What to consider when looking to use a short-term loan for Christmas
Posted on October 23, 2023
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 to 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 for Christmas. Especially if you are looking for a loan with a below-average credit rating.
Only borrow what you need
Work out how much you want to spend on everyone and how much all presents will cost. Don’t forget all the extras like the tree, decorations, cards etc. 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.
Can you pay it back?
Make sure you have the capacity to repay the short-term loan before you take it 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 short-term 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 for Christmas.
Check out our other blog post Top Budgeting Ideas for Christmas for some top tips on reducing the amount you need for Christmas.
Check the interest rates of short-term loans
There is a range of borrowing options you can use for Christmas. It is important to use the one that suits your situation best and charges the least interest.
High street banks
If you are considering using your overdraft, check how much it will cost. Some places charge up to 71p per day, and if you plan to pay back over 12 months, that can 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. This drags on the debt and costs you more money. Many banks offer personal loans but most of these start at £4,000. There are alternatives if you are looking for a small personal loan, like our Credit Union, find out more about our Christmas Loans here.
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. The minimum payment is generally 3% of the total owed, plus the interest generated over the month, which can 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, so you need to be careful.
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 backdated 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 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 like ours are individually independent and you can only open an account where you live or work. They offer small short-term loans for Christmas and have no hidden fees or additional charges. Repayments can be weekly or monthly if that will help you budget. You can apply online to join our Credit Union and apply for one of our affordable Christmas loans the same day.
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 short-term loan for a poor credit rating. You can get a range of items including the latest game consoles and tablets and only repay £7-12 per week, however, the total cost of the item can be almost double!
You can repay weekly with one of our Christmas Loans, and rather than repaying a company weekly, and so you can 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 short-term loan with bad credit, however, the interest can be really high! 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 usually are more flexible on credit scores than banks. So if you are looking for a short-term loan with bad credit and think that you have no other options, try your local Credit Union first!
Break the Cycle of short-term loans for Christmas
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 weekly, fortnightly, monthly or when it suits you. With a Christmas Savings account, 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 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 saving clubs are the same.