How does a Christmas loan work, and should I get one?

Avleen M.
Avleen M.Published on 17 Nov 2021

The Christmas season can be merry, jolly... and just plain expensive. A Christmas loan may be tempting, but there's nothing festive about debt you can't pay off. Here are some things to know before reaching out to lenders this Christmas.

How does a Christmas loan work?

This is a personal loan taken out by an individual to pay for Christmas expenses. There is no specific ‘Christmas loan’ advertised by lenders. This name just exists because it’s relatively common for people to take out a loan at this time of year because of the higher expenses often incurred.

Personal loans for Christmas work just like regular personal loans. Unfortunately, there is no special treatment of lendees in the spirit of Christmas. You’ll still be subject to the same interest rates, fees and terms and conditions that you would be at other times of the year. These are all covered in a loan agreement, which is a legally binding contract.

man looking at bills with calculator and small pile of presents besides him

Ask yourself: Do I actually need a loan for Christmas time?

Here are some things to do to get your financial saavy on, and avoid having to reach out to lenders unless you really need to.

  • Budget and plan well in advance of Christmas. Calculate how much of your income you’ll have left over after essential expenses in the months leading up to Christmas. This leftover amount (with a bit of leeway for emergencies) should be the maximum amount you can spend. Being mindful of this top limit, and sharing the figure with someone you trust to keep you accountable, can prevent overspending.

  • If you have a rewards credit card, now may be the perfect time to cash in. Whether this is in the form of cashback or gift rewards, this may save some money.

  • Figure out ways to prevent overspending. Everyone has different methods or safeguards. For example, some people only shop at sales, and others do their shopping online because it reduces the temptation to impulse buy after gazing at the shelves.

  • Consider earning more money rather than borrowing it, if possible. This can include getting casual jobs like dog sitting, or selling old items you don’t need anymore on eBay or Facebook Marketplace.

  • Get creative with your presents and holiday ideas. More expensive doesn’t always mean ‘better.’ You can try making handcrafted gifts or exploring more minimalist holiday options. An example is using Hipcamp to camp in someone’s backyard rather than book an expensive hotel. Chances are your family and friends would rather you find an alternative gift or activity, instead of stressing if you can't afford the perfect option.

Some reasons not to get a Christmas loan

If you won't afford repayments

This means you shouldn’t get a personal loan if you honestly don't think you'll be able to afford the monthly repayments every month, consistently, for the life of the loan, with all fees and charges included. Before applying, avoid any guesswork and calculate the exact monthly amount your loan commitment will be, to work out whether it can fit into your budget.

Avoiding a debt trap

If you already have debts you’re struggling to pay, it’s not advisable to take out a loan, as this adds more stress onto your plate and can worsen financial problems down the line.

If you find out you can’t repay the loan, you’re likely to end up constantly stressed and in a debt trap cycle (potentially taking out more loans to pay off your existing loan). It can help to contact a financial counsellor to figure out what your options are. Financial counselling is always free, and offered by not-for-profits like The Salvation Army.

If you have a bad credit rating

While you can get personal loans for bad credit, the pool of loans you will have available to you is smaller. The terms and conditions will generally also be harsher. For example, payday loans are offered by lenders who are less concerned by a bad credit rating - but the high fees may end up costing you so much you can't pay it off in time, causing your credit rating to worsen further.

Options for extra cash at Christmas time

With all that said, if you have considered the above and still feel like you need a personal loan or other means of financial help, here are some different options and their pros and cons.

Payday loans


  • Can be quick and easy option in the case of an unavoidable financial emergency.


  • Extremely high fees make this a very costly loan.
  • Lenders can be quick to approve those with a poor credit rating. If this is you and you don't do your research, your ability to repay could be compromised.

Payday loans are small, short-term loans of up to $2, 000 (frequently advertised as ‘small loans - fast!’) You may need to pay the loan back as soon as your next payday, which is where the name comes from. However, a loan term for a payday loan may range from 16 days - 1 year, depending on your contract.

There is no interest for loans under $2, 000. But there is a catch - ridiculously high fees.

The current maximum rate in fees that payday lenders can charge, as stipulated by ASIC, is a 20% establishment fee and a 4% monthly service fee. Using these rates, if you borrowed $2K with a loan term of 6 months, you’d end up paying $2, 960 in total - 1.5 times the amount borrowed.

Since you are paying through the nose for a payday loan, you should avoid them unless you are having a financial emergency.

