Posted by Spending the holidays with family and friends makes the holiday extra special, but sometimes it can be financially demanding. For this reason, holiday loans are rendered. This loan can be a way to cover your budget gaps. A holiday loan is one of the types of personal loans taken for seasonal spending. Just like other personal loans, this loan allows you to quickly borrow money without providing collateral.
However, this loan is not the same as the other types of personal loans. This loan has lower limits, and you cannot get it before or after the holiday season is over. Banks and credit unions offer holiday loans in the range of $500 to $2,500, and some are willing to lend out $5,000. Most holiday loans have a short repayment term, i.e., you will be given between a few months and a year to pay back your debt.
What can I use a Holiday Loan for?
Holiday loans are given not just for spending on gifts. They are given for any short-term expenses during the holiday season. There are a lot of things you can use your holiday loan for, and most lenders do not place restrictions on your loan or determine what you should do with your money. However, below are some of the things you can do with your loan.
- Purchasing of gifts: in a case where you don’t have the money to get a gift for everyone for the holiday, you cover that up using the holiday loan.
- Travel: during the holiday season, traveling is one of the best holiday moments. Holiday loans can always cover bigger travel expenses such as hotels, plane tickets, and so on.
- Other expenses: Besides travel and gifts, you can use holiday loans to cover other expenses.
Factors to consider when taking out a Holiday Loan
Before applying for a holiday loan, you should always confirm the lender’s range of rates, repayments, and fees before proceeding with the application. This will help you select the best lender for your loan. However, below are factors you need to consider when acquiring a holiday loan.
Interest rates
The interest rate determines the borrowing cost; a higher rate means larger payments, while a lower rate results in smaller payments, making it cheaper to borrow. Considering this helps you select the right lender and the most convenient for you. Personal loans typically offer lower interest rates compared to credit cards, making them a more affordable choice for borrowing money.
Fees
Each time you borrow, lenders will charge you a certain fee. The common fee you will be required to pay is the origination fee. However, there are other fees you may be required to pay, such as late payment fees and prepayment penalties.
- Origination fee: This is the percentage of the total loan you get and the amount added to your balance after your loan has been funded.
- Late fee: if you do not make your payments on time, you will be charged a late fee. If you’re not careful, there may be big additional expenses added to your loan.
- Prepayment penalty: you get charged when you make additional payments or pay back your loan ahead of the agreed time. This penalty is rare with personal loans, but it is still advisable to check with your lender.
Ensure to be familiar with these fees when considering a holiday loan.
Repayment term
This is the time it will take to pay back your loan if the minimum payment schedule is followed. Most holiday loans have a loan term between 6 and 12 months. The time it takes you to repay your loan affects your total cost, i.e., the longer you take to pay off your loan, the more interest will accrue.
How to Get a Holiday Loan
There are quite a few things to be considered when deciding on a holiday loan. To get this loan, you need to follow the below steps:
Research and compare lenders.
We are aware that many lenders offer holiday loans. Before putting a loan into consideration, you need to first compare and do research on the best lender to get your loan from. Various lenders, from payday loan lenders to credit unions, online lenders, and even banks, offer holiday loans. It is best to borrow from a lender that offers favorable terms and provides good customer service. To identify them, you need to compare lenders and their financing options.
Check Eligibility and the necessary Documents
Each time we need to acquire a loan, we need to confirm that we are eligible; there’s no difference in that with holiday loans. Every lender has a different eligibility requirement for holiday loans. You need to make sure you are eligible for these loans before applying for them, especially when you have a bad credit history. Aside from being eligible, you need to be prepared to provide any document the lender may request. Some of the documents that may be requested include:
- Pay stubs.
- Tax returns.
- Proof of identity.
- Bank statements.
- Proof of address (mortgage statement or utility bill).
Some lenders will take a look at your credit history to determine if you have a good or poor credit history.
Get Prequalified
Getting prequalified allows the lender to check out your financial credentials to decide if you will be approved for the loan or not, as well as to consider what rate to offer you. Not every lender will allow you to get prequalified for a holiday loan. This is beneficial to you because having too many inquiries about your credit history can hurt your credit score.
Review the Loan Terms
After you have been prequalified for a holiday loan, the lender will give you different borrowing options to choose from. Some of the factors to check out when researching your loan options include the following:
- Repayment timeline.
- How fast can the loan be refunded?
- Monthly payments.
- Loan fees (application fees, origination fees, and prepayment penalties).
- Annual percentage rate.
- Loan amount.
- Whether or not the interest rate is fixed or variable.
Apply for a Loan
After comparing these loan offers, you need to move on to the next step of applying for a loan from the lender with the best rates. This means that you have accepted one of the loan offers by a lender, and you will have to complete their application process.
Receive funds and start making payments
After signing the required document, your holiday loan will be added to your funds. The money will often be deposited into your bank account through direct deposit, or you will be given a check. However, sometimes you can get the money the same business day or the next day after your loan is approved.