Holiday Loans

What Is a Holiday Loan and How Does it Work?


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The holidays are a time for celebrating and spending with family and friends. But for many people, the cost of celebrating can add up quickly. 

Over the past decade, holiday sales have grown roughly 5% year over year on average, according to the National Retail Federation. If covering these costs is a concern, a holiday loan might be your solution.

What Is a Holiday Loan?

Holiday loans, also known as Christmas loans, are personal loans that are specifically designed to help cover the expenses associated with holidays.

These loans are offered by banks, credit unions, and online lenders and come with a fixed Annual Percentage Rate (APR) and monthly payments, which can range from 12 to 60 months.

Typically, holiday loans are unsecured, which means that you don’t have to offer any collateral. However, lenders will take into account your credit score, income, payment history, and debt-to-income ratio to determine your eligibility for the loan.

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What Can You Use a Holiday Loan For?

A holiday loan can be an effective way to manage expenses during the festive season. Because holiday loans are a form of personal loans, they’re flexible in their use and can be used on almost anything.

Here are some common purposes you can consider using a holiday loan for:

  • Purchasing Christmas gifts
  • Traveling for the holidays
  • Buying holiday decorations
  • Throwing a holiday party
  • Holiday groceries / catering

However, it’s important to note that some lenders may require you to disclose the specific purpose of the loan, as they might have guidelines on permissible uses of the funds.

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Should You Get a Holiday Loan?

If you are looking for extra funds to cover your holiday expenses, a holiday personal loan could be an option worth considering. However, before you apply for a loan, it is important to evaluate your financial situation.

Your credit score, income, and debt-to-income ratio are some of the factors that determine whether you should get a holiday loan.

Reasons to Get a Holiday Loan

  • Qualify for a low rate: With good credit, you may qualify for a lower interest rate than other financing options.
  • Pay it back quickly: A loan may not be a bad option if you don’t have the money to cover expenses but will have enough later to pay it off promptly.
  • No other financing options available: A loan could be your best option if you cannot qualify for other financing options.

Reasons to Not Get a Holiday Loan

  • Can’t pay it off: You can hurt your credit if you cannot make your loan payments each month.
  •  Not enough income: A loan isn’t a good idea if you’re already struggling to make ends meet at your current income level.
  • Unnecessary expenses: You may be able to adjust your holiday budget or cut out certain expenses to avoid having to borrow money.

How to Get A Holiday Loan

If you’re looking to borrow a holiday loan to cover the cost of gifts, travel, and other holiday expenses, follow these simple steps: 

  1. Check your credit score. This will help you understand your chances of loan approval and the possible interest rates you might get. is a reliable source for pulling your credit reports. 
  2. Determine how much you need to borrow. Decide on your loan amount based on your holiday costs and what you can afford to repay monthly.
  3. Shop around. A variety of lenders offer holiday loans, so it’s important to compare rates and terms before choosing one that suits your needs.
  4. Apply for a loan. You can easily apply for a holiday loan online or at a bank location. When applying for a loan, you must provide personal information, such as your name, address, and Social Security number. You may also need to provide financial information, such as your income and expenses.
  5. Make your payments on time. After receiving your loan, prioritize making timely monthly payments. Most loans have monthly payments, so budget for these when planning your holiday expenses. If you miss or make a late payment, your lender may charge additional fees.

Pros and Cons of Holiday Loans

Take into account these pros and cons before you borrow money with a holiday loan to cover your holiday expenses:

Pros of Holiday Loans:

  • Get the money you need quickly: Many lenders can fund loans within one business day.
  • Lower interest rate: Lower interest rates and repayment terms than other types of loans, such as credit cards. This can help save you money in the long run, as you will not be paying as much interest.
  • Funds can be used for many reasons: You can use a Christmas loan to cover the costs of gifts, travel, or other holiday expenses.

Cons of Holiday Loans:

  • Upfront fees: Lenders may charge origination fees, increasing your borrowing and interest rates
  • Increased debt: The amount of debt you carry increases when you borrow for holiday gifts. A high debt load can impact your credit score and increase your APR for future credit cards and loans.
  • Some applicants may not qualify: Poor credit borrowers may not qualify for a loan.

Alternatives to Holiday Loans

While holiday loans offer a viable means to finance your festivities, considering a few alternatives before making your final decision is advisable.

Credit Card

Financing your holiday expenses can be efficiently managed with credit cards. They’re convenient and easy to use, and you don’t have to put up any collateral. 

However, it’s important to be aware of the potential dangers of using credit cards. If you overspend, you’ll end up paying interest on your purchases. 

Additionally, if you don’t pay off your balance in full, you may be charged late fees. So, before using a credit card to finance your holiday shopping, make a budget and stick to it. That way, you can enjoy the holidays without worrying about debt.

Holiday Seasonal Job

The holidays are a busy time for many retailers, so they often need extra help. If you want to make extra money, consider applying for a seasonal holiday job or picking up extra shifts at one you already have. This extra cash can allow you to spend more on gifts without borrowing money.

Buy Now, Pay Later

If you’re looking for a way to finance your holiday shopping this year, you may consider using a buy now, pay later (BNPL) service. BNPL allow you to spread the cost of your purchase over a period of time, usually interest-free. This can be a great option if you want to avoid taking a short-term personal loan.

Final Thoughts: Holiday Loans 2023

A holiday loan can be a great way to get the money you need to cover gifts and travel expenses during the holidays. If you’re thinking about taking out a holiday loan, it’s important to check your credit first and shop around for the best rates.

Once you’ve received your loan, making your payments on time each month is important. If you have bad credit, there are still loans and alternative options available to you – like getting a seasonal job or a credit card.

FAQ's - Holiday Loans

Evaluate your credit score, financial stability, and the necessity of the loan.

Yes, holiday loans can be used for various purposes, including travel.

The primary risks include potential high interest and the burden of debt.

A higher credit score usually means lower interest rates and better loan terms.

Disclaimer: The information provided in this article is for educational purposes only. It is not intended as legal or financial advice. Consult with a qualified professional before making any financial decisions.
About this author: Erika Klink is a personal finance writer for My USA Finance. With a passion for data and creating content, she provides invaluable insights and money-saving tricks to help readers maximize their financial potential.

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