Christmas and the New Year are almost upon us once again. It’s a time of relaxation and good cheer when we gather together with friends and family from far and wide.
Since the holiday season is an exciting period, we are often forced to spend some extra cash and exceed our budgets. And that’s quite understandable – There’s much shopping, decorating, and gift-giving to be done. Not to mention the travelling expenses, especially for those of us who have a large family.
Due to the financial strain, you may want to consider obtaining a holiday loan.
What is a Holiday Loan?
A holiday loan is an unsecured personal loan that serves the purpose of financing your holiday expenses. The tenure is usually short term, which means that you have to pay back within six to twelve months. However, some lenders offer long term repayment options.
Important Considerations When Shopping For a Holiday Loan
If you intend to secure a holiday loan, there are a couple of things you have to keep in mind. The following factors will help you weigh the offers from different lenders and get the most suitable product:
1. Interest Rate: This is the first thing you have to ask for when applying for any loan. The higher the interest rate, the more the loan will cost you. It plays a major role in ascertaining your monthly payment.
2. Fees: When you have to borrow money from a financial institution, the cost is not determined by the interest rate alone. The overall cost is presented as an Annual Percentage Rate (APR), which shows any additional fees you have to settle. Some of the common fees include an origination fee and early repayment fee. An origination fee is charged as a percentage of the loan amount. It is deducted before your fund is released to you. However, some lenders will roll it into your balance when the loan is funded. So if you borrow 20, 000 Naira with a 2% origination fee, your balance will be 20, 400 Naira although the amount received is 20, 000 Naira. An early repayment fee, on the other hand, is meant to compensate the lender should you pay off your loan before the term is due.
3. Repayment Term: This is the period of time within which the loan is paid back once you make your scheduled minimum payments. The term of the loan impacts the interest rate. For instance, long term loans translate to high-interest rates since there’s a risk that the lender might suffer a financial emergency, such as job loss or ill health that will render them unable to see their payment through. Also, the longer it takes to pay off the loan, the more the interest accrued, regardless of the interest rate. Shorter-term loans, on the other hand, come with higher monthly payments.
4. Start early: Don’t wait till the last minute before you begin looking for a loan. Doing so might lead you to make a hasty decision due to the time pressure.
With a holiday loan, you can have a good time with your family and friends. But keep in mind that buying gifts, shopping for decorations, and every other such expense is known as discretionary spending. It may not be a wise financial decision to acquire debt for items that won’t be considered a necessity.
It is therefore important not to get carried away. Weigh the amount you definitely have to borrow and try to create a reasonable budget. This way, you won’t risk facing difficulties after the festivities are over and it’s time to repay the loan.