Article Bookmarked
Bookmark Removed

Three Kinds of Holiday Financing You Should Avoid


Nov. 18, 2020 Blogging for Change

No matter how well intentioned we are and no matter how much we may plan for it, holiday expenses have a way of getting out of hand.

Taking on debt for Christmas shopping is nothing new, and if you’re properly prepared and have a plan to repay that debt, it’s not inherently bad (though it’s better to avoid it). That said, because holiday spending is emotionally charged, it’s easy to get pulled into financial offers that seem helpful, but end up hurting you in the end. 

If you’re stretching yourself financially this season, keep an eye out for these three particularly worrisome financing options.

CHRISTMAS LOANS

A Christmas loan (or holiday loan, or vacation loan, etc.) is really just a regular old unsecured personal loan with a festive bow on top. Because there’s no collateral in an unsecured loan, they’re riskier than a secured loan (like a mortgage) and will usually have a substantially higher interest rate. And because it’s a loan, there’s a good chance that you’ll have a variety of fees to pay.

Even more concerning are no/bad credit loans, which are essentially payday loans. They usually feature small windows for repayment and extremely unfavorable interest rates.

While it’s completely understandable that the pressures of the season may drive you to spend beyond your means, it’s just not a good idea to take out a loan to handle non-essential seasonal expenses.

SKIP-A-PAYMENT

Some lenders are happy to offer you the opportunity to occasionally skip an upcoming loan payment (usually for car loans or mortgages). You may even see this offer advertised during the holiday season as a way to find the cash needed for all those extra seasonal expenses.

The problem is that skipping a loan payment is a bit more costly than it seems. There’s usually an application or processing fee, which can range from $20-$35. That may seem reasonable if you’re subtracting it out of the balance of the payment you didn’t make, but it’s not the only cost. 

When you skip a payment, the length of your loan is extended by one month. Meanwhile, interest continues to accrue, even during the “skipped” month. For lenders, it’s a pretty good deal – at no cost to them, they add the application fee plus an extra month’s worth of interest charges. For borrowers, though, it’s not a very good at all. And if you’re skipping a loan payment to buy presents it’s a really bad deal.

POINT OF SALE FINANCING

Store credit is nothing new, but it’s only become more prevalent as online retailers have made point of sale financing even more central to the buying experience. That point of sale offer may come in the form of a special credit card (if you’ve ever shopped on Amazon, you’ve almost certainly seen this in action) or a payment plan.

Store credit cards don’t usually have the best possible terms, but most importantly they only really serve to drive you back to that one particular store over and over again. Payment plans, on the other hand, increase the overall cost of the purchase by adding fees and other charges. 

There will be times when you’ll need to purchase something that you simply can’t afford to pay up front, and that’s okay. But the added costs associated with financing Christmas presents and holiday supplies is almost always a bad investment.

Read More on Blogging for Change

Gene Upshaw Player Assistance Trust Fund

Apply Today

All Resources

Tell Me More

How to Make Relationship Happiness Last

Reappraising conflict from a third-party perspective may preserve happiness.

Read More

8 Things Happy Couples Do For One Another Without Being Asked

It's not the grand gestures but the little things

Read More

Lessons on Leadership and Community from 25 Leaders of Color

Leading self, leading others and leading with vision.

Read More

How to Talk to Your Partner About An Expensive Purchase

This is how to have a discussion without causing frustration or resentment.

Read More

Can zero-calorie sweeteners raise your risk for cardiovascular disease?

Consume higher levels of artificial sweeteners and experience cardiovascular disease events at a higher rate

Read More

8 Tips to Keep Your Mindfulness Practice Going

New research finds nearly 60 percent of meditation app users stop within a year.

Read More

What to Know About Getting a Loan if You’re Unemployed

Dive into all of your options

Read More

‘Night owls’ may have greater type 2 diabetes and heart disease risk than ‘early birds’

Why shifting your sleep pattern may be a great idea.

Read More