What It Really Costs to Use Payday Loans for Holiday Shopping

The yuletide is truly upon us, and you may want to consider using payday loans for holiday shopping. That is if you are cash-strapped and don’t want to miss out on the fun.

Giving gifts to your friends and family can be a great way to show that you care about them but buying gifts can be expensive.

Statistics show that there is a spike in the price of consumer goods this time of the year, meaning, if you are not an early shopper, you may end up having to spend more than your budget.

A holiday loan may come in handy in such a situation, but what does it really cost?

On the surface, a holiday loan can seem like a good idea, but it can increase your overall financial obligations.

What is a holiday loan?

A holiday loan is a special type of personal loan designed specifically for the season. Like typical personal loans, holiday loans let you borrow money quickly and easily without the need to provide collateral.

However, holiday loans are somewhat different from other types of payday loans as they are only available during the holidays.

Features of holiday loans

• Lower limits

Holiday loans also tend to have lower limits than other personal loans. This means that they can be obtained in small quantities.

• Shorter repayment terms

Unlike most other loans, holiday loans have shorter repayment terms. You’ll have only a few months, or in some cases, weeks to pay back a holiday loan.

Other personal loans give you years to repay your debt. These restrictions make it so that holiday loans should not be the first choice for most people looking for ways to make ends meet at the end of the year.

What can you use a holiday loan for?

Although they are designed for end-of-year festivities, holiday loans can be used for many different things.

The most obvious use of the funds is to purchase gifts. It could also be used to get relevant household items to make the holidays more interesting.

If you are having distant family members around, a holiday loan can be used to stock up the house.

If you don’t have enough money set aside to buy a gift for everyone on your list, a holiday loan can help you bridge that funding gap.

Another use of the holiday loan is for travel. Families come together from across the country to spend time together during the holidays.

If you have to go a long way to visit family, you could be looking at hundreds of thousands of Naira in travel expenses. Holiday loans can assist in covering these types of costs.

Most lenders won’t place restrictions on how you use the money. Like less-specialized personal loans, you can use the money you get from a holiday loan for almost anything.

Factors to consider when using a payday loan for holiday shopping

If you’re thinking about applying for a payday loan, or any type of loan, this holiday there are some things you should consider before you apply.

You can use these factors to compare different loans to find out what a payday loan for holiday shopping really costs you.

• Interest rate

Of course, one of the first things borrowers look out for when applying for any loan is its interest rate.

The interest rate is the cost of borrowing. The higher the loan’s interest rate, the more you’ll pay over the life of the loan. The lower the interest rate, the less you’ll pay. A loan’s interest rate also impacts the size of the monthly payment, giving borrowers even more reason to keep it in mind.

If you ever find yourself in need of a holiday loan, determining the interest rate will give you an idea of how much it will cost you.

nairaCompare has tools that can help you see what’s on offer thereby helping you in your decision-making.

• Fees

Many payday loans charge fees that can add to the overall cost. While borrowing money is almost never free, you don’t want to pay fees if you don’t have to.

One common fee for such loans is the origination fee. This fee is a percentage of the total amount that you borrow, and it’s added to your balance when the loan is funded.

For example, if you borrow N20,000 with an origination fee of 3 per cent, your loan balance will start at ₦20,600, even though you only received

₦ 20,000 in your checking account.

Some other fees that you might see include application fees, which are charged when you apply for a loan. You might also be hit with an early repayment penalty, a fee charged when you pay your loan off ahead of schedule.

• Repayment term

In most cases, the repayment term you chose determines the cost of taking a holiday loan. The term of a loan is the length of time it will take to pay the loan back.

Most payday loans have a loan term of six to 12 months. The longer you have to pay back the loan, the lower the monthly payment will be.

Shorter-term loans have higher monthly payments.

Conversely, lower monthly payment over a long period adds up to a more expensive loan. So, be sure to do the math to know exactly which favours you better.

Are payday loans for the holiday a good idea?

Payday loans in Nigeria can get you the extra cash that you need to buy gifts but borrowing money to purchase gifts is not a sound financial decision.

If you need money for the holidays or want to give gifts to your loved ones, a payday loan isn’t your only option. Loans can be dangerous because you’re borrowing money to buy things that you can do without.

If not properly handled, they can send you into a cycle of debt, especially if you pick a longer repayment term.

One way to get around it is to start saving ahead of time. While it may be too late to do it for this holiday season, automatic savings plans are a great way to make sure you have some cash to spare for the holiday season.

You could also tone down your holiday expenditures to suit your budget.

The true cost of a holiday loan

Perhaps the biggest drawback of taking out a holiday loan is the cost of borrowing.

While good-credit borrowers may secure more favourable terms and lower interest rates than they would on other types of loans, it’s still not advisable to take out debt for unnecessary expenses or assets that won’t appreciate in value.

Holiday loan APRs can be as high as 36%, so be sure to consider the total cost of borrowing before seeking holiday loan help.

If you’re struggling with your credit score, you can still qualify for a personal loan by looking for the best holiday loan for bad credit. However, poor-credit borrowers should keep in mind that they may get loan offers with much higher interest rates.