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Do you need extra cash to make Christmas merrier and want to borrow? Chances are, you’re not alone. According to a 2022 Statistica survey, 51 per cent of South African participants planned to take Christmas loans from banks1.
Others planned to take cash outside banks (31 per cent), borrow from family and relatives (18 per cent), use a credit card (13 per cent), or explore Buy Now, Pay Later options (5 per cent).
Whichever option works for you, learn more about holiday and Christmas loans and discover alternatives before you borrow.
✅ How Much Do You Need?
What Are Christmas Loans?
The festive season comes with additional costs, and many South Africans may not have enough savings to cover these costs. A Christmas loan provides the extra cash needed, adding to the holiday cheer.
Here’s a quick breakdown of how Christmas loans work:
- Christmas loans are unsecured – You don’t have to offer your car, home, or other assets as collateral to secure the loan.
- Most Christmas loans are personal loans – In most cases, Christmas loans are simply personal loans you receive as a lump sum and use for holiday spending. Personal loans are flexible since you can use them for almost anything. They typically range from R100 – R250,000.
- Interest rates and loan terms vary — Interest rates are fixed and vary based on the lender and your credit score. Repayment periods commonly range from 6 to 72 months.
What Can You Use a Christmas Loan For?
Some common uses for Christmas loans in South Africa include:
- Food and drinks
- Gifts
- Children’s gifts
- Decorations
- Holiday supplies
- Travel and Transportation
- Celebrations
- Charity
Read More – Black Friday Loans 2024: Everything You Need to Know
How Much Do Holiday Loans Cost?
Before you take a holiday loan, it’s important to calculate the cost. The cost of borrowing includes interest and fees. A good credit score helps you attract a low interest rate, while a poor credit score usually results in a higher interest rate.
In addition, you pay more interest if you borrow a larger amount or take longer to repay. Loan fees include an initiation fee, monthly fees, and other charges which vary from lender to lender.
Be sure to read your loan agreement to understand how much the loan costs and what you have to pay each month.
Representative Example: Estimated repayments of a loan of R30,000 over 36 months (three years) at a maximum interest rate, including fees, of 27.5% APR would be R1,232.82 per month.
The total cost of the loan is over R44,000, including monthly fees and upfront charges. You can reduce the cost of this loan by borrowing less and reducing the repayment time.
🚩Beware: Not all Christmas loans are the same. Watch out for payday loans. They are notorious for having extremely high interest rates and fees. In addition, you have to pay back the money, plus interest, within a very short time.
Some lenders will call their expensive payday loans Christmas loans, but a simple look at the offer will tell you to walk away. Remember, payday loans are more suitable for short-term emergencies.
Unless your situation is urgent, don’t be tempted by the promise of no credit checks and fast cash. The high costs of borrowing are not worth it and may likely trap you in a cycle of debt, where you have to keep borrowing to pay off the original loan.
Also, you may damage your credit score if you can’t keep up with your payments.
Should You Get a Christmas Loan?
Consider the following advantages and disadvantages to help you decide if you should get a Christmas loan for holiday spending.
Pros of Christmas Loans
✔️ Makes things more affordable. The biggest advantage of taking out a Christmas loan is that you can borrow a lump sum and pay it back over time. That way, you don’t strain your budget or deplete your cash flow unnecessarily.
✔️ Fast processing. Christmas loans are typically unsecured personal loans that don’t require collateral. As such, lenders are more likely to process your application quickly, and you can receive money in your bank account in as little as 24 hours.
✔️ Fixed interest rates and payments. A fixed interest rate means your interest rate never changes. In turn, your monthly payments stay the same, so it’s easier to budget consistently.
✔️ Flexible uses. Personal loans have flexible purposes. You can use a Christmas personal loan to cover the costs of family meals, travel, gifts, and other holiday expenses.
✔️ Can help improve your credit score. Sticking to your payments improves your credit score over time. In addition, taking out a Christmas loan could mean having different types of credit (credit mix). This is an important factor that contributes to your credit score.
Cons of Christmas Loans
❌ Could be expensive. Christmas loans can have potentially high interest rates and hefty fees, especially if your credit score is not so good. That means you pay more for your Christmas expenses over the long run compared to paying cash upfront.
❌ They’re sometimes payday loans in disguise. Some lenders could label their payday loans as Christmas loans. As a result, you get tricked into taking out an expensive, short-term loan that you may struggle to pay back.
