Is It a Good Idea to Take Out a Personal Loan for Holiday Gifts?

A personal loan can make holiday shopping possible -- but at a cost. 

The holiday season is approaching fast, and it's often an expensive time of year. Ideally, you'll have been saving over the course of the year to cover the costs of presents and entertainment during the festive season. But, it's been a tough year for many people due to surging inflation so you may not have the cash set aside to cover all of the things you want to buy.

If you find yourself looking at the prospect of having to buy holiday gifts without savings, you may be considering taking out a personal loan. But is that a good idea?

Taking out a personal loan for holiday gifts comes at a financial cost

Borrowing in any form for the holidays usually isn't the best financial move over the long term. This is true whether you're using a personal loan to get the money to pay for presents or you put gifts on your credit card that you know you can't afford to pay back right away when the statement comes. 

The big problem with borrowing is that you make the items you're buying cost more by tacking interest onto their prices. And you're also making your future efforts to live within your means more difficult because income you haven't even earned yet is going to be tied up to make payments you're committing to.

That being said, if it is important to you to buy holiday gifts and you can't figure out a way to pay for them, a personal loan might be a good option to cover them. 

When you take out a personal loan, you can choose exactly how much you want to borrow so you'll know your total debt amount upfront (rather than just continuing to swipe your credit card with only your credit limit capping how much debt you can go into). 

Your personal loan will also have a fixed payoff time and a lower interest rate than most credit cards. So, it may end up costing you less than charging gifts on a card and paying over time. And you can make an informed choice about whether the total borrowing costs are worth paying.  

If you really feel like buying some presents is important -- say, because you have kids you don't want to disappoint -- and you research to find an affordable low interest personal loan with a good rate -- then this approach could be one of your better options when paying cash isn't on the table. 

Make sure you're smart about how you borrow

If you have to borrow for holiday gifts, you should research personal loan options carefully and get quotes from several different lenders. This will enable you to get the lowest interest rate you can.

You should make certain to borrow the absolute minimum necessary since the more debt you take on, the bigger the adverse impact on your future finances. And you should aim for the shortest possible payback period -- again, so you keep interest costs down and don't tie up your money for as long. If you can make some budget cuts to try to pay back the loan early, that would also be ideal. 

Hopefully, you can follow these tips to limit the long-term consequences of borrowing and you can make a plan to save for the holidays next time so you don't have to make this choice again.