Personal loan for Christmas

The combination of a personal loan and a carefully planned—and followed—budget can keep a lid on that shopping mania. Even now, there’s still time to plan ahead for Christmas shopping. Here is one means of avoiding that January financial hangover.

First, turn your Christmas shopping list into a Christmas budget, making a note not only of everyone for whom you intend to buy a gift, but also how much you intend to spend on each person. Then balance that against how much you can afford to repay over the early part of next year, without payments dragging into the following holiday season.

Usually on the first run-through, the two numbers—what you’d like to spend versus what you can afford to spend—don’t bear much resemblance. It takes time, thought, and some sacrifice to bring them into balance.

One point to remember when working on your budget is purchasing for yourself during the holiday season. Finding a particularly nice item with a large discount often tempts people to purchase extra for themselves, which of course eats into the funds available for gifts.

Don’t forget to leave a bit extra in the budget for wining and dining during the holiday whirl.

When your budget is realistic, shop around for the best personal loan. There is a large variety of lenders available, from commercial banks to credit unions to private lending companies, and the competition for good customers is fierce. Brokers can advise you on the range of loans available and help you calculate how much you can borrow.

As a rule, lenders consider that a borrower’s monthly repayment should be no more than 35% of their income prior to taxes, or no more than 30% if a partner’s income is also being considered. With that in mind, many personal loans can be obtained for amounts ranging from $1,000 to over $30,000, with repayment schedules from one to ten years, without security.

Some loans require a processing fee or other “hidden” charges, so be certain to check the fine print. Processing the paperwork takes one to three business days. Interest rates for personal loans are generally higher than for home mortgages but lower than for credit cards, often around 10%. The interest rate can vary depending upon your credit-worthiness, with an earlier stable repayment history getting the best rates. But the monthly repayment amount for a personal loan may be higher than the minimum monthly payment for a credit card.

Another point to consider is whether the loan carries an early repayment penalty, which can be as high as several months’ payment itself. Paying off a personal loan early doesn’t necessarily earn you a higher credit rating, but many people want to be shot of the financial drain as soon as possible.

With proper management, you can have fun over the holidays without facing a nightmare in January.

Article correct at its author date: October 2007. Copyright Virtual Office Space, Any unauthorised reproduction of this article will be prosecuted to the full extent of the law. Credit Cards Australia.

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