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The holiday season brings plenty of reasons to celebrate, but it can also come with a lot of extra expenses. Consumers expect to spend an average of $736 on holiday gifts in 2025 — a 10% increase from the previous year, according to a Visa Business and Economic Insights survey.
To help cover costs, you may consider a holiday loan, a type of personal loan specifically designed for seasonal spending. Borrowing money for nonessential expenses can be risky, though, especially if you don't have a solid plan for repaying it.
Before taking on debt for the holidays, ensure you understand how holiday loans work, the pros and cons of borrowing, and alternative financing options that may be better suited to your finances.
What is a holiday loan?
A holiday loan is a type of personal loan that you can use to cover holiday expenses, such as gifts, travel, or hosting guests. Some banks, credit unions, and other lenders refer to it as a "Christmas loan" and offer shorter loan terms to pay off the debt before the next holiday season.
Here are some of the key features of a holiday loan:
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Fixed interest rate: As a type of personal loan, holiday loans typically come with fixed interest rates that remain constant over the loan's life. Depending on the lender, you may find rates starting around 7% and rising to 35% or more.
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Smaller loan amounts: Holiday loans usually come in smaller amounts, such as $5,000 or less.
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A set repayment term: While standard personal loan repayment often spans up to five or seven years, holiday loans are typically repaid within a year or less.
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No collateral: Most holiday loans are unsecured and don’t require collateral. That means lenders rely on other factors, such as your credit history and debt-to-income ratio, to approve or deny your holiday financing application.
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Potential fees: Some holiday loans may come with an origination fee, which could cost 10% of your loan amount or more.
You'll need good or excellent credit to qualify for the best rates and terms. Some lenders will accept lower credit scores, but they may charge higher interest rates and fees, or offer smaller loan amounts.
Beware of predatory loans
When borrowing any type of loan, be diligent in researching your loan options. Some lenders take part in predatory lending practices (additional fees, higher rates, etc.) to make extra money at the consumer’s expense.
Beware of lenders that offer approval without a credit check, for instance, as they're likely offering payday loans with exorbitant rates and fees. Payday loans require full repayment within a few weeks and can carry APRs of 400% or more.
Some other warning signs of a predatory lender include aggressive sales tactics, a lack of clarity around loan costs, and loan terms that seem too good to be true (they probably are).
Read more: Too good to be true: How to spot personal loan scams
Is taking out a holiday loan worth it?
Taking out a personal loan for discretionary expenses usually isn't worth the cost. Even though holiday gifts may feel essential, borrowing money to pay for them could strain your finances in the long run.
If you can't afford the gifts up front, you might have trouble keeping up with monthly loan payments later. Late payments can rack up fees and hurt your credit score, making it tough to qualify for future loans and credit cards.
Plus, there are alternative financing options that might cost less, such as a 0% APR credit card or a "buy now, pay later" service that lets you spread costs out over several weeks without charging interest or fees (as long as you pay on time).
If you're considering a holiday loan, carefully consider whether your budget can afford the monthly payments. Ensure you can comfortably cover the loan payments alongside your regular expenses.
Also, don't forget to factor in interest and fees. Making the holidays memorable might feel worth it at the moment, but it will also mean paying interest charges over the life of the loan, making your holiday celebrations even more expensive in the long run.
Pros and cons of holiday loans
Holiday loans are a mixed bag of perks and drawbacks. Before you apply for a personal loan this holiday season, consider the following:
Alternatives to holiday personal loans
There are other ways to help pay for travel costs, Christmas or Hanukkah gifts, and other seasonal expenses.
Savings
You can avoid taking on debt by saving money specifically for holiday shopping. This requires planning, but take a look at your budget and set aside a certain amount per month throughout the year.
A savings challenge or no-spend month could help you accelerate your progress. You may also find areas where you can cut back, such as restaurants, streaming services, or expensive memberships.
Parking your savings in a high-yield savings account or certificate of deposit (CD) can help you earn interest on your balance. Try not to use your emergency fund for holiday shopping, though, or you could end up in a tight spot if you run into an unexpected expense come January.
Extra income
Cutting back on your spending isn't the only way to save more — boosting your income can accomplish the same goal. Consider seasonal work, a part-time job, or a side hustle to earn some extra money.
Many retail stores hire extra workers around the holidays and may offer an employee discount if you shop there. Other options include driving for a ridesharing service, shopping for or delivering groceries, or selling items you no longer need on eBay or Facebook Marketplace.
Read more: 5 holiday side hustles to boost your end-of-year budget
Buy now, pay later (BNPL) services
If you’re looking to finance a one-off purchase or just a few holiday expenses, look into using a buy now, pay later service rather than a holiday loan.
With buy now, pay later, you finance your purchase and repay the cost in a set number of installments. You can often avoid interest if you pay the amount off over several weeks. Longer repayment terms may be available, but they'll probably come with interest.
Typically, the first installment is due at the time of your purchase.
Credit cards
If you already have a credit card, you could use it to fund your holiday spending. But be wary of adding to your credit card debt if you can’t comfortably afford your payments. Carrying a balance over from month to month can rack up hefty interest charges.
If you can qualify for a new card, consider opening one with a 0% APR promotional period. You might avoid interest charges for a year or longer, so you're essentially getting an interest-free loan. Be aware, however, that interest fees will shoot up if you're still carrying a balance when the promotional period ends.
Some cards also offer a welcome bonus if you spend a minimum amount in your first few months with the account. You might get $200 back after spending $500 within three months, offering a nice discount on gifts. Even better, a card like the Prime Visa often offers an Amazon gift card immediately upon approval, giving you a little extra to spend this season.
Learn more Prime Visa - Welcome offer Limited-time offer: Get a $250 Amazon Gift Card instantly upon approval exclusively for Prime members
Credit card rewards
If you regularly use a rewards credit card, check your cashback or points balance. Redeeming those rewards could help reduce your holiday costs. Many credit card companies allow you to redeem rewards for travel, gift cards, a statement credit, a check, or direct deposit into your bank account.
Read more: How credit card points can save you hundreds on holiday gifts
Line of credit
A personal line of credit allows you to borrow up to a predetermined limit from your lender. While credit cards are physical or virtual cards you can use to make purchases, a line of credit can be accessed via check, bank transfer, or in-person withdrawals.
This article was edited by Alicia Hahn.
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