So-Called Holiday Loans are Simply Payday Loans Under a Different Name
The holidays are a stressful financial time for many people. During the Christmas season, expenses start to escalate due to the need to pay for travel, parties and gifts. When unplanned expenses put a strain on the budget, Christmas loans may become a tempting option. However, these so-called Christmas loans are simply payday loans under a different name, one with a festive vibe. Don’t fall for the holiday packaging. This is a financial product that shows up every year, but it’s a lending option that puts people in more debt, making it a bad deal.
Christmas Loans are Merely Payday Loans with an Assumed Name
Financially stressed holiday revelers may need a little extra money to cover the Christmas season. The Star Tribune reports that those who complete a Google search using the term “Christmas loans” will receive hundreds of results featuring websites that promise fast cash. Many of these loans are simply payday loans with an assumed name.
These bad credit payday loans are issued to borrowers with poor credit, and this kind of lender will typically promise to forward the funds within 24 hours. So, what is the drawback? The drawback to a payday loan is the interest rate, which usually runs into triple digits. Borrowers not only have to repay the amount that they borrowed, but they’ll have to do so with interest in just a few weeks. Lucky borrowers may receive a loan term with a payoff day that is several months down the road.
If a borrower takes out a payday loan for $500 that’s due within two weeks and features a fee of $75, then this loan has an annual percentage rate, or APR, of 390 percent. The triple digit interest rate is a typical example of this type of loan.
Many of today’s bad credit payday loans also come with the requirement that borrowers give them access to their checking accounts. The reason for this is that modern-day lenders prefer to collect their payments automatically. This feature may seem handy, but it can leave borrowers at risk of incurring pricey overdraft fees if they fail to have the funds collected in their checking accounts in time.
Online Payday Loans Presenting Themselves as Christmas Loans are Expensive
Even individuals who have acceptable credit ratings and aren’t seeking payday loans for bad credit may have trouble finding an affordable loan. Christmas loans that are backed by online lenders are sometimes traditional unsecured personal loans with a shiny new name. The rate that individuals pay for the funds are based upon their credit scores, amount of debt that they owe and their credit histories. Personal loans from trustworthy lenders generally feature two to five year payoff terms.
What Can Borrowers Expect to Pay?
Online lenders advertise attractive rates, but borrowers may not qualify for them. According to NerdWallet, those who have a credit score that ranges from 630 to 689 will likely qualify for an APR that’s around 20 percent while people whose credit score is 629 or lower may be forced to settle for a rate that is 28 percent or more. A Christmas loan for $1,000 that features payoff terms of two years and an APR of 20 percent will cost a borrower $221.50 in interest.
Payday Loans are a Lasting Consequence of too Much Holiday Spending
Unlike unwanted Christmas gifts that can be hidden away inside basements and closets, payday loans aren’t going anywhere until they’re paid in full. In fact, with borrowers rolling over many of these loans, it’s possible that they’ll still be paying for them next Christmas.
Liz Weston, a financial planner and columnist with NerdWallet, said, “You don’t want to get caught in an endless cycle of debt. You’ll pay a fortune in interest, and you’ll be left with less money to save or get ahead.” At the end of the day, the best gift that borrowers can give themselves is a Christmas season that’s debt-free.
How to Save for Christmas
When it comes to saving for Christmas, the trick is to start early and use a budget. Add up what was spent this year and plan next year based on it. Include the cost of gifts, food, decorations and travel.
Those who are working to build credit can use credit builder loans to save for next year’s Christmas. With this kind of program, an individual borrows money, but these funds are tucked safely away in a savings account as payments are made. Once the loan is paid in full, the funds become available to the borrower. Not only is Christmas saved for, but the person who entered into this agreement also has a record of on time payments that help build and improve his or her credit rating.
Weston said, “The holidays are about a lot more than stuff. You can make yours special without drowning yourself in debt.”
When Saving Doesn’t Come Naturally
For those who struggle to save for the holidays, a few tricks could make it easier. One option is to implement two months of no spending. This means going to extremes. Pack lunches for work, bring water bottles from home and socialize with potlucks at friends’ houses. Select any two months during the year and commit to it.
Instead of giving a gift of a material possession, people can give their friends and family the gift of their time, skills or talents. For instance, offer to cook dinner for an especially busy friend or repair a broken item.
Go ahead and regift. During the holidays, it’s common to receive unneeded or unwanted gifts. When this happens, store them for next year’s gift giving. This step decreases holiday spending.
Cut back on pricey coffee drinks. A fancy pumpkin spice latte costs around $4.50 a cup. If a person buys these three times a week just during the month of December, it comes to $162. With careful shopping, that sum can buy quite a few Christmas presents, or it can become a generous donation to a charity.
Embrace secret Santa instead of buying for everyone in the family. Big families often pull names out of a hat to avoid buying for four or five siblings. Instead, consider choosing ornaments from an angel tree or other charitable donation. Along with giving Christmas to someone who is needier, this could cost less in the long run.
Don’t Go into Debt to Celebrate Christmas
When lenders offer deals for Christmas loans, they are usually selling the same old payday loans for bad credit with a different name. Because most people expect to give and receive gifts, it’s tough to avoid spending money during the holidays. If an individual doesn’t have the money saved up, then he or she is likely to seek a loan. It’s time to reconsider this. To learn more about how Christmas loans are payday loans in holiday wrapping, visit the Personal Money Store.