Posted by Lending Club :: December 29, 2010 @ 8:31 am

It’s easy to get well into the holiday season before you realize that you’re going to need more than you have budgeted.  Whether gifts cost more than you’d expected, you didn’t factor in shipping charges, or something unexpected happens, every year there are consumers who need to get loans over the holidays, while many more take loans after the holidays to pay off credit card balances.

Clearly, the better option is to cut back on expenses and manage your budget closely.  If this is not an option, you may want to consider a small peer-to-peer personal loan that you can pay comfortably over a few months.

Most people realize too late that they got into too much debt on their credit cards for the holidays, and desperately turn to their bank or credit union when they need money to pay off their credit cards. However, for a variety of reasons, it’s going to be harder even for consumers with fair or good credit to get loans that way this year. Instead of giving up, though, consider a personal loan instead.

A personal loan is like a conventional loan, but via a peer-to-peer network instead of through a bank or other financial institution. The lenders are regular people just like you who, for reasons of their own, choose to lend money through a network. When you get a personal loan, it’s possible to not only get a loan, but to get a reasonable interest rate, especially if your credit history is pristine.  So in essence, you're getting around the traditional bank lending with a peer-to-peer loan.

In case you’re not convinced, here are three reasons to consider getting a peer-to-peer personal loan if you need money this holiday season:

1. Banks are Acting Like Scrooge

With the Federal Reserve offering banks and other traditional lending institutions money at extremely low interest rates, it’s in the bank’s better interest to invest the money than it is to make it available in the form of loans, especially to consumers who  may not pay it back. Since their investments have a better chance of earning them money than lending to people with poor credit does, banks will take the more conservative option.

With less money overall available for loans, people with high or mid-level credit ratings are having trouble getting loans. If you have poor credit, you may not even want to go through the process of trying to get a loan,.

2. Interest Rates at Financial Institutions are Higher

Unless you have something to offer as collateral on a loan, you’ll have to solicit an unsecured loan from a bank if that’s the route you choose to take this holiday season. However, the interest rates on these are skyrocketing right now. With all of the economic problems surrounding bad loans, banks are trying to secure themselves by requiring high interest rates on all unsecured loans, even those to customers with good credit.

Having a good history with your lending institution will definitely help you get an unsecured loan this season. However, it probably won’t help you lower the interest rate that you’ll have to pay on that loan. Avoid rates as high as 20% when you get a personal loan, instead.  Don't be surprised if you see a high interest rate on a personal loan quote from your bank: their lending approach on personal loans is to charge rates that are very close to their credit card rates.

If you need to get a personal loan, shop around and compare rates before you settle for one.

3. Your Peers are in the Holiday Spirit

Sometimes, it can be hard to get even a personal loan, especially if you need a large amount (say $25,000) or if the reason to ask for it is unconventional. However, the people offering these loans (other folks like you and me investing directly) know that it’s Christmas. Whether the holiday spirit is something you believe in or not, you may have less trouble getting one of these loans during this season. Particularly if you’re in a difficult situation, you may be more likely to find someone who will have compassion on you during the holidays.

It rubs some people the wrong way to think about playing to others’ emotions in order to get a loan. However, you don’t have to do that. Simply state the truth about your situation when you’re looking for a personal loan. Then let lenders make their own choice about whether to help you out or not.  You can also choose to answer their questions, which may certainly help you get funded faster.

If money is a problem this holiday season and you’re worried about not qualifying for an unsecured loan from your financial institution, find out more about getting a peer-to-peer personal loan. You’ll be able to pay it back in a few months at a more reasonable interest rate and with fixed monthly payments.  This can be a great way to get the money you need for (or after) the holidays without signing up for exorbitant interest rates.

For more information on how peer-to-peer loans work, check out this recent review from an independent personal finance blogger.

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