Is it a good idea to take out a personal loan for Christmas gifts?

A smiling man and woman walking through a snowy park while holding wrapped presents.

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A personal loan can make holiday shopping possible, but at a cost.

Key points

  • The holidays can be an expensive time of year, and many people end up borrowing money to buy gifts.
  • A personal loan is an option if you need to borrow.
  • If you need to borrow to cover your vacation expenses, be sure to research the best interest rates and only take out a loan for the amount you really need.

The holiday season is right around the corner and it’s often an expensive time of year. Ideally, you will have saved up over the year to cover the cost of gifts and entertainment during the holiday season. But, it’s been a tough year for a lot of people due to soaring inflation, so you might not have the cash set aside to cover all the things you want to buy.

If you plan on having to buy holiday gifts without saving, you might consider taking out a personal loan. But is it a good idea?

Taking out a personal loan for holiday gifts has a financial cost

Borrowing in any form for the holidays is usually not the best long-term financial decision. This is true whether you use a personal loan to get the money to pay for gifts or you put gifts on your credit card that you know you can’t afford to pay back immediately when the statement arrives.

The big problem with borrowing is that you increase the cost of the items you buy by adding interest to their prices. And you’re also complicating your future efforts to live within your means, because income you haven’t even earned yet will be tied up to make the payments you commit to.

That being said, if buying holiday gifts is important to you and you can’t find a way to pay for them, a personal loan might be a good option to cover them.

When you take out a personal loan, you can choose exactly how much you want to borrow so you know your total debt up front (rather than just keep swiping your credit card with only your credit limit capping the amount). amount of debt you can borrow into).

Your personal loan will also have a fixed repayment term and a lower interest rate than most credit cards. So, it may end up costing you less than charging gifts to a card and paying over time. And you can make an informed decision whether the total borrowing costs are worth paying.

If you really think it’s important to buy gifts – for example, because you have children you don’t want to disappoint – and you’re looking for an affordable low-interest personal loan with a good rate – then this approach might be one of your best options when cash payment is not on the table.

Make sure you’re smart about how you borrow

If you need to borrow for holiday gifts, you should research personal loan options carefully and get quotes from several different lenders. This will allow you to get the lowest possible interest rate.

You should make sure to borrow the absolute minimum necessary, because the more debt you take on, the greater the negative impact on your future finances. And you should aim for the shortest possible payback period – again, to reduce interest charges and not tie up your money for so long. If you can make budget cuts to try to pay off the loan sooner, that would also be ideal.

I hope you can follow these tips to limit the long-term consequences of borrowing and you can make a plan to save for the holidays next time so you don’t have to make that choice again.

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