The holidays are an exciting time of the year. Families set up Christmas trees. They decorate their homes with tinsel and lights. Christmas music plays everywhere. Families attend night church services featuring Christmas carols and children’s plays. These are all exciting, but nothing beats the biggest activity of the season; shopping.
They spend even more money on the perfect Christmas gifts for their loved ones. In 2018, 33% of Americans are expecting to spend $1000 on holiday gifts alone. Keep in mind that the actual amount tends to be higher than the estimate.
Most Americans don’t even have $400 in case of an emergency. Christmas is fast approaching and if you’re strapped for cash, you might be tempted to take out a personal loan for holiday shopping.
Factors to Consider When Getting a Personal Loan
You can acquire a personal loan from a financial institution, usually unsecured. Lenders normally offer between $500 and $50,000. It could go higher depending on several factors including your credit history. You would then repay this loan in agreed fixed installments over an agreed period of time or you can also get into an individual voluntary arrangement which will help you pay off your loans properly.
The key factors to look out for when acquiring the loan are;
- Interest Rate
Generally, the interest rate is between 5% and 36%. For unsecured loans, the rates are usually high because the lender does not hold any collateral. It also depends on how much you are borrowing. Online lenders often give lower rates. You would have to compare the rates on offer to make a decision.
- Credit Score
Lenders determine if and how much money they would lend you based on your credit score. This is a three-digit number that shows lenders your credit history and credit worthiness. Your credit score would range between 300 and 850.
The higher your score, the more likely you are to qualify for a loan. Some lenders would still lend you with a low score, but it would be a small amount with a high interest rate. You would want to research on which one suits your situation best.
Some personal loans have fees attached to them. For example;
- Origination fee
This is charged for processing your application and usually 1%-6% of the loan. You would be charged a low origination fee if your credit score is high. It would also have to be a high amount payable within a short period.
- Application fee
This fee varies among lenders so do your research for the lowest fees available.
- Prepayment fee
This is a penalty that lenders charge if you pay off the loan before its term.
Take note that some realisticloans.com lenders may charge one or none of the above fees. However, their offer may not suit your needs. So you need to do your due diligence.
- Loan Term
The repayment term for personal loans is usually 1 to 7 years. A short repayment term means you will pay a bigger amount each month than a longer repayment term.
- Repayment Plan
You and the lender would have to agree on a repayment schedule. This includes the total repayment term and the amount per installment. It also indicates whether you would pay weekly or monthly.
The above points should help you to decide on the right loans or whether you should borrow any money in the first place.
Alternatives to Consider
During the holidays, department stores and supermarkets make more money than any other time of the year. They stock up their shelves with all sorts of gift items and Christmas decorations. Shoppers spend more than usual on groceries and gifts during this time.
While a personal loan goes a long way with covering to your holiday shopping needs, it is not the only way. Other cost-effective options are available to take you through the holiday season debt free.
- Handmade Gifts
Suggest to your family the alternative of hand-made gifts. The internet is overflowing with several ideas and do-it-yourself tutorials. Examples of such crafts include; picture frames, scented candles, body butters, crayon holders, iPad cases and more.
- Potluck Meals
If you normally host extended family for lunches or dinners, a potluck arrangement is a good option. It would shave off a considerable amount of money from your usual budget.
At potlucks, each family prepares a meal to come with and share. This offers each family member a say in the menu while enjoying variety. Everybody wins.
- Fixed budget
Decide on a fixed amount of money you can afford to spend on each gift. For example, say each gift should not exceed $10. You would then look for the perfect gift within a budget.
- Secret Santa
Instead of buying gifts for everyone, you could have each person be a secret Santa for another. Write down the name of each family member on small pieces of paper. Put them in a box or basket and let each person pick one. They would have to buy a gift within a small budget for whoever they picked.
- Plan and Save Early
Make a budget and start saving for the gifts early in the year. Divide the total amount required by the number of months. For example, if you usually spend $1000 and start saving in February, you would need to save $100 per month until November. If you would like to spend on the ideal gifts without getting into debt, this is a great idea.
Personal loans may seem like the only choice you have but they still leave you in debt. If you already have former outstanding debts or are not disciplined with repayment schedules, do not take a loan for holiday shopping.
Although there are many good reasons that you would take out a personal loan, shopping isn’t one of them. One Christmas without gifts is not so bad. The above points would help you to be more creative. You wouldn’t want to start the New Year with more debt.