2020 was a tough year for many people, especially around Christmas time. The job market was buffeted by the pandemic, people were sick, out of work and out of school. Some people, to keep the spirit of Christmas alive for their friends and family, even took out loans to finance the season. In the short term this seemed like a good idea but was it really worth it over the long term? In this article we will look at everything you need to know about loans for Christmas the good, the bad and the ugly.
Points to Consider
The first point to consider is that loans cost money. The second point to consider is that everyone, save for the extraordinarily rich, who takes a loan has every intention of paying it off. The third thing to consider is that not very many of us understand, or even care to, the nuances of compound interest.
Compound Interest and Christmas
Compound interest is the sole reason for the existence of loans. From your credit card to your home, to your auto and more, every loan you take will cost you extra money in interest. An adage states that those who understand compound interest earn money while those who do not pay money.
Taking out a loan for Christmas is a natural consideration for many of us. After all, Christmas is a season of giving and sharing; and if we do not have the funds to support our seasonal ambitions it is easy to look toward financing. The Christmas season is a joyous one and we can easily brush aside future debt for a pleasant now. Besides, that loan will be easily paid off in short order.
Holiday Financing Options and APR
The financing push begins well before the holiday season is upon us but is especially prevalent as Christmas approaches. It could be “Zero Financing for 18 Months” which means that you still must make a minimum payment but that no interest will be charged during that period. After the period ends the card starts charging its standard Annual Percentage Rate, or APR. What is the annual percentage rate? It varies with the financing scheme and it is always in the fine print. Which is why the fine print is so important to read.
Borrowing for Christmas
And nowadays it is so easy to get a loan for Christmas. There are Christmas loans online and many other attractive avenues from which to borrow money for Christmas. Some people truncate Christmas with Xmas and so there are specialty on-line sites for Xmas loans. Consider for an instant that you take out a loan to cover presents for family and friends.
Your Loan, an Example
For example, say someone takes out a $2000.00 loan at 14.65% interest to be paid off over the course of two years. Now 14.65% is the average interest rate on U.S. credit cards. The average American’s income is $31,133 – before taxes. Monthly payments on that loan come out to around $ 96.00 for a 2-year total of over $2,300.00. Say a person has poor credit and the interest rate is at 26%, that brings a monthly payment of around $ 107.00 for two years or a total of $2586.00.
“Easy peasy, I can carry those payments for two years”, you say. But what about the loan you take for next Christmas and the Christmas after that? Now you are compounding compound interest. It is something to think about if you plan to borrow money for Christmas.
A Payday Loan for Christmas
Many people of limited means but with a regular paying job which, these days, essentially means any job, may think about applying for a “Payday” loan. After all, the loan is paid back through your next paycheck, right?
Before you jump into one of these “Xmas” loans, consider the following: Payday and car title loans have extracted over 8 Billion dollars from their customers in 2018, do you think that figure has declined? Think again. In fact, according to Forbes, Payday loans have a penalty of between $15.00 and $30.00 per everyone hundred dollars borrowed. That is not lightweight, especially since most people do not pay the loan back within two weeks. And that sets up a vicious and expensive cycle of payments that have ruined lives.
And who owns the Payday or car Title loan stores? Why the big banks, of course. These storefronts are not mom and pop loan sharks, they are federally sanctioned usury outlets lobbied into existence by the large finance firms on Wall Street. And who pays the price? You know the answer, we all do. Face it, lending institutions do not care if you have a merry Christmas or not, they just want you to borrow money for Christmas.
Is Taking Out a Christmas Loan Always a Bad Idea?
This is a nuanced question because it depends on where you are at financially. For most of us who are a paycheck or two away from being homeless then the answer is Yes. Always. If your current financial situation is such that you are considering taking a Christmas loan, then think again. People who have their finances in order have no need of these services. So, who are they for? People who continually live beyond their means, the desperate.
Do you know what the credit industry calls people who pay on time and pay off their debt? Deadbeats. They want you in debt servitude. People who understand compound interest make that compound interest work for them; the people who do not understand compound interest work for it.
So, while it is not always a bad idea to borrow money for Christmas, it should be done with your eyes open and a good understanding of the terms of your agreement. People who have the wherewithal to pay the loan off per the terms or even early, in other words, the “deadbeats”, add to their credit ranking. Those who skip, miss, or otherwise do not make even the minimal payments have their credit scores diminished which makes it much more expensive to borrow money the next time.
Borrowing Money for Christmas, Taking Christmas Loans, You Deserve a Loan for Xmas
Think of it this way. Christmas, like other cultural holidays, is not about “keeping up with the Jones’s”, it is about being with friends and family and enjoying the connection you all have. No amount of money could ever replace those you love. And who knows where this lust for “things” came about. It is so ingrained in our collective psyche that we think the season of sharing and love means giving “things.”
Really, it is about giving of ourselves; of forgiving ourselves and others for the transgressions of the last year so that we may enter the new year better people. More loving and caring people. Borrowing money for Christmas is more often than not a cover for the shame we brought upon ourselves in the previous year.
The season takes place at the winter solstice for a reason. At least in the norther Climates it is a time of introspection. The wintry weather outside brings us all together and, suddenly, all the hubbub of the spring and summer has become quiet. Christmas is serene. We sit with our loved ones, talk and enjoy each other’s company.
What we found in our analysis is that everything you need to know is to avoid mortgaging your future for a fleeting moment. Regardless of what the advertisers and loan sharks say, the shared memories of being together and enjoying each-others company will be far more valuable in the future than will paying off debt that you need not have incurred in the first place.