November’s almost ending and the festive vibe is kicking in. The Black Friday and Cyber Monday sales mark the beginning of the holiday season. With COVID-19 restrictions in place, Christmas may be a little scaled back this year. But will that stop people from spending during the festive season?
These are tough times, indeed. If you’ve recently lost your job or have been put on furlough due to the pandemic, coping up with the stress of Christmas shopping can be difficult. Plus, tapping into your savings to finance Christmas may not be the best idea. This is when a holiday loan can come in handy. Christmas can put you under a lot of financial pressure – from gifts to decoration, and much more. A holiday loan can ease your burden, without eating up your savings.
In this article, we’ll learn more about how holiday loans can help you survive the festive expenses.
What are holiday loans?
A holiday loan is simply an unsecured personal loan taken out to cover holiday or festive expenses. You can borrow any amount ranging from £1000 to £25000 in a holiday loan. Since these are unsecured loans, you won’t have to use collateral to secure the loan. Thus, the interest on these loans may be relatively higher.
Although, your loan terms depend on how good your credit score is. If you have a stellar credit history, you are likely to get the most favorable interest rates. Just like any other loan, you must fulfill the lender’s criteria to qualify for the loan.
You can also apply for a secured holiday loan, wherein you declare an asset as collateral. This can work out if you do not have a substantial credit history to prove your creditworthiness. However, if your default on a secured loan, you will be at the risk of losing your collateral, usually, your property.
Is a Christmas loan similar to a holiday loan?
A Christmas loan or a holiday are both forms of personal loans. Christmas loans or Holiday loans are, merely, terms coined to justify the use of personal loans for these respective purposes. During the festive season, lenders often promote personal loans in the name of ‘Holiday’ or ‘Christmas loans’ through ads. But in reality, they all fall under the umbrella of personal loans.
Pros and Cons of taking out a holiday loan for Christmas
A holiday or Christmas loan allows you to spread the cost of your holiday into monthly instalments. If you do not have the option of tapping into your savings for such an expense, you may consider this loan. Before doing so, however, it is important to weigh the pros and cons of using holiday loans:
- Fixed monthly repayments: A fixed-rate holiday or Christmas loan allows you to plan your repayments. Knowing what 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 can choose your loan term when borrowing a holiday or Christmas loan. Personal loans give you the freedom of setting a tenure of your choice. Bear in mind that a longer-term means smaller monthly instalments, but a shorter-term means paying less on interest.
- Flexible spending: A loan is a financial product that allows you to spend the proceeds as per your convenience. On the contrary, credit cards can levy a charge on international usage. In case of a holiday loan, you can either use your debit card or withdraw the cash from your account for spending.
- Repayment holidays: Several lenders allow their customers to take payment holidays. Herein, the borrower is let off for missing repayments for a month or two, without running up an overhead charge. Although, this facility may only be available to those fulfilling a specific set of requirements.
- Cost of the loan: The interest charged on a holiday or a Christmas loan will incur an extra cost – the interest rate. If you happen to have a below-average credit score, you may find a loan at relatively higher interest rates. It is difficult to qualify for competitive rates with a poor credit profile.
- Repayment: If you default on an unsecured loan, the lender will impose an extra charge for late repayment. If it’s a secured loan, you will put your home at risk in case your default. Furthermore, your credit score will deteriorate if you miss repayments.
Cost of a Holiday loan
The following 4 factors will majorly determine the overall cost of your holiday loan or Christmas loan:
- Fees and additional costs: This includes any extra fees or charges associated with the loan, such as early repayment charges, arrangement charges, etc.
- Rate of Interest and APR: APR is the overall cost of a loan, including all overhead charges on your loan.
- Loan Term: Paying your loan over a longer period will incur a greater cost because of the interest. This means you will end up paying more money in interest.
- Credit History: The lender decides your loan term and interest rate based on your credit score. The better your credit score, the better will be the interest rate offered to you.
Things to consider before taking out a holiday loan
Here are some tips to help you get the best out of your holiday loan:
- Check your credit report: Give your credit report a thorough check before applying for a loan to identify any discrepancies. If you find an error, get it rectified before filing your application. A good credit score will yield favorable loan terms and interest rates.
- Make a repayment plan: Defaults in loan repayments not only cost you money but can also damage your credit score. Making a repayment plan will help you get an idea about how much you should be saving to compensate for the monthly payments.
- Borrow only what you need: Crunch some numbers to work out the amount of money you actually need. Borrowing extra just because you’re getting a good deal isn’t wise. Borrow only what you need and can afford.
- Shop around for good offers: If you have a good credit score, chances are that you can bag a deal with competitive rates. So, shop around for better offers before settling for one.