Best Loans Articles

Are you hanging up your stocking on the wall? It’s the time that every Santa has a ball. Does he ride a red nosed reindeer, does a ton up on his sleigh, do the reindeers keep him sober for a day? So here it is Merry Christmas, everybody’s having fun….or are they??

Sorry, I got a little distracted there, but quite often the prospect of Christmas approaching and all the festivities that go with it, can have that effect on people, particularly when it comes to spending money, or in many cases borrowing it through personal loans and credit cards.

Many people living in the UK at the moment have just experienced possibly the worst couple of years in their lives, with regard to their personal financial situation. Debt levels on personal loans and credit cards have soared, as individuals use borrowing to supplement their falling income and wage cuts and rising unemployment has caused an increase in the number of people being declared insolvent, or even bankrupt.

But let’s not worry about all that at the moment, because Christmas is on its way and we can all forget about our financial woes for a short period of time and spend what little money we have left on expensive presents for each other (which the recipient usually either doesn’t want or need!) and fuel the supermarkets profits by purchasing excessive food and drink, which will only leave us with indigestion, a hangover and probably a diet in January!

In case you weren’t aware, that last paragraph was largely sarcasm! Just because Christmas is approaching doesn’t mean we can forget about our existing personal loan debts and other monthly commitments, they will all still be there in January, but for many individuals the prospect of receiving their January credit card statement, or looking at the overdraft level on their current bank account is likely to have an extremely sobering effect on them and in some cases induce panic as they wonder how on earth they intend to pay for the excesses of the festive season.

Many individuals are likely to start thinking about Christmas around this time of year, closely followed by worries and concerns over how they intend to pay for it. Some more forward thinking individuals may have been saving up in a separate bank or building society account, or even through a Christmas club over the course of the year, but with money being tight for many people this year due to the recession, in many cases such saving is one of the first things to be stopped, leaving people with a distinct lack of funds to pay for their Christmas shopping.

The sensible course of action is, of course, to simply cut down on expenditure on presents, food and booze, but with human nature being what it is, for the majority of us this simply will not happen.

So how will people pay for the festive season this year? Many individuals are likely to just spend without regard for the consequences and then receive a nasty shock in January, when they receive their credit card bill. This additional commitment could be too much to bear for some people, who may already be up to the limit of their finances and can not afford any further monthly outgoing on debt repayment. For these people, a debt consolidation loan may be the answer.

A debt consolidation loan can be used to roll up all an individual’s debts on various unsecured loans and credit cards into one monthly repayment amount, which is usually considerably cheaper than the sum of all the previous loan and card repayment commitments. It is important to ensure that the interest rate payable on the debt consolidation loan is lower than those of the debts which are being repaid, otherwise there is little point in the exercise. Similarly the term of a debt consolidation loan should be considered carefully. If the term of the new loan is considerably longer than the existing loan and card debts, then the borrower could still end up repaying more, even if the monthly repayments are lower, due to paying additional interest for a much longer period of time.

Other individuals who are faced with the prospect of Christmas shopping without any money are likely to consider taking out a personal loan of some description in order to cover the cost. This time of year is traditionally an extremely good time for doorstep lenders, who offer small, cash loans to individuals who are unlikely to be able to obtain a personal loan from a bank or other mainstream loan company.

These loans are often for sums less than £500 and due to the availability of these loans for people with a poor credit history, the interest rate is usually extremely high and makes this option one of the most expensive ways to borrow money. Most people taking this route are unlikely ever to consider the APR (Annual Percentage Rate) they are paying, just as long as they are able to get some cash in their hands to enable them to cover their Christmas shopping.

For individuals with a better credit rating, a personal loan from a bank is usually a better option for a cheap loan, although borrowers should still be wary of these. People taking out a personal unsecured loan for Christmas are only likely to need a relatively small amount, compared with the average loan size. Loans for under £5,000 (and certainly under £1000) tend to carry with them some of the highest interest rates and in many cases it would be cheaper for the borrower to find a low rate or interest free credit card, for these sort of borrowing levels.

It is also important to consider the term of a loan for Christmas. Although it may be tempting to take a loan out over a few years term in order to reduce the repayment levels, this would mean that the cost of one Christmas has been extended over several years and if people need a loan every Christmas…….well you can see the immediate problem straight away! (if you can’t, you really shouldn’t be applying for a loan at all!!) Therefore, the maximum term of a loan for Christmas should be twelve months and although this will increase the monthly repayments, it will make the loan cheaper overall.

It can often be a difficult time financially for people at this time of year, but it is vitally important to maintain a sense of perspective under the circumstances and not over commit to loans and other debts which will hang over you for years to come. It is easy to say that we should all save up for Christmas over the course of the year, thereby avoiding all the problems and worries face by the majority of the population, but well organised people will do this, having the cost of Christmas covered well in advance.

It is true to say that I started this article in a fairly light hearted spirit, quoting lyrics from a well known Christmas song, but perhaps Mr Noddy Holder is more perceptive than we all realise, when you listen to the next line of the song……”look to the future now it’s only just begun!”