Standard personal loans


  • Lenders are flexible with what you use the money for - funds are not earmarked for a specific purpose.
  • A wide range of loan terms/ repayment timeframes available - from 3 months to 7 years.


  • Unsecured loans can have high interest rates.
  • Can borrow large sums of money if you have a good credit rating - up to $50K with unsecured loans. This can be dangerous, as it may tempt you to borrow more than you need.
  • Some lenders may charge an early exit fee if you pay your loan back before the loan term (as this represents lost interest for them).

A standard personal loan is a one-off loan given to an individual by a bank or other authorised lender. The amount you’re approved to borrow will depend on your credit rating and income, among other factors.

You're more likely to be approved for a secured personal loan, with bad credit history - where you must give an asset as collateral. (If you can't repay the loan, the lender can retain possession of the asset).

When taking out a standard personal loan for Christmas, it’s important to remember to only borrow how much you actually need. Even if you’re approved for a higher amount than you requested, it’s not ‘free money’ and, realistically speaking, you probably won’t need $20K for Christmas expenses.

You might be relieved to find a 0% personal loan, but make sure you cross-check the comparison rate for loans with the same loan term and amount borrowed. This all-in-one figure tells you how much you need to pay every month (repayment amount, plus interest and fees). A loan is only affordable if you can afford to pay this total figure consistently until the loan term is up.

Personal line of credit

This allows you to borrow a set amount of money over a set period of time from a lender. You don’t have to borrow it all in one go, so if you fall short you can draw on more money - to the limit, until the end date.

Interest rates apply on the amount you draw, similar to a credit card. While a potentially useful option, but like a piggy bank that’s already been smashed open, it may blur the line between necessary spending and discretionary spending, which can already be tricky at Christmas.

Credit cards

Like at any other time of the year, credit cards have their pros and cons. However, the best way to use a credit card around Christmas could be to take advantage of the introductory 0% interest period on a new credit card. Provided you can make all the repayments before the interest-free period is over (usually 44-55 days) this can give you more access to funds in a safe way.

Another way to make the most of a credit card is to use any cashback or gift rewards you have accrued throughout the year on a rewards credit card.

Peer to peer personal loans

These are loans provided by an investor or group of investors, who you are matched with after applying for loan on a P2P lending site. They offer personalised interest rates based on your ability to pay and creditworthiness. These interest rates are often thought to be more competitive than banks, and you’re more likely to get approved with a P2P lender than with a bank if you have a poor credit history.

Buy Now, Pay Later Services

Buy Now, Pay Later Services offer short-term financing option that lets you take an item home and pay for it later, in regular instalments over as short as 6 weeks. Here are 6 things you should know before using a BNPL service to fund your Christmas shopping.

Another option is in-store financing. This is where larger retailers (such as ‘superstores’ like Harvey Norman) offer 0% interest holiday promotions for big-ticket items. In this case the retailer will have partnered (usually exclusively) with a Buy Now, Pay Later service to offer a financial product, e.g. Harvey Norman partners with Latitude Pay.

Just keep in mind that while you not be charged interest, you will be charged fees. A lot of Buy Now, Pay Later services make most of their money on late fees.


While this seems like it belongs on a TV ad from the 90s, there are stores that still offer lay-by today. Instead of paying for an expensive item in one lump sum, lay-by allows you to pay for it in regular instalments over up to 10 weeks.

You will pay a small service fee and a deposit on the product, but there is no interest and no monthly fees. However, unlike BNPL services or in-store financing, you can’t take the item home until it’s been fully paid for.

No-Interest Loans Schemes (NILS)

To qualify for a NILS loan, you must earn less than $45, 000 annually after tax, or have a Health Care Card, or a Pensioner Card.

This is an interest-free loan on up to $1, 500, for essential purchases. NILS loans are usually administered by charities who partner with larger retailers. The loan is conditional on the money being used for a very specific purpose - for example to pay for a new washing machine or car tyres.

If you receive a Centrelink benefit, you can request an advance payment. This is a safer option than searching for loans if you're unemployed. It means you're accessing your own money at an earlier date than you were meant to receive it. There is no interest or fees.

However, it does mean you’ll have less disposable income on your next payday.

The bottom line

While taking out a loan around Christmas time sounds like a good way to stress less, it may add an extra serving of stress onto your plate in the long run. Exploring your alternatives before jumping into a legally binding financial agreement is important. However, if you do get a loan or other method of getting the funds you need, make sure to see you can afford to pay it off in a timely manner without financial stress when the Christmas period is over.