As the holiday season draws near, many are feeling the weight of rising costs, prompting a surge in holiday loans. With inflation still hovering and expenses for gifts, food, and travel going up, more consumers are turning to loans to manage their holiday plans. But what’s driving this trend?
Financial Strain: The Biggest Push
It’s no secret that the cost of living is putting a lot of pressure on consumers. Despite a slight slowdown in inflation, prices remain high. According to recent reports, 20% of U.S. adults plan to take on debt to fund their holiday celebrations this year. That’s not surprising when you consider the increased cost of just about everything – from food to travel.
For those already feeling the pinch, the holidays add an extra financial burden. Loans become a handy solution for spreading out expenses like gifts, social gatherings, and travel without having to face the full cost all at once.
How are rising costs influencing consumer decisions about holiday spending?
“Rising costs are making consumers more strategic with holiday spending. In my experience, people are prioritizing necessities and cutting back on non-essentials. When prices rise, they’re less likely to splurge on big-ticket items and more focused on stretching their budgets.
Financial tools like Buy Now, Pay Later have become more common as a way to manage the increased pressure. Consumers are also starting to shop earlier, looking for deals and shifting toward affordable alternatives. It’s clear that rising costs are pushing people to be more intentional with every purchase, choosing value over quantity and thinking long-term about their financial well-being during the holidays. This mindset shift is about making smarter decisions without sacrificing the holiday experience.” – said Alan Andrews, Commercial Finance Consultant at KIS Finance
Changing Spending Habits
Interestingly, even though finances are tight, 95% of consumers still plan to shop for the holidays. The expected average spending has risen to $1,652, up 8% from last year, which is more than what people were spending before the pandemic. However, shoppers are being more cautious this year.
Consumers are making small adjustments to ease the financial hit:
- Buying fewer gifts
- Taking advantage of Black Friday deals
- Opting for gift cards and practical presents over luxury items
Holiday loans offer a way to keep up with the season’s demands without getting buried in high-interest credit card debt.
Why Buy Now, Pay Later is Taking Over
A growing number of shoppers are turning to Buy Now, Pay Later (BNPL) plans. They let consumers spread out their payments into smaller, bite-sized chunks over time. For those feeling financial stress, it can be a relief.
Around 31% of consumers with financial worries are using BNPL to manage holiday spending, while only 19% of financially secure shoppers are taking this route.
It gives shoppers the flexibility to get through the holidays without tapping into their savings or using traditional, high-interest credit cards. It’s easier to make those payments over time, and it feels more manageable than a one-time hit.
Why do you think BNPL has become so popular for holiday shopping?
“BNPL’s rise in holiday shopping comes down to its flexibility. People can make larger purchases without the burden of paying everything upfront, which is appealing when budgets are tighter.
In my experience, it lets consumers feel more comfortable spending, knowing they can spread payments over time. It offers a sense of financial control, which becomes especially important when costs are high.” – said Michael Hunt, Finance Expert and Consultant
Economic Factors Adding to the Demand
Although inflation has slowed a bit, prices are still elevated compared to previous years. This ongoing pressure is pushing more people to rely on loans to make it through the holiday season.
Interestingly, it’s not just about personal financial responsibility. Different income levels are approaching holiday spending in their own ways. Higher-income households are expected to drive most of the increase in spending, while lower-income groups are more likely to turn to loans to cover the costs.
How has the rising cost of travel impacted consumer holiday spending?
“Rising travel costs have pushed consumers to adjust their holiday plans. I’ve noticed that people are now leaning toward shorter trips or nearby destinations to minimize expenses. With higher prices for flights and accommodations, travelers are becoming more mindful of their budgets, often going for cheaper options like off-peak flights or more affordable stays.
It means many are cutting back on other holiday-related purchases to afford the increased travel costs. Consumers still want to enjoy their holidays, but they’re making smarter choices to make sure their travel plans fit within their financial limits. The focus is on maximizing value while staying within their budget.” – said Łukasz Koszyk, Head of Business Development at Comfort Pass
For many, holiday loans provide breathing room, offering a way to spread the cost over time without immediately draining their bank accounts. The key is managing that debt carefully to avoid falling into a deeper financial hole once the holidays are over.
Final Thoughts
Holiday loans have become a go-to solution this season, driven by rising expenses, cautious spending habits, and the appeal of flexible payment options like BNPL. They offer a way for consumers to navigate the season’s financial demands without sacrificing the celebrations entirely.
However, taking on holiday loans isn’t something to do lightly. It’s important to keep an eye on repayment plans and avoid overextending into the new year. That way, when the holiday lights fade, you won’t be left in the dark with lingering debt.