The pressure to get the latest toys and electronics for your loved ones can leave you strapped for cash in November and December. Suddenly, a hatchimal for your niece is out of your financial reach. You might find your inbox and your mailbox spammed with ads for “Christmas loans”—quick cash to make the holidays all the sparkier for your little darlings. But don’t be fooled. Christmas loans are not the gifts you want waiting at the bottom of the tree: expect to be paying them back long after Santa has gone his merry way.
Payday loans: a warning
A payday loan only requires a bank account and proof of income. No credit history or minimum credit score are required. Payday loans are for small amounts of money, usually no more than $2,000, and have short payback periods—a few weeks or months.
Exorbitant interest rates and high fees are what give payday loans their nickname--- predatory loans. Payday loans come with annual percentage rates soaring into the triple digits.
Lenders require a post-dated check to get access to your bank account to collect payments. If you don’t have money in your account, you could hit overdraft fees, taking that $1,000 and very quickly spiraling it into years of debt.
Christmas loans are essentially re-branded payday loans to prey on those hit hardest by the financial demands of the holiday season.
The "gift" that keeps on giving
When you see Christmas loans advertised online, sparkling with the promise of comfort and joy, it’s usually from a loan aggregator, or a site that hosts a variety of payday loan options-- not the lender itself. When you apply online, your data is sent to multiple lenders, who are free to spam you for months after the Christmas decorations are taken down.
Marketing e-mails, phone calls in the middle of dinner, text reminders.
And a partridge in a pear tree.
Personal loans: a better way
Taking out a personal loan is a less toxic way of obtaining the funds you need to get yourself through the holidays. Depending on what you qualify for, your loans might come with upfront fees and will have a longer (2-5 year) repayment period. Depending on the terms of your loan, you can pay it back quickly to avoid accumulating interest.
It’s also worth thinking outside of the box when it comes to holiday gift-giving. An amazing volunteer opportunity or an affordable outing to a museum will make memories that will last much longer than a hatchimal.