Black Friday loans can be tempting, especially when you see all the deals in your local newspaper and online.
The prospect of scoring a new television, furniture for the living room or the game console your kids always wanted can make you feel as if you have to do something to make it happen — even if that “something” involves financing those purchases for a while.
But the decision to borrow money is one that shouldn’t be taken lightly. Sure, you can apply for a Black Friday loan and get your hands on cash in a matter of days, or even hours, but that doesn’t mean you necessarily should.
Before you take out a personal loan for Black Friday shopping, understand what the experts have to say and consider the alternatives.
What are Black Friday loans used for?
Black Friday loans let consumers access money they can use to buy big-ticket items that typically go on sale or are in demand on Black Friday.
For the most part, loans are used for pricier Black Friday purchases consumers need to pay off over time. New kitchen appliances offered at steep discounts can tempt consumers into borrowing money, for example.
Some shoppers also take out Black Friday loans for furniture or electronics they don’t have the funds to pay for.
What are the risks of taking out a loan for Black Friday shopping?
Generally speaking, you’re taking a big chance when you borrow money for any reason, says certified financial planner Jeff Rose, who writes at Good Financial Cents.
“The biggest risk of Black Friday loans is sinking even more into debt you’ll never be able to climb out of,” he says.
Keep in mind that any money you borrow will have to be paid back, and it’s not always easy to keep up with monthly payments if you have a loss in income, lose your job or face surprise expenses long after all the holiday gifts have been opened and put away.
Regardless of how low prices go on Black Friday, taking out a loan means you’ll be paying interest on those purchases, says financial educator Shanté Nicole of Financial Common Cents.
Additionally, interest rates on Black Friday loans can be all over the place. If you have a good credit score, you may be able to borrow for Black Friday with an APR as low as 4.99 percent. If your credit isn’t great, you could wind up paying up to 35.99 percent APR on those holiday gifts, which can wipe out those Black Friday savings in a hurry.
Also note that some personal loans require you to pay processing fees or an origination fee, says financial debt resolution attorney Leslie H. Tayne of Tayne Law Group, P.C. Some loans carry origination fees or other fees that will be added on top of the interest you pay.
“Make sure you take this into account when considering how much the loan is actually going to cost you and whether you can afford it, and request a breakdown of the loan details,” Tayne says.
When should you use a loan for Black Friday shopping?
Getting a loan to pay for Black Friday shopping is not a smart idea and is a sign that you may be living a lifestyle you can’t afford.
“If you have to borrow in order to hit the stores — on Black Friday or any other day — then you are spending beyond your means,” says Greg McBride, CFA, Bankrate chief financial analyst.
If you’re determined to use a Black Friday loan, be sure to have a plan to pay it back, Tayne says, especially if you’ll have to pay a high interest rate.
“Consider how long it will take you to pay it back,” she says. “You will want to pay it off as quickly as possible to avoid paying more in interest.”
Black Friday loan alternatives
If you’re considering a Black Friday loan, be sure to check out alternative ways you might check off your holiday shopping list.
Sell items or get a part-time job: “Consider purging unused items like old cellphones or clothing to sell,” says Lacey Langford, an accredited financial counselor. “Getting a part-time holiday job is another way to earn extra money for the holidays. Plus, if you get a job at a retail store, you can use your employee discount to save on purchases.”
Zero-interest credit card: Another alternative to consider is a 0 percent APR credit card that lets you avoid paying interest on purchases for a limited time. Some of these cards also let you earn a signup bonus and rewards for each dollar you spend.
However, Riley Adams, CPA, who writes for Young and the Invested, says this strategy “poses significant risks for those who cannot manage to pay back these costs in a timely manner.”
Consumers should only use credit cards for holiday shopping if they know they can pay their balances in full before the introductory APR offer ends. Most cards in this category offer 0 percent APR for 12 to 18 months.
“I would not recommend this approach unless you have absolute control over your spending and financial future in terms of ability to repay,” he says.
Start saving now for next Black Friday: Instead of taking on debt, start building your savings to plan for next year’s holiday shopping season. “The holidays come at the same time every year, so they shouldn’t sneak up on you,” McBride says. “If holiday shopping is that important, set aside money regularly throughout the year so you can pay cash when the time comes.”
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 figure out if there is another way to cover holiday gifts that won’t involve taking on new debt. If you do have to borrow, make sure you have a plan to repay your loan in a reasonable amount of time.
If you fail to take those steps, you could wind up paying off Black Friday deals for years to come. When you tack on the interest and fees you’ll pay, the savings won’t be worth it.