Whether you plan a regular holiday or need money for the upcoming holiday season, getting a loan is one of the options for you.
Using borrowed money for a holiday comes with certain pros and cons though.
Let’s dive in to see how can you borrow money for a holiday and if is it the right option for you.
Personal savings, 0% APR credit cards and a personal line of credit are some other options to borrowing money this Holiday season.
Borrowing Money for a Holiday
You can use a holiday loan for any type of personal expenses including travel, gifts, personal shopping, dining, and rentals.
Lenders charge a fixed interest rate on these loans typically. So, you’ll know the loan term and fixed monthly payments in advance.
Holiday loans are readily available and offer quick access to cash. However, these loans come with certain risks that you should carefully evaluate before applying for a loan.
How Does a Holiday Loan Work?
Most lenders will offer a pre-qualification process for loan applicants. You can use this tool to compare different loans from multiple lenders.
Since these are unsecured loans, you do not need to pledge an asset. Borrowers with bad credit scores can also apply for these loans.
The total cost of borrowing for a holiday loan will depend on your credit score, monthly income, debt-to-income ratio, and the loan term. Lenders will look into your financials and determine the interest rate by evaluating all these factors.
Once approved, you can utilize the borrowed money for your holiday expenses.
Pros and Cons of a Holiday Loan
Borrowing money for a holiday isn’t a suitable option for everyone. You must consider your financial situation before applying for a loan.
Pros of using a holiday loan include:
- You can use pre-qualification without affecting your credit score.
- Easy and quick access to cash as the holiday loan processing is fast.
- If you possess a good credit score, the interest rate may be lower than most credit cards.
- You can plan with fixed monthly installments and fixed loan terms.
Cons of using a holiday loan include:
- It will increase your debt burden and will affect the debt-to-income ratio for future borrowings.
- You may incur a higher interest cost with a bad credit score.
- Lenders may charge upfront loan origination fees.
- You’ll increase the risk of overspending with borrowed money.
Alternatives to Borrowing Money for a Holiday
Borrowing money for a holiday isn’t your only option. You can take a different route to spend money for your next holiday if you plan well.
Holidays are not emergency expenses. It means you can plan well before the actual date.
Start saving for your next holiday season now to avoid interest costs and other financial risks. If you have substantial savings, you should utilize them instead of borrowing.
Use 0% APR Credit Cards
Credit unions and banks offer 0% APR credit cards these days. Although you’ll need an excellent credit score to qualify for these cards.
Alternatively, you can use a regular credit card but always compare the choices between a credit card and a personal loan.
Personal Line of Credit
A personal line of credit is a flexible revolving credit facility for you. You do not need to pay interest if you don’t withdraw money.
It is a viable option if you are looking for a cushion of safety rather than depending solely on borrowed money for a holiday.