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Should You Take a Holiday Loan?

Holiday Loans
Richard Barrington
UpdatedDec 6, 2022
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    9 min read
Key Takeaways:
  • Holiday loans can be cheaper alternatives to credit cards when paying for holiday expenses.
  • Holiday loans are typically unsecured personal loans whose terms are based on how good your credit is.
  • To get the most out of a holiday loan, compare loan terms first and also have a plan for repaying the loan well before the next holiday season arrives.

The holiday season can warm your heart, but it can also be rough on your wallet. Between gifts and entertaining friends and family, it’s an expensive time of year. 

You can manage those expenses better, however, if you’re careful about how you pay for them. For example, instead of just reaching for your credit card, consider a holiday loan. Compared to credit card debt, a holiday loan can both reduce your borrowing costs and make your payments more manageable. 

This article will help you learn how to use a holiday loan for a more budget-friendly holiday season. Topics covered include:

  • What is a holiday loan?
  • Comparing terms of a holiday loan
  • 5 best holiday loans
  • How to apply for a holiday loan
  • 3 tips before taking out a holiday loan
  • Pros and cons of a holiday loan
  • Alternatives to a holiday loan

What Is a Holiday Loan?

A holiday loan is a personal loan that you use to finance holiday expenses. It should be a fairly short-term loan, since these are expenses you’re going to have year after year. (You don’t want to be still paying for last year’s holidays when this year’s shopping season comes around.)

Traditionally, consumers have tended to increase credit card debt in the months leading up to the year-end holidays. They then pay down some of that debt early in the new year. However, a holiday loan may be a better way of handling this annual surge in expenses. 

Personal-loan rates are generally lower than average credit-card rates. This can make a holiday loan a cheaper option than credit card debt. In addition, because a loan has a set repayment period, it gives your debt more structure than credit card borrowing does. This structure can help you repay your debt within a reasonable time.

Comparing Terms of a Holiday Loan

Whether a holiday loan makes sense for your needs depends on the specific terms you can get. Here are some of the things you should compare when shopping for a holiday loan:

Interest rate

This is the percentage you will be charged on the amount you borrow, until the loan is repaid. You should look for a holiday loan with the lowest interest rate, and make sure that rate is better than the rate you would pay using a credit card. 


Be aware that fees on loans come in many forms. These may include application fees and origination fees. 

You can avoid unnecessary application fees by shopping around before you apply. Also, use pre-qualification where possible, so you don’t apply for loans you are unlikely to get. 

As for any other fees, be sure to include them, along with interest, in figuring out which loan offers the lowest borrowing cost. For example, find out which fees are included in the annual percentage rate (APR) the lender discloses. If fees aren’t included in the APR, add those fees to the total interest you would pay over the course of the loan. That calculation will show what your overall borrowing costs would be. 


The term is the length of time you’ll have to repay the loan. When comparing interest rates, it’s important to compare them with rates on loans of the same length. Longer-term loans typically have higher interest rates, so comparing a shorter-term and a longer-term loan won’t give you a fair comparison.

The term of a holiday loan should, ideally, also be less than one year. That’s because holiday expenses come around annually. So you’ll just be building up debt over time if you don’t pay off one loan by the time the next holiday season arrives.

In general, the shorter the term, the better. This will reduce your borrowing costs. A shorter term may also allow you some time after the loan is paid off to start saving some money. That could reduce your need to borrow next year. 

Monthly payment

This is the amount you’ll need to pay each month. Before you borrow, you should figure out a budget to see if you can afford the monthly payment. 

Longer-term loans have lower monthly payments than do shorter-term loans, because the former spread your payments out over a longer time. However, this can be a kind of trap: Taking longer to repay your loan will typically result in you paying more interest.  

Credit score

When shopping for a loan, pay attention to the lender’s credit-score requirements. This will give you an idea of whether you are likely to qualify for one of their loans. 

