Christmas Loans and Why You Should (Usually) Avoid Them

Bags stuffed with paper and decorated for Christmas
Photo by freestocks on Unsplash

Christmas is all about giving, but usually, that starts with a lot of buying. Getting gifts for everyone on your list can be expensive, not to mention the costs of even a small celebration. 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 a fast cash loan 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, these loans are 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 these loans, 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, payday loans 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. 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 just to get the loan.

Even if you sought a more traditional personal loan with a longer-term option, without great credit you might not qualify for an interest rate that makes it worthwhile. You could be stuck with loan payments like a bad 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. All in all, Christmas loans can do a lot more harm than good to the average shopper.

Alternatives to Christmas Loans

Luckily, there are less expensive ways to get small-dollar loans if you need money in a pinch. For instance, mobile banks Chime and Varo both offer no-fee payday advances, and Chime even has a feature called “SpotMe” that will protect you from overdraft fees by “spotting” you up to $100 if you end up in the negative. Cash App, a Venmo-esque P2P money transfer platform, also has low interest, low-dollar loans available on its platform. All of these options are less costly than Christmas loans while providing basically the same value.

If you’re in a bit of debt trouble as is, Fiona can help you land a consolidation loan at a low APR that will help you sort out your debts. Loans start as low as 4.99 percent and terms range from 12 to 84 months, so you have a ton more flexibility to find something that actually makes sense for you.

Credit cards can also provide a crafty alternative to loans. 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 cash back 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, and don’t take out a loan bigger than you can chew. Christmas loans can throw a serious wrench into your finances, so give yourself the gift of peace of mind and stay away this year.