How can a holiday loan help you end the year with a bang? What can you use it for? We’ll answer those questions and more in this quick guide.
What Is a Holiday Loan?
A holiday loan is a type of personal loan that has a relatively short term. It is often issued by a credit union or commercial bank and can range from approximately $500 to $5,000.
Unlike cash advance loans or payday loans, holiday loans do not have extremely high interest rates. Since they are not secured by collateral, however, they may carry higher interest than loans secured by assets.
You can pay a holiday loan in monthly installments, and it usually has a fixed interest rate that does not fluctuate during the life of the loan.
If you do not pay the loan back, your debt could be sent to collections. You could also be hit with a lawsuit and have your wages garnished.
What Can You Use a Holiday Loan For?
Although its name suggests you can only use it for this particular time of year, a holiday loan can isn’t too strict in terms of usage. You usually get it during the holidays, but it can be used for other times when needed.
Here are some ways in which you can use a holiday loan:
- To buy gifts
- To pay for a family trip
- As a wedding gift
- To pay for student tuition
As you can see, holiday loans are quite flexible, which can make them an attractive option if you are in the market for one.
Types of Holiday Loans
Here are some examples of the most commonly used holiday loans:
You’ll need a good to excellent credit score for this type of loan since it’s unsecured and carries more risk for the lender. Commercial banks or credit unions have personal loans with fixed interest rates and terms between one to five years.
Personal credit line
Excellent credit is often required for a personal credit line from a financial institution. This type of unsecured holiday loan can come in handy for an ongoing project since it has no end date.
When you get a personal line of credit, you take out funds as you need them. Repay the principal, and you can keep using those funds.
Interest rates are a little higher than personal loans here.
Peer-to-peer loan (P2P)
A P2P loan is like a personal loan, only you get it from investors or individuals via an online platform. If your credit is less than perfect, this newer form of lending may satisfy your holiday loan needs.
P2P loans may have higher interest rates than personal loans from banks, but you may also get a longer term.
An origination fee of one to five percent of the loan’s principal is sometimes required.
If you use a credit card for a holiday loan, you’ll probably pay higher interest than the options above. As long as you can pay off the charges when the first month ends, you should be fine.
Regardless of which holiday loan option you use, only apply for what you need. Getting a larger loan just because you can could lead to financial trouble down the line.