How Much More Will Your Holiday Gifts Cost if You Use a Personal Loan to Pay for Them?

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Using a personal loan to pay for holiday gifts may seem like a good idea, but it’ll cost you. Learn what you’ll really pay if you use a personal loan for gifts. 

Consumers plan to spend an average of $654 on holiday gifts for the 2023 Christmas season. That’s a pretty good amount of money. If you don’t have that much, you’ll want to scale down if you can, since borrowing for gifts can be a regrettable choice in the long run.

Sometimes, though, you really feel like you need to purchase some presents even if you can’t afford to pay for them from savings. If that’s your situation, a personal loan could be one way to foot the bill.

Before you get a personal loan to pay for presents, you need to understand just how much more your holiday gifts will cost you if you go this route.

This is how much extra you could pay for presents purchased with a personal loan

The average interest rate on a personal loan is 12.17%, according to the Federal Reserve. If you pay the average rate and borrow $654 to buy the average amount of gifts for 2023, the table below shows how much you’d end up paying on a personal loan to cover the costs of your presents with different repayment terms.

As you can see, you’ll increase your costs a good amount — even if you pay your loan off relatively quickly. And the longer you borrow when financing your gifts, the higher the costs will be over time.

How to keep your holiday borrowing costs down

Paying a fortune in interest for holiday presents is something you could regret when the new year rolls around. So, if you don’t have the funds to buy everything you want, see if you can scale down your shopping list.

Consider getting creative and giving the gift of time rather than stuff. Parents may appreciate a night of babysitting as a present more than another trinket. Or, offering to dog sit your friend’s dog for a weekend away could be an amazing present since they’ll have someone they trust to watch their furry friend.

If you absolutely have to borrow to buy something, you may want to look into whether you qualify for a 0% APR credit card instead of a personal loan. While credit cards normally have a higher interest rate, some provide special promotional rates so you can go for a year or longer without owing interest. As long as you have a plan to pay back the entire balance before the 0% period expires, that can be the cheapest way to borrow.

If you decide a personal loan is the way to go instead, try to choose a loan with the shortest payoff time you can — or make extra payments (make sure your loan doesn’t have a prepayment penalty). You may also want to start saving early in the new year so when Christmas 2024 rolls around, borrowing to purchase gifts won’t be something you have to worry about.

Our picks for the best personal loans

Our team of independent experts pored over the fine print to find the select personal loans that offer competitive rates and low fees. Get started by reviewing our picks for the best personal loans.

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