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Holiday Loans: What They Are, How They Work And Alternatives

Victoria Araj5-minute read
UPDATED: June 01, 2024


For many people, gift shopping during the holiday season can come with mixed feelings. The American Psychiatric Association reported that 46% of adults stress about affording holiday gifts. To offset gift-giving costs, some people turn to holiday loans.

A holiday loan is a personal loan for holiday gifts and other holiday-related expenses. This money can enable you to shop for everyone on your list even if you’re tight on cash. The tradeoff here is you ultimately take on more debt that you’ll have to repay. Luckily, other options are available to cover your holiday expenses.

Let’s take a deeper dive into holiday loans, how you can get one and some alternative ways to fund holiday spending.

What Is A Holiday Loan?

A holiday loan, or holiday cash loan, is a personal loan used for gifts and other seasonal purchases. You can use a holiday loan for essentially any short-term expense during the holidays. This could include holiday travel or entertainment costs like food and decor.

Banks, credit unions, online lenders and certain tax preparation companies offer holiday loans. Some lenders offer unsecured holiday loans, so you won’t always need to put forward collateral to be approved for this loan option.

As with more standard personal loans, the repayment term on a holiday loan is typically 12 to 60 months. In some cases, a holiday loan term may be even shorter. Terms vary by lender, so ask your lender about their holiday loan repayment terms.

How Holiday Loans Are Unique

A major difference between traditional personal loans and holiday loans is availability. While most lenders offer personal loans year-round, holiday loans are seasonal and typically only available toward the end of the year.

Also, holiday loan limits are generally lower than the typical personal loan limit. Again, though, loan offers vary by lender, so check with your lender to confirm their holiday loan limits.

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How To Get A Holiday Loan

To qualify for a holiday loan with a lender, you’ll likely need a minimum credit score of 610 to 640 just as you would with a traditional personal loan. However, you may need a score of 650 or higher to secure a loan with ideal terms.

The application process for a holiday loan is similar to the process of applying for a traditional personal loan. But with a holiday loan, you have to wait for lenders to start offering loans for seasonal spending since they’re not available year-round.

When the time of year comes to apply for a holiday loan, take these steps.

1. Check your credit report. Make sure your credit report is free of errors that could hurt your credit score. It’s also a good time to ensure your credit score will help you qualify for desirable loan terms. Many holiday loans are unsecured loans, so lenders may pay extra attention to your credit situation.

2. Determine your holiday loan amount. Decide how much you need for your holiday season spending. Once you know how much you plan to spend, you may want to review your budget. This can help you determine how much of a loan you can afford to repay in monthly payments.

3. Compare holiday loan offers. Take a look at different lenders’ holiday loan options. Be mindful of interest rates, annual percentage rates (APR), repayment terms and fees. Your credit score also influences your eligibility for certain offers, like a low APR.

4. Gather necessary documentation. Each financial institution will likely require at least slightly different documents for a loan application. However, you can expect most every lender to ask for proof of income and identity.

5. Submit your holiday loan application. The final step is filling out an application and submitting it. Once completed, look out for any communication from the lender. They may request more information or inform you of their decision. How long it takes to get your funds will vary by lender. You could get approved and have access to the money in as little as one business day, or it could take several days for this to happen.

Holiday Loan Alternatives

Holiday loans can be a short-term fix if you’re low on money during the holiday season, but this isn’t your only option. It’s possible to finance your holiday expenses in a few other ways if you don’t believe a holiday loan is right for you.

Save Year-Round

If you find yourself lacking the money needed to pay for gifts each year, consider saving throughout the year. You could open a bank account for the sole purpose of saving for holiday shopping. If you get paid through direct deposit, you could have a set amount of each check deposited to that account.

This strategy can help you avoid dipping into your existing savings account when the holidays come.

Start Shopping Early

Holiday sales can be tempting, but waiting until the end of the year to buy presents may not be a wise financial move. You may even miss out on savings if you limit yourself to shopping only near the end of the year.

Instead, consider gift shopping little by little throughout the year. Spacing out expenses can ease the pressure of paying for multiple gifts at once. Perhaps you can use a small portion of each paycheck to buy gifts rather than dropping a hefty amount in a short time.

Open A Personal Line Of Credit

In some cases, a personal line of credit can be a good alternative to a holiday loan. A personal line of credit is a type of revolving credit, which means any funds you take out become available again once you repay them – and this is true for the duration of your draw period.

In addition to the benefit of a revolving cash flow, you only pay interest on the funds you actually use with a personal line of credit. With holiday loans, on the other hand, you pay interest on the entire loan regardless of how much of it you end up using.

Use A Credit Card

Using a credit card can make holiday shopping more feasible. You can charge your purchases to a card you already have, but opening a new credit card may be worth considering, too. Some card issuers offer creditworthy individuals a 0% APR introductory period, which can be useful if you pay your balance in full before the promotional period ends.

Credit cards also enable you to space out payments and carry a balance if needed. You may incur interest fees, but you can minimize these charges by paying as much as possible each billing cycle.

Buy Now Pay Later

With Buy Now Pay Later services (BNPL), you can make installment payments on your purchases. These payments are divided into a set number of payments spaced out over a designated time of usually a few weeks. BNPL companies also don’t report information to credit reporting agencies.

Commonly used BNPL services include Affirm, Afterpay and Klarna. BNPL is an increasingly common payment method. In fact, Juniper Research predicts the number of BNPL users will hit over 900 million globally by 2027.

If you’re part of this growing group, be careful if you use BNPL for holiday shopping. BNPL is intended for smaller purchases, so a large purchase could require a down payment. BNPL can lead to overspending as well.

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FAQs: Holiday Loans

Questioning whether a holiday loan is the right financing option for you? Please accept our gift of answers to some frequently asked questions about holiday loans.

Can I get a holiday loan with bad credit?

Your creditworthiness plays a large part in your ability to get approved for a loan. Still, you may be able to get a holiday loan if you have a modestly low credit score.

Keep in mind, though, that a holiday loan with bad credit will yield less-than-ideal loan terms. Check with different lenders to see what loan terms they offer those with your credit score.

Where can I get a holiday loan?

You can secure a holiday loan at some banks, credit unions and tax preparation companies. You may also be able to get a holiday loan from an online lender.

Each lender has unique loan offers, so do your research to find the most appropriate lender for you.

When do holiday loans start?

Financial institutions usually offer holiday loans toward the end of the year. You can typically get a holiday loan in November or December. Some lenders start offering these loans as early as October.

Should I get a holiday loan?

A holiday loan may be a good option if you’re low on cash now but will be able to repay the balance quickly and on time.

If you have good credit, you may qualify for a holiday loan with favorable terms like a low interest rate. You could end up paying less in interest with a holiday loan than you’d pay on a credit card.

On the other hand, if you’re ineligible for ideal loan terms, you could face a higher interest rate and pay more in overall interest with a holiday loan. A holiday loan also may not be the right choice if you’re unsure whether you’ll be able to manage another monthly payment.

Final Thoughts

A holiday loan can help you shop for loved ones or pay travel expenses to go home for the holidays. In general, it’s important to avoid going into debt whenever possible, though. That said, holiday loans can be helpful under the right circumstances.

Do you think a personal loan is the best financing option for you? If so, submit an application online today with Rocket LoansSM.

Victoria Araj

Victoria Araj is a Section Editor for Rocket Mortgage and held roles in mortgage banking, public relations and more in her 15+ years with the company. She holds a bachelor’s degree in journalism with an emphasis in political science from Michigan State University, and a master’s degree in public administration from the University of Michigan.