This year, holiday shoppers are planning on spending more money, shopping earlier and trying new retailers as a result of possible inventory shortages, according to TransUnion's 2021 Consumer Holiday Shopping Report.
About 3 in 4 consumers are considering rethinking their holiday shopping strategy amid supply chain problems — a third of survey respondents (33%) are shopping earlier this year, a quarter (25%) are considering alternative gifts and 14% may make fewer holiday purchases.
Compared to last year, there's a 22% increase in the number of respondents who want to spend more on holiday shopping in 2021 after two consecutive years of decline during the coronavirus pandemic. Additionally, 15% more consumers plan to use credit for their purchases.
If you're planning on borrowing money to finance holiday purchases, it's important to compare your options. Keep reading to learn more about putting seasonal expenses on credit, and compare your options for credit cards and personal loans on Credible for free.
3 ways to borrow money for holiday shopping
The best way to pay for discretionary expenses on your shopping list is to budget and save up in advance, but the holiday season has a way of sneaking up on even the most proactive consumers. Before you know it, it's November, then Black Friday — and December is right around the corner.
If you're planning on borrowing money to pay for Christmas gifts, Thanksgiving dinner or plane tickets to visit family, consider these options:
- Open a credit card with an intro 0% APR offer
- Utilize a buy now, pay later service
- Borrow a fixed-rate holiday loan
Learn more about each financing plan in the sections below.
Putting holiday purchases on a credit card can be a quick way to rack up more high-interest debt than you can repay. The average interest rate on credit card accounts assessed interest was 17.13% in Q3 2021, according to the Federal Reserve.
However, it may be possible to forego paying interest altogether if you can open a credit card with a 0% APR introductory period. These offers are reserved for creditworthy borrowers with good credit scores — that's a score of 670 or higher using the FICO scoring model.
Zero-interest purchase periods typically last 12, 15 or 18 months. When the offer expires, the credit card issuer will charge interest on the remaining balance. But if you're able to meticulously plan your holiday expenses, it's possible to pay off the balance you accrued well before the 0% APR period ends.
If you're part of the vast majority (83%) of consumers who plan to do at least half of their holiday shopping online this year, per TransUnion's survey, then you may be familiar with a growing financing option called "buy now, pay later" (BNPL). This service offered at checkout allows shoppers to break their purchases into multiple installments over a set repayment plan.
This financing option has its upsides: Many BNPL companies don't require a credit check or even charge interest. Plus, BNPL financing is available at checkout through many major online retailers like Amazon and Walmart, making it an accessible and convenient option.
However, BNPL does come with its drawbacks. Some companies, such as Affirm, charge up to 30% APR as part of their financing agreements. Most companies will charge late payment fees and may even report you as delinquent to the credit bureaus if you don't pay on time.
Holiday shoppers who plan to use buy now, pay later to finance their purchases should carefully read the terms and conditions of the payment plan to avoid fees, excess interest and negative credit impacts.
Compared with credit cards, personal loans have low, fixed interest rates and predictable payment plans. Whereas credit cards have an average interest rate of 17.13%, the average rate on a two-year personal loan is 9.39%, per the Fed.
You can also consider using a personal loan to consolidate credit card debt you've accrued over the holidays. A recent Credible analysis found that creditworthy borrowers have the chance to save nearly $2,400 on interest by consolidating their debt into a personal loan.
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