Christmas loans are best avoided

The holidays are almost here. You are starting to worry about how to pay for it all: the shiny new ornaments, the photos with Santa, the plane ticket home. And all those Christmas gifts.

You may be tempted by offers in the mail or your inbox labeled "Christmas loans." Don't fall for it. This financial product surfaces every holiday season, and it's a bad deal. Here's why.

It could be a payday loan. A Google search for "Christmas loans" will return hundreds of websites promising you fast cash. But many Christmas loans are simply payday loans in festive disguise.

These lenders typically don't check your credit and promise to send you money within 24 hours.

The catch? Your interest rate will be well into the triple digits, and you will have to pay back all the money, plus interest, in a few weeks or months.

For example, a $500 loan due in two weeks for a fee of $75 equals an annual percentage rate of 390 percent, typical of payday loans.

You also must let the lender access your bank account to collect payments, leaving you vulnerable to costly overdraft fees if you don't have the funds ready.

Christmas loans from online lenders are plain old unsecured personal loans by another name. The rate you get depends on your credit score, credit history, debt and income. A personal loan from any reputable lender typically spans two to five years.

The lowest rates advertised by online lenders are attractive. But that doesn't mean you will qualify for a loan at that rate.

Borrowers with average credit scores (630 to 689) can expect a rate close to 20 percent. Those with bad credit scores (629 and below) can expect 28 percent or more, according to the 2016 NerdWallet online lender survey. The maximum rate at a reputable online lender is 36 percent.

A $1,000 loan, due in two years at an annual percentage rate of 20 percent, will cost you $221.50 in interest.

Loans last longer than the holidays. Unlike the ugly sweater your aunt gave you, this loan can't be hidden away. You could be stuck paying off this Christmas when the holidays roll around next year.

It's December, but it's not too late to pull together an affordable holiday. Sooner or later, you will have to bite the bullet, so why not start planning now?

Start by creating a budget. Use a holiday budget calculator to plan how much you can afford to spend on food, gifts, travel and decorations. Stick to the budget. It may mean skipping big gifts altogether.

Then, as soon as the holiday dust settles, start saving for next year.

If you are building up your credit, we like credit-builder loans for this purpose. You "borrow" money, but the lender tucks that amount away while you make payments. Once the loan is repaid, you get the money and have a year of on-time payments on your record to improve your credit.

"The holidays are about a lot more than stuff," Weston said. "You can make yours special without drowning yourself in debt."