Should you take out a personal loan for the holidays?

Personal loans can be more affordable than credit cards but do your research first. (iStock)

The holidays are a time of giving and get-togethers and Americans are expected to spend an average of $1,387 during the season, according to Deloitte. That’s a 7% decrease from the same time last year, however, 45% of people plan to spend $1,530 or more.

But the coronavirus pandemic has put a financial strain on many households, and it may be challenging for some to afford their holiday-related expenses. Some may even be wondering whether to apply for a personal loan to help pay for things.

If you're considering taking out a holiday loan, you should first check-in with a multi-lender site like Credible to compare rates and see what kind of small personal loans are available.

However, if you're still undecided about whether you want to take out a holiday loan, here's what you need to know about the process — and whether it makes sense for you to apply.

Should you take a loan out for a holiday?

Borrowing money for the holidays is rarely ideal, but in some instances, it could be worth it. That’s particularly true for people who have good or excellent credit scores and can qualify for a relatively low interest rate.

The average interest rate on a three-year personal loan is 11.18%, which is lower than a credit card. And with a solid credit history, you may even be able to get a rate in the single digits.

Since every lender has a different fee structure, the rates you’ll be offered by each one will be different. Use Credible to explore your personal loan options and find your personal loan interest rate.



In addition to good credit, another important factor to consider is your budget. Being able to qualify for a low rate doesn’t do much good if you can’t afford the monthly payment.

Some of the benefits of getting a personal loan for the holidays include:

You could save money compared to a credit card.

You won’t be restricted by a credit limit or damage your credit history by racking up a high credit card balance.

You can choose your repayment term based on your budget.

Credible can help you find an online lender. Just enter your desired loan amount and estimated credit score into this free tool to view personal loan interest rates.


That said, there are some drawbacks to keep in mind before you make a decision:

  • You’ll end up paying for your holiday expenses for months or even years to come.
  • Your credit score may go down if you can’t afford payments.
  • You’re not guaranteed a low rate, and cheaper options may be available.

If you’re considering a personal loan for holiday shopping, use an online marketplace like Credible to compare personal loan interest rates and find your monthly payment with its online personal loan calculator.


Can I take out a personal loan to consolidate debt?

If you decide to use credit cards to pay for holiday shopping instead, you’ll still have the option afterward to use a personal loan to consolidate your credit card debt.

Credit card debt consolidation with personal loans can be beneficial for a few reasons:

  • You may be able to get a lower interest rate.
  • Personal loans have set repayment schedules, which could shorten the amount of time it takes to pay back your debt.
  • Paying off a credit card with a personal loan will reduce your credit utilization rate, which can help improve your credit score.

Take some time to compare personal loans and their interest rates with what you’re paying on your credit cards to determine whether you can save. If you would like to get a sense of what personalized debt consolidation loan options are available to you, you can visit Credible to compare rates and lenders.


What are other types of holiday loans?

There are a few other ways you can finance your holiday expenses, though some may be more expensive than others:

  • 0% APR credit card: These cards offer an intro 0% APR promotion for up to 18 months or even longer in some cases. That way, you can cover your expenses and pay them down without worrying about interest charges. Those looking for zero percent cards can use Credible's free tools to view their options and choose a card that best meets their needs.
  • Line of credit: Some lenders offer unsecured lines of credit that function similarly to a credit card—you can charge purchases to the credit line, pay them off, and reuse it again.
  • Home equity: If you have a home equity line of credit (HELOC) in place already, you could use it to pay your expenses. HELOCs tend to have low interest rates because they’re secured by your home’s equity as collateral. That said, it’s likely not worth it to take out a new HELOC or home equity loan specifically for this purpose because of closing costs. However, if you think it makes sense for your purposes, you can view personal loans via Credible.
  • Payday loan: Payday loans may seem like an easy alternative, but they can be incredibly expensive. As a result, it’s best to avoid payday loans entirely.


What factors should I consider when taking out a holiday loan?

If you’re considering unsecured personal loans or another form of credit for holiday shopping, here are some features to consider with each product:

  • Interest rates
  • Repayment schedule
  • Loan amounts
  • Monthly payments
  • Upfront and ongoing fees
  • Customer reviews

Also, note that some loans offer variable interest rates that start out low but increase over time. Steer clear of these unless you’re confident you’ll be able to pay off the loan sooner rather than later.

Finally, think carefully about whether borrowing money at all is the right move for you. If it is, you can use Credible to compare personal loan lenders with a soft credit check, as well as 0% APR credit cards to find the right fit.