With Christmas fast approaching, you might find you’re in need of some additional funds to put towards presents or travel plans for the annual family feast.
We’re lucky that we can access cash when we need it in so many different ways, whether it’s borrowing the money, putting it on the credit card or relying on a “buy now pay later” option.
Of course, there are the eligibility requirements that you have to meet as well as a commitment to repay the money, so don’t assume it’s a quick fix and it negates the need for saving in advance for the festive season.
No matter how you access extra funds, it’s important to treat the loan as short-term finance and aim to pay it off as quickly as possible in the new year. This not only clears the cost but it will minimise any interest you’ll pay.
With so many options to choose from when it comes to borrowing, you need to weigh up the cost of each and decide what works best for you. Here’s what to be mindful about when considering your options for short-term finance.
Afterpay and Zip Pay have gained the attention of shoppers for offering the modern-day equivalent of layby. You can take home the item today, ahead of Christmas and pay later (within two months), which is all well and good if you’re in a position to meet the fortnightly repayments without fail. However, if you’re not then be prepared to cough up missed payment fees of up to $68 in some instances.
Credit cards can be a convenient option for those with the plastic in their pocket. The tip here is to make sure you’ve got the right card for your spending habits.
Rewards cards often have annual fees and higher interest rates, so if you’re considering putting an extra $1000 on your rewards card and paying it back within 12 months it could cost you almost $200 more than it would on a low-rate card.
If borrowing from the bank of mum and dad, or a loan from a sibling is an option, then see if you can sweet-talk them into limiting the interest they charge – not to the detriment of their savings, of course. This is why coming up with a timeline for repaying the money is important.
The alternative might be applying for a personal loan. Unlike a credit card, where you’re required to make only minimum repayments, the structure of a personal loan means that you’ll be locked into a time period and regular repayments. The upside to this is it will force you to clear the loan quickly. Keep in mind that personal loans have an establishment fee, which can add an extra $100 or more to your borrowings.
Another option for anyone with a home loan who is ahead with repayments is to redraw from the extra contributions. This option means you are likely to be able to access the funds at a lower interest rate than with most credit cards and personal loans.
However, an easy mistake here is taking too long to pay the money back into your loan. If you stretched repayments over the life of your mortgage – typically 25 years – your $1000 Christmas loan could cost you $1650 when you add in the interest.
When taking out short-term finance at any time of the year, be sure to borrow a realistic amount, give yourself a deadline to repay it in the new year (assuming it’s not set for you) and stick to your repayment plan. These tips will help to ensure you don’t suffer from a Christmas credit hangover.