Christmas is all about giving, but usually, that starts with a lot of buying. With Black Friday deals behind us, getting gifts for everyone on your list can be expensive and can take a severe toll on your bank account balance. That’s what makes “Christmas loans” so tempting.
If you’re struggling to afford your shopping list late in the month, it can be tempting to take fast cash to get everything wrapped. Maybe your next paycheck is coming soon, but you just need a few hundred to get those last few presents. However, this is usually a bad idea and can do a lot more harm than good.
How Christmas Loans Can Hurt You
For starters, the term “Christmas loan” is a bit of a marketing tactic. Any “Christmas” or “holiday” loan is really just a payday loan packaged to people around the holidays. There’s nothing unique about them outside of how lenders try to entice you.
Payday loans can be helpful since they’re often available to anyone, even people with bad credit. In certain circumstances, they do make sense. However, holiday shopping is far from one of those circumstances. These short-term, small-dollar loans often come with sky-high interest rates – up to 400 percent. For instance, a $500 payday or Christmas loan could cost you around $100 in interest: payday lenders are hoping you don’t read the fine print! If you’re taking out a loan because you’re cash strapped, it’s probably not ideal to have to cough up that much more money in interest.
Even if you sought a more traditional personal loan with a longer-term option, you might not qualify for an interest rate that makes it worthwhile without excellent credit. You could be stuck with loan payments like a lousy gift you can’t return for years. Some lenders may also charge origination fees or other penalties. Plus, any late or missed payments would damage your credit score.
Luckily, there are less expensive ways to get small-dollar loans if you need money in a pinch. For instance, the mobile banking service Chime offers no-fee payday advances, with a feature called “SpotMe.” It protects you from hefty overdraft fees by “spotting” you up to $100 if you end up in the negative.
Alternatively, creating a Cash App account, a Venmo-esque P2P money transfer platform to send and receive money, allows for low interest, low-dollar loans. All of these options are less costly while providing the same value.
Another cost-effective way to get access to holiday cash, Zip can help you purchase those extra gifts in a jiffy! Unlike traditional layaway plans, Zip pays for your items immediately so you can enjoy them right away. Then all you need to do is pay the loan off in 4 interest-free payments over 6 weeks. Easy as can be!
Credit cards can also provide a crafty alternative to your money woes. Many cards offer 0 percent interest in the first year, meaning you may find a way to pay off all your holiday expenses before you lose a penny to interest. Bonus points if it’s a cashback card, so you’re helping yourself even more.
The Bottom Line
Most Christmas loans are more predatory than positive, but that doesn’t mean you need to stay away from all loan options. Just be sure to do your homework, avoid over-the-top fees, search for the lowest rates, and don’t take out a loan larger than you can chew. Our take is to give yourself the gift of peace of mind and stay away this year.