Lenders often charge different interest rates depending on your credit score. When comparing interest rates, be sure to use the rate that each lender would offer to someone with your credit score. 

How to Apply for a Holiday Loan

You can apply for a holiday loan at a branch location of a traditional lender, or you can apply online. Information you should be prepared to provide when applying for a holiday loan includes:

  • Identifying information, like legal name, address, and Social Security number
  • Credit score and authorization, to check your credit report
  • Employer and income information
  • The amount of any current loans and other financial obligations you have

3 Tips Before Taking Out a Holiday Loan

A holiday loan only makes sense if you can both afford to repay it and it doesn’t end up costing you more than you would have spent otherwise. Below are three tips to help make sure your holiday loan works in your favor:

1. Budget for your holiday

Go into the holiday season with a plan for how much you’re going to spend. Know what you intend to buy; do some research to find out what each item will cost and where you can get the best price. 

This budgeting process should also include looking ahead to how you will repay your loan. Before you borrow, work out a post-holiday budget that includes your loan payments, plus any other expenses you would ordinarily have. This will help you determine whether you can afford to repay your holiday loan.  

2. Avoid temptations to overspend

Once you have a plan, stick to it. The holiday season is a frenzy of advertisements and sales pitches. Don’t get lured into buying things you didn’t set out to buy.

If you find you need to make changes to your shopping list, do it within the limits of your original budget. So, if you decide to add something to your list, find something of similar cost to subtract. 

3. Avoid finance traps

Borrowing can help you pay for holiday expenses. But that’s different from helping you afford such expenses. 

Some types of financing can be too costly in the long run. In particular, payday loans and buy-now, pay-later schemes are notorious for having repayment requirements that are difficult to meet. Such loans and schemes then charge excessive amounts for you to extend your repayment period.

Even conventional loans or credit cards can be too expensive in some cases. Any time you borrow to pay for something, you increase the cost of that item because of the interest charged. If you borrow too much, or if you pay too high an interest rate, your interest cost can increase to the point where it’s not worth it. 

Pros and Cons of a Holiday Loan

  • A holiday loan may offer a lower interest rate than borrowing on a credit card
  • Loans give a structured repayment period, which can help you manage your debt
  • Responsible use of debt, like repaying a holiday loan on time, can help you build a good credit history

  • Personal loan rates may be excessively high for people with bad credit
  • Unless holiday loans are kept to very short terms, they can result in rolling over debt year after year
  • In the near-term, applying for and adding a new credit account may hurt your credit score

Alternatives to a Holiday Loan

Here are three alternatives to a holiday loan:

  1. Credit card. It may be more convenient to use a credit card that you already have, rather than to apply for a holiday loan. However, you may be able to get a lower interest rate on a holiday loan.
  2. Home equity loan. Because home equity loans are secured by part of your home’s value, they generally have much lower rates than holiday loans. However, you need to be extra sure of your ability to repay the loan, because you’d be putting your house on the line. 
  3. Cash. Rather than saddle yourself with loan payments after the holiday, an alternative is to save up throughout the year before the holiday. As difficult as this can be, doing so can save you a lot in loan fees and interest.

Frequently Asked Questions

Are holiday loans a good idea?


Using a holiday loan can be a sound alternative to paying for holiday expenses with a credit card. The keys to making a holiday loan work are having a plan for repayment and finding a loan with an interest rate lower than what you could get with a credit card. 

Can you get a holiday loan with bad credit?


It’s more difficult to obtain one. And if you can get a loan with bad credit, it may have an excessively high interest rate, too. It might be better to rein in your spending instead, until you can improve your credit score. That will help you get a holiday loan with a much more reasonable interest rate. 

How will a holiday loan affect my credit?


Anytime you apply for credit and open a new credit account, it can temporarily drag your credit score down a little. In the long run, though, if you make all your payments on time, using a holiday loan can help you build a positive payment history.