What to consider when using a short-term loan to save Christmas.

09/10/2019

News story

Budgeting for Christmas can be difficult, and with only two paydays before the big day it can be tempting to get a short-term loan for Christmas. If you feel that you do need borrow some money to pay for all the expenses of this time of year, we have put together some things to consider when taking out a short -term loan, especially if you are looking for a loan with a below average credit rating.


1. Only borrow what you need

Work out how much you want to spend on everyone and how much the all presents will cost. Don’t forget all the extras like the tree, decorations, cards etc, plus food and drink also not forgetting any extra travel expenses or seasonal entertainment.
And only borrow that amount and ensure you repay within 12 months. Christmas comes around every year so ensure that the loan is repaid within twelve months. If you can try to save at the same time as you repay, even if it is just a small amount, so you are not in the same position next Christmas. Check out our Christmas Savings account for more information.


2. Can you pay it back?

Make sure you have the capacity to repay the loan you have taken out. Once you have worked out how much you need, use a loan repayment calculator to work out how much it will cost each month. There is absolutely no point in taking a loan out that you cannot afford to repay. This may mean to need to go back to your budget and work out where you can make savings and reduce how much you need to borrow. Check out our other blog post Top Savings Ideas for Christmas for some top tips on reducing the amount you need for Christmas.


3. Check the interest rates

There are a range of borrowing options to use so it is important to use the one that suits your situation best and charges the least interest.


• High street banks – If you are thinking of using your overdraft, check how much it will cost in total. Some places charge up to 71p per day, and if you are planning on paying back over 12 months, that can really add up. Be realistic about repaying, if the overdraft is part of your current account it is easy to start living in the overdraft and not make repayments, dragging on the debt and costing you more money. Many banks offer personal loans but most of these start at £4,000. If you are just looking for a small personal loan, there are other alternatives.

• Credit cards – It is very easy to use and apply for a credit card with a wide range of options for a range of credit scores. Some credit cards advertise themselves as an option for those with bad credit, which can cause people problems if you ‘Max out' your credit card. The minimum payment is generally 2% of the total owed, plus the interest generated over the month, which can really start to add up as the months go on. You need to be very disciplined to repay the loan in a year by making more than the minimum repayments and make sure you do not use the card the rest of the year. However, they can be a flexible alternative for unexpected emergencies, you just need to be careful.

Store cards - If you are thinking of spreading the cost by using store cards with attractive teaser rates or money off your purchases, check the T&C’s. It can be very easy to take out a store card at the till and miss the terms & conditions. Some stores have 0% offers, but if you do not clear the balance by a set date the interest becomes back dated from the date of purchase and can have a high APR. If you are thinking of buying a lot of items from one particular shop and are considering their store card take the time before going to the shop to read the T’s & C’s so you fully understand what you are signing up for, and what repayments you need to make to take advantage of the 0% offer.

Credit Unions - Credit Unions like ours are individually independent and you can only open an account where you live or work. They offer small loans from £500 to larger £7,500 loans and have no hidden fees or additional charges. Repayments can be weekly or monthly, if that will help you budget. Check out Find Your Credit Union to see which Credit Union you could join. Eastern Savings & Loans covers all of Suffolk, Norfolk and Cambridgeshire.

Weekly repayment companies - If it is easier for you to budget by repaying weekly, weekly repayment companies can look like the perfect solution, especially if you are looking for a loan for poor credit rating. You can get a range of items including the latest Games console and tablets and only repay £7-12 per week. The total cost by repaying weekly can be almost double than if you just bought it. Getting a loan that you can repay weekly, rather than repaying the company weekly, will give you the purchasing power to shop around and get the best deal for you.


Doorstep lenders and pay day lenders – These companies can seem like the easiest solution especially if you are looking for a loan with bad credit, however they can really cost you, and be difficult to clear, as the interest keeps piling on. Reducing how much you spend at Christmas and trying your local Credit Union first could mean you do not need to use this type of lender. Credit Unions are normally more flexible on credit scores than banks, so if you are looking for a cheap loan for bad credit and think that you have no other options, try your local Credit Union first.


4. Break the Cycle

If struggling to pay for Christmas is becoming a familiar tradition, you can change it! Look at opening a Christmas Savings account which allows you to save in a separate pot, locked away. Many Credit Unions offer a specific account for this, or you can set up a separate account with your main bank. You can pay in weekly, fortnightly, monthly or when it suits you. With a Christmas Savings account with us, you can make deposits from your loan repayments, via standing order or direct from your wages. There are also a range of national providers that also offer something similar, however do check if they are FSCS protected. All Banks, Building Societies and Credit Unions are FSCS protected, so if anything should happen to them over the year your savings are protected, not all Christmas savings are the same.


Remember to check out our other blog posts for more ways you can save this Christmas, and other top budgeting and saving ideas throughout the year.