Your credit score is a calculation that illustrates the likelihood of you repaying a loan.
Five significant factors determine your credit score:
Payment History: The record of late payments you make to any creditor
Credit Utilization: The amount of your available credit you use
Credit History: The age and number of all past and current credit accounts
New Credit: The number of recently opened accounts
Credit Mix: A review of your variety of credit accounts
The information above is analyzed by companies called credit bureaus, who then create credit reports and calculate credit scores. Every consumer in America that has ever rented a home bought a car, or applied for a credit card has a credit report. The three major credit bureaus reporting on Americans are Experian, Equifax, and TransUnion.
Credit scores are three-digit numbers that range from 300-850, with their range detailed below:
- 300–499 Very Poor/Bad Credit
- 500–600 Poor/Bad Credit
- 601–660 Fair Credit
- 661–780 Good Credit
- 781–850 Excellent Credit
A credit score of 650 or below indicates that you have poor or bad credit. But does that mean that people with bad credit can’t get Christmas loans? Not at all! Like anyone else, people with bad credit also need personal loans for things like a home, new furniture, or a car. The catch is that Christmas loans for bad credit will be guaranteed to have at least two characteristics:
- A higher interest rate than a loan based on good credit
- More unfavorable terms and conditions
Checking your credit score will also give you a better idea of what to expect from a loan. With that knowledge, you can effectively look for loan options that may be more likely to grant approvals instead of wasting time with loans that you wouldn’t even prequalify for.
Are Personal Loans for Bad Credit Possible?
The short answer is yes; there are options for personal loans available to people with not-so-great or even bad credit. There are several holiday loan options for those who are struggling to get loans this time of year. And while most of them won’t have the advantages of loans available to people with good credit scores, they can still provide affordable ways to borrow the money you need to have a great holiday season. Let’s take a look at a few.
Why You Might Need a Holiday Loan
If possible, getting a personal loan to cover holiday expenses is the best option for a person with bad credit. Even though poor credit loans are more expensive in the long run, the right personal loan will have an interest rate that is categorically better than many bad credit loan options, like payday loans or pawnshop loans.
A personal loan is often the best option because the interest rates are often much lower than average credit loan rates. In addition, the interest you pay is usually lower than the interest rate of credit cards, so it’s a better option for those looking to manage their credit correctly.
During the holidays, we seem to do more. The holidays are a hectic time of year that can bring about several unusual expenses, from travel costs to visit family down to simply adding more trips to the grocery store to prepare those big (and delicious) holiday meals. And when we do more, we spend more. In 2020, the National Retail Federation reported that Americans spent an average of $998 on gifts, entertainment, and decorations during the holiday season.
In a time of year where gift-giving and partying are practically a way of life, it’s understandable that people spend more—even when they can’t afford it. However, with Christmas loans for bad credit now available, people can get the money to fund the celebration they want to have.
Finding Christmas Loans for bad credit
Holiday Loans From an Online Lender
If you need a holiday loan, an online lender may be able to provide a quick cash infusion to your seasonal shopping funds. Many lenders offer pre-qualification: the ability to check your credit without conducting a hard inquiry that can affect your overall credit score.
Online Christmas loans are typically installment loans, which allow for repayment in fixed amounts over several months.
Many online lenders offer interest-free borrowing during the holiday sales season to attract new customers. However, it’s essential to know that the likelihood of a no-interest loan for a borrower with bad credit is improbable.
While getting an online Christmas loan may seem like a good option for fast money, the higher interest rates shouldn’t be ignored. And that rate doesn’t include any penalties that can be accrued for not paying the bill by the due date each month. Moreover, those late payments will probably end up on your credit report and make your bad credit even worse. As with any bad credit loan, online Christmas loans will carry high-interest rates. Be sure to review all the fine print on these types of loans before applying.
Christmas Loans From Credit Unions
You may be able to secure a Christmas loan if you belong to a credit union.
Credit unions are not banks. Instead, they are “members only” financial institutions that provide many of the same services that a bank offers, but typically at a lower rate. That’s possible because, unlike banks, credit unions are more concerned with the activity that addresses the needs of their members—like promoting sound money management and improving credit ratings—than with making profits. In addition, credit unions are usually organized according to a peer group. So, for example, there are credit unions for teachers, members of labor unions, and entertainers.
Credit unions can process loans that are available anywhere from a day to just under a week and can be offered with interest rates that are smaller than many other personal loans. If you are a credit union member, be sure to research the option available to you. And if you are not a member, look for opportunities available online or in your area; in the long run, credit unions have many services that can benefit a person who wants to improve their bad credit.
How To Manage a Christmas Loan
If you’re worried that your credit score will take a hit from a personal loan, you’re doing the right thing. When a high-interest loan like a Christmas loan isn’t repaid according to the terms and conditions, all sorts of penalties can be enforced by a lender to recoup their loan amount. Let’s take a look at a few things you can do to effectively manage your Christmas loan and get out of debt as soon as possible.
Set a Budget
Setting up a budget can always help manage to spend and meeting financial goals, no matter what season you’re in. We highly recommend building a month-to-month budget to stay on track all year long. And you never know; by keeping tabs on your financial habits all year, you may be able to figure out how to save some, or even all, of the holiday money you need, instead of borrowing!
If you’re new to budgeting, keep it simple. Please make a list of all the gifts you want to buy, along with their estimated costs. Add them all up, and you’ve got the amount you need to borrow for your holiday plans. If you borrow a Christmas loan, be sure that you add the installment repayments into your year-round budget and plan to pay it off within four to six months.
Update Your Holiday Plans
Many people celebrate the holidays by keeping traditions that may have been passed down through generations. Lots of holiday plans include outings to annual shows and events, group dinners, and gift exchanges. Although these things may be joyful, they could be unnecessarily draining your funds.
In addition to your gift list, please take a moment to consider all the activities that you plan or are a part of and their costs. You may find that putting a new spin on the event may help reduce its cost—or even eliminate the need to spend anything. For example, the big Christmas Eve brunch at everyone’s favorite restaurant could become a meal cooked by the whole family. Or, this year’s annual holiday trip to the movies could turn into a Christmas movie marathon at home.
Another way to update your holiday plans is to set expectations for gift-giving. Limiting the number of presents you have to buy will naturally save you money, but giving fewer gifts doesn’t decrease the amount of fun the holidays can bring. Gathering your friends or family together at the start of the season to talk about how you all can celebrate economically can challenge everyone to think of fun, meaningful, and affordable gifts.
Christmas loans for bad credit holders are available, but it’s essential to consider any loan carefully. The bottom line is that to find the best Christmas loans for bad credit, you have to search around and find the option that is right for you.
Knowing what you have to pay for and when those payments are due will help you clear your debt quickly so that you aren’t carrying a balance from one holiday season into the next. Shop around, understand your terms and conditions, and take the responsibility of the loan seriously. Doing these things will help you avoid a financial crisis that will leave you constantly coming up short—no matter what the holiday is.
Aside from any available loan options, some people with bad credit have significant concerns about increasing their long-term debt and decide that a Christmas loan isn’t for them, and that’s okay. Even though the little extras that we pay for at Christmastime help make the season’s magic, the critical part is that they are filled with spending time with the ones you love. After all, that’s what the holidays are really about.