2 Benefits of Holiday Loans
Holiday loans are loans that are designed to cover holiday-related expenses. They are issued in advance of a tax refund. They are meant to allow the borrowers to essentially use their tax refund months before it arrives, so that they can spend the money when they need it. The holiday loans have a number of benefits. However, they also come with dangerous pitfalls that can turn a short-term convenience into a long-term financial drain.
Understanding Holiday Loans
Traditionally, the holiday loans were given after the tax returns arrived. The borrowers filled it out, calculated the rebate and the lenders gave them the equivalent loan. More recently, though, some lenders have been letting borrowers take out a holiday loan even earlier - the refund is estimated based on the borrowers' pay stubs. This gives borrowers more flexibility as to when they can use it.
Benefit #1. Low Requirements
With most loans, having a good credit score is an important requirement. But holiday loans either set their bar lower or don't have the requirement at all. Past credit history and employment status are not necessarily a factor, either. This makes holiday loans accessible to borrowers that usually aren't qualified to get loans. The application process is also fairly easy - many lenders go as far as to allow borrowers to apply online.
Benefit #2. Flexibility of Use
Most loans are designed for fairly specific purpose. In many cases, borrowers are required to explain in detail how they will use the loan in order to persuade the lender to give them the loan. Holiday loans have no such limitations. Borrowers may use them for any and all expenses even remotely related to holidays, be it buying new presents or reserving a round trip to Hawaii.
Drawbacks
That said, holiday loans do come with significant pitfalls. It is important to understand that holiday loans are short-term loans. That means that the borrowers only have a couple of weeks before they have to start paying the loan back. Those who cannot repay right away will find themselves dealing with rapidly increasing interest rates, monthly financial charges and other fees. These problems are compounded by the fact that interest rates and fees start out fairly high. Thus, unless a borrower can repay his loan in full as soon as possible, he will probably be stuck with far more debt than he ever anticipated, affectively negating whatever short-term benefits the holiday loan originally brought.
Avoiding the Pitfalls
The Truth in Lending Act allows borrowers to compel lenders to disclose the full costs of their holiday loans, including finance charges and interest rates. If the lender violates the act, the borrowers have the right to file a complaint with Federal Trade Commission. As with any other deal, borrowers should examine the contract carefully, preferably with a legal professional on hand. If properly planned, the holiday loans can be a viable way to take care holiday-related expenses, but it is not an arrangement one should enter into lightly.
Understanding Holiday Loans
Traditionally, the holiday loans were given after the tax returns arrived. The borrowers filled it out, calculated the rebate and the lenders gave them the equivalent loan. More recently, though, some lenders have been letting borrowers take out a holiday loan even earlier - the refund is estimated based on the borrowers' pay stubs. This gives borrowers more flexibility as to when they can use it.
Benefit #1. Low Requirements
With most loans, having a good credit score is an important requirement. But holiday loans either set their bar lower or don't have the requirement at all. Past credit history and employment status are not necessarily a factor, either. This makes holiday loans accessible to borrowers that usually aren't qualified to get loans. The application process is also fairly easy - many lenders go as far as to allow borrowers to apply online.
Benefit #2. Flexibility of Use
Most loans are designed for fairly specific purpose. In many cases, borrowers are required to explain in detail how they will use the loan in order to persuade the lender to give them the loan. Holiday loans have no such limitations. Borrowers may use them for any and all expenses even remotely related to holidays, be it buying new presents or reserving a round trip to Hawaii.
Drawbacks
That said, holiday loans do come with significant pitfalls. It is important to understand that holiday loans are short-term loans. That means that the borrowers only have a couple of weeks before they have to start paying the loan back. Those who cannot repay right away will find themselves dealing with rapidly increasing interest rates, monthly financial charges and other fees. These problems are compounded by the fact that interest rates and fees start out fairly high. Thus, unless a borrower can repay his loan in full as soon as possible, he will probably be stuck with far more debt than he ever anticipated, affectively negating whatever short-term benefits the holiday loan originally brought.
Avoiding the Pitfalls
The Truth in Lending Act allows borrowers to compel lenders to disclose the full costs of their holiday loans, including finance charges and interest rates. If the lender violates the act, the borrowers have the right to file a complaint with Federal Trade Commission. As with any other deal, borrowers should examine the contract carefully, preferably with a legal professional on hand. If properly planned, the holiday loans can be a viable way to take care holiday-related expenses, but it is not an arrangement one should enter into lightly.