❌ Results in long-term financial obligations. Personal loans can have long repayment terms of up to five years or more. That means you may still be making monthly payments long after the holiday season is gone.
❌ You’ll increase your debt load. Taking out a loan to cover unnecessary expenses increases your debt load. Some lenders don’t offer small loans, so you may end up borrowing a higher amount you don’t really need.
❌ Late payments can damage your credit score. If you can’t afford to repay the debt and default on your payments, it can lower your credit score.
The bottom line: Getting a holiday loan can be a good idea if you have a healthy credit score and debt to income ratio. Weigh the pros and cons, then ask yourself, “Can I afford the load?” and “Do I really need the loan?”
Other Ways to Pay for Your Holiday Spending
Personal loans are not the only option if you need extra cash for holiday expenses. Consider the following personal loan alternatives.
Buy Now, Pay Later (BNPL)
You can choose BNPL at checkout when shopping online or use a BNPL app to buy online. Example: PayFlex and PayJustNow.
Pros
• Most BPNL programs offer 0% interest.
• Simple and convenient checkout option at many online stores.
Cons
• Only short repayment periods available (usually 3-4 instalments).
• Can encourage overspending
0% APR Credit Card
A 0% credit card has a no-interest introductory period. Example: RCS and African Bank offer credit cards with a 0% rate for up to two months.
Pros
• Zero interest loans are cheaper in the short term since you don’t pay interest.
Cons
• A high interest rate may apply if the promotional period ends or if you miss a payment.
Cash Savings
Instead of taking on debt, the best option is to create a realistic spending plan and save in advance. Finding a side hustle can also boost cash flow.
Pros
• No borrowing costs (cash is always king).
Cons
• You may still need extra cash, no matter how much you plan and prepare.
Borrowing from family and friends
You can take a holiday loan from relatives or friends and draw up a personal loan contract that works for both parties.
Pros
• You can negotiate a reasonable interest rate, even if you have bad credit.
Cons
• Potential loss of trust and damaged relationships if you fail to pay back the loan.
Where Can You Get a Christmas Loan in South Africa?
There are several options to get a holiday loan:
- Banks. It’s usually easier to borrow from a bank if you’re already a customer, although you may need to meet stricter requirements and have good credit to qualify.
- Online lenders. Online lenders have more flexible borrowing standards and a convenient application process. This is your best option if you have bad credit and are looking for a small or short-term loan.
- BNPL services. Buy Now, Pay Later services like PayFlex and PayJustNow allow you to shop online and pay with credit. Simply choose the BPNL option as your preferred payment at checkout. If you qualify, your purchase will be quickly approved.
What You’ll Need
- Be 18 years or older
- Valid South African bank account
- Valid South African income
- Reliable and sufficient income
- Latest payslips or bank statements
How to Apply
Step 1. Check your credit report. Correct any errors on your credit report to help boost your score. Even if there are no errors to fix, knowing your credit rating helps you determine the type of loan you qualify for to increase your chances of approval.
Step 2. Apply online. The holiday loan application process is easier if you use an online loan broker like Arcadia Finance. You only need to fill in a single application to receive multiple offers.
Step 3. Compare offers. Compare the offers you receive and accept the option with the most favourable terms.
Step 4. Complete your application and get cash. Once you verify your information and complete the application process, the lender will deposit the money in your bank account.
Frequently Asked Questions
A Christmas loan can be a good fit if you have a good credit score and can afford to repay the debt. Getting a good interest rate means your holiday expenses will be more affordable.
In addition, your budget will have more breathing room since you’re paying in instalments. You can typically borrow money for Christmas from banks and online lenders.
Borrowing limits vary from lender to lender, but personal loan amounts typically range from R100 to R250,000. How much you borrow depends on the lender and what you can afford.
Registered credit providers practice responsible lending, so you must pass an affordability check before you qualify for a specific amount.
Borrowers with bad credit may find it challenging to qualify for a holiday loan. If bad credit loans are available, keep in mind that they typically have higher interest rates and less favourable terms.
Your best bet is to apply with an online lender willing to work with bad credit borrowers. Also, consider improving your credit score first to get a better deal.
Alternatively, you can opt for a secured loan if you have collateral. But you risk losing the asset you pledged as collateral if you fail to pay back the loan.
1Statistica, Expected sources of Christmas loans borrowed in South Africa as of 2022. (Read here.)
Our Research Expert
Gracie Makowe is a full-time personal finance writer with 10 years of experience and a Bachelor of Commerce in Financial Management from UNISA. Learn more.