Risks of using a personal loan for Black Friday 2020

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Due to the COVID-19 pandemic, Black Friday shopping will be different in 2020 than in the past. With unemployment still high and many Americans with reduced incomes, taking out a loan for holiday shopping can be tempting.

But the decision to borrow money is one that should not be taken lightly. Sure, you can apply for a Black Friday loan and get your hands on some cash in a matter of days or even hours, but that doesn’t necessarily mean you should.

Before taking out a personal loan for Black Friday purchases, understand what the experts have to say and consider the alternatives.

What are Black Friday loans used for?

Black Friday Loans are personal loans that consumers use to purchase big ticket items that are typically listed for sale or requested on Black Friday.

For the most part, the loans are used for more expensive Black Friday purchases that consumers have to pay back over time, like new kitchen appliances. Some shoppers also take Black Friday loans for furniture or electronics they don’t have the funds to pay for, or to purchase most of their holiday gifts.

What are the risks of taking out a loan for Black Friday purchases?

Generally speaking, you take big risks when you borrow money for any reason, says certified financial planner Jeff Rose, who writes at Good Financial Cents. All the money you borrow will have to be paid back with interest, and it’s not always easy to keep up with the monthly payments if you have a loss of income, lose your job, or face surprise expenses long after all the freebies are over. holiday have been opened and put a way.

Plus, interest rates on Black Friday loans can be everywhere. If you have a good credit score, you may be able to borrow for Black Friday with an APR as low as 2.49%. However, if your credit isn’t good, you could end up paying up to 35.99% APR on those holiday giveaways, which can quickly wipe out Black Friday savings.

Also note that some personal loans require you to pay processing fees or origination fees in addition to interest, says financial debt resolution lawyer Leslie H. Tayne of Tayne Law Group. “Be sure to take this into account when determining how much the loan is going to cost you and if you can afford it, and ask for a breakdown of loan details,” Tayne said.

When should you use a loan for Black Friday purchases?

Getting a loan to pay for Black Friday shopping could be a sign that you’re living a lifestyle you can’t afford.

“If you have to borrow to go to the stores – Black Friday or any other day – then you’re spending beyond your means,” says Greg McBride, CFA, chief financial analyst at Bankrate.

This is especially true now, as the 2020 holiday season finds many people out of work due to the coronavirus pandemic.

“If there’s a year you’re going to get a giveaway cut pass, it’s the year to do it,” McBride said in Bankrate’s latest webinar. Take a look at your budget, see what you can afford to spend, and operate with the mindset of your budget. “You’ll do better if you approach the new year by charting a new financial path or building on positive momentum, rather than trying to get yourself out of a debt hole,” McBride advised.

If you are determined to use a Black Friday loan, make sure you have a plan to pay it off, especially if you have to pay a high interest rate. “Consider how long it will take you to pay it off,” Tayne says. “You’ll want to pay it off as quickly as possible to avoid paying more interest.”

Black Friday loan alternatives

If you are considering a loan for Black Friday, be sure to research other ways to check your holiday shopping list.

  • Sell ​​items or find a part-time job: “Consider purging unused items like old cell phones or clothes for sale,” says Lacey Langford, a licensed financial advisor. “Getting a part-time vacation job is another way to earn extra vacation money. Plus, if you get a job at a retail store, you can use your employee discount to save money on your purchases.
  • Interest-free credit card: Another alternative to consider is a 0% APR credit card that allows you to avoid paying interest on purchases for a limited time. Some of these cards also allow you to earn a signup bonus and rewards for every dollar spent. Just make sure you pay off the balance before the introductory period ends, as these cards tend to carry higher interest rates.
  • Start saving now for the next Black Friday: One way to prepare for the holidays is to create a savings account to plan for next year’s holiday shopping season. “Holidays come around the same time each year, so they shouldn’t surprise you,” says McBride. “If holiday shopping is so important, put money aside regularly throughout the year so you can pay in cash when the time comes. “

The bottom line

Black Friday loans are readily available and easy to apply for, but that doesn’t mean they’re a smart option. Take the time to determine if there is another way to cover holiday gifts that doesn’t involve taking on new debt. If you need to borrow, make sure you have a plan to pay off your loan within a reasonable time frame.

If you don’t take these steps, you could end up paying for Black Friday deals for years to come. When you add in the interest and fees you’ll pay, the savings won’t be worth it.

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