We’re just ten days away from Christmas. This time of the year is full of joy and excitement. Although this Christmas seems toned down, people are busy spoiling their families with gifts. But sometimes, the pressure of Christmas can lower your Christmas spirit.

For some of us, this Christmas isn’t all that merry. December marks the end of 2020, not the financial hardships that came with the pandemic. Most of us are still furloughed or have lost our jobs altogether. It’s tough to stay high-spirited when you’re stuck in financial turmoil. But you can’t put a price on the happiness of your loved ones. A Christmas loan could make your Christmas merry again!

In this article, we’ll learn more about Christmas loans and whether or not you should finance your Christmas shopping with one.

What exactly is a Christmas loan?

A Christmas loan is, essentially, an unsecured personal loan, meant exclusively to cover Christmas expenses. Since it’s an unsecured loan, you won’t have to declare collateral to secure this loan. Thus, these loans may come at a relatively higher interest rate. You can borrow anything ranging from £1000 to £35000 in a Christmas loan.

Your credit score is the primary determinant of whether or not you’ll get a Christmas loan with feasible loan terms. People with a decent credit history may have higher chances of qualifying for a Christmas loan. The acceptance criteria, however, differ among lenders, so do your research before applying for this loan.

You can also apply for a secured loan, wherein you’ll have to declare an asset as collateral. A secured loan may be worth your consideration if you lack a substantial credit history to account for your creditworthiness. However, if you default on a secured loan, you will be at the risk of losing your collateral. Since most people use their property as collateral, you may put your home at risk.

How much does a Christmas loan cost?

You can calculate the holistic cost of your loan based on the amount you’re planning to borrow, the length of your loan term, and the interest. You can’t boil down a Christmas loan’s cost to just one factor. The overall cost of your loan takes multiple variables into account. We’ve outlined some below:

• Credit history: We emphasize the importance of maintaining credit history, time, and again. That’s because your credit history influences the terms of your loan. Someone with a stellar credit report is likely to get reasonable loan offers than someone who has demonstrated faulty credit behaviour in the past. You may get lower interest rates and longer loan terms with a good credit history. So, keep a well-maintained credit standing.
• Loan tenure: The loan tenure of your loan should ideally be shorter. The longer you take to repay your loan, the longer you’ll have to pay towards interest. So a longer loan tenure may turn out to be costlier than a loan secured over a shorter term.
• Interest rate and APR: Lenders base your interest rate on your creditworthiness. Now, your credit score determines your creditworthiness. Thus, to secure a deal with lower interest rates, you should work on improving your credit score. APR (Annual Percentage Rate), on the other hand, gives you the overall charges associated with a loan, which includes early repayment charges, arrangement charges, etc. A loan with a lower interest rate may have a higher APR. Thus, you should look beyond the interest and compare APRs before concluding an offer.
• Additional charges: Your lender may charge you extra for the early settlement of the loan. Or, they levy arrangement fees on you. You need to pay close attention to the loan agreement to look for hidden charges.

Should you take a Christmas loan for your festive shopping?

If you happen to be in a situation where you need extra financial aid to keep up with the festivities, you may opt for a Christmas loan. There are pros and cons associated with all forms of credit. So, choosing this option won’t cause problems as long as you weigh them before making a decision.

Pros:

• Pay in fixed monthly instalments: Christmas loans are personal loans, so the interest rate is fixed. Knowing what to pay and when to pay gives you more control over your finances. Moreover, it can help you set up a more efficient monthly budget for yourself.
• Convenient loan term: You are free to choose a loan term of your choice for a Christmas loan. Personal loans give you the liberty to set a tenure of your choice. While a longer-term means smaller monthly instalments, a shorter-term incurs a lower cost on interest.
• Spend as per your convenience: A Christmas loan allows you to use the proceeds at your discretion. On the contrary, credit cards can levy a charge on international usage. Since the lender would transfer funds to your bank account, you can either use your debit card or withdraw cash.
• Benefit from repayment holidays: Several lenders allow their customers to take payment holidays. Herein, the lender would allow you to postpone repayments for a month or two without levying overhead charges. Although, this facility may only be available to those fulfilling a specific set of requirements.

 Cons:

• Cost of the loan: An interest is what lenders charge on the principal amount of your loan. Consequently, this interest is payable along with the loan, either over monthly installments or as a lump sum. If you happen to have a below-average credit score, lenders will offer you loans at higher interest rates. It may be tough to qualify for competitive rates with a below-average credit rating.
• Maintaining timely repayments: If you default on an unsecured loan, the lender will impose an extra charge for late repayment. If you fail to repay a secured loan, you will put your home at risk. If the lender decides to take you to court, you may get a County Court Judgement (CCJ) issued in your name. A CCJ stays on your credit report for six years, hampering your chances of securing credit in the future.

Tips to help you secure Christmas loan offers

We’ve curated some tips to help you get the best out of your Christmas loan:

• Keep a close eye on your credit report: Checking your credit report periodically is good practice. Inculcating this habit helps you identify discrepancies. If you find an error, get it rectified before filing your application. You’re likely to get more favourable loan terms and interest rates with a good credit score.
• Create a realistic repayment plan: Failing to repay your loan doesn’t just cost you money but also harms your credit score. A repayment plan will help you understand how much you should be saving to compensate for the monthly payments.
• Check your affordability before borrowing: Crunch some numbers to work out the amount of money you need. Don’t misuse a good loan offer by borrowing more than what you can manage. Borrow just what you need and can afford.
• Shop around for better offers: If you have a good credit score, you’re likely to bag a deal with competitive rates. So, shop around for better offers before settling for one.