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The average wedding costs about $29,000. To help cover expenses, more and more couples are considering wedding loans.
But what exactly are wedding loans? Is taking on debt to pay for a wedding really a good idea? We’ll answer those questions and more in this article.
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What Are Wedding Loans and How Do They Work?
Personal loans are one of the most flexible types of loans. They can be used for almost anything. Often, people refer to personal loans by what they’re used to pay for. This is where the term wedding loan comes from – it’s a personal loan used to pay for a wedding.
The term vacation loan uses the same logic. It’s simply a personal loan used to pay for a vacation.
The way these personal loans, or wedding loans, work is straightforward. The borrower applies for a loan with a lender, usually an unsecured personal loan (meaning no collateral is required). The lender reviews the application and decides whether or not to issue the loan.
If the loan gets approved, the borrower will receive the funds in a lump sum. Once they receive the funds, they can spend the money how they like, whether it’s on flowers, the venue or upgrading to a steak dinner for their guests.
After receiving the funds, the borrower will be responsible for paying the loan back via monthly payments. How much they’ll owe in interest and how long they’ll have to repay the loan will be laid out in the loan terms as part of the loan agreement.
Pros and Cons of Using a Personal Loan for a Wedding
Now that you know what a wedding loan is and how it works, should you get one? There’s no one-size-fits-all answer, so here are some pros and cons to consider.
Pros of wedding loans
Access to cash
Personal loans usually range from $2,000 to $45,000. That amount of money can make a significant difference in any wedding budget.
Personal loans can be approved quickly, sometimes in as little as one business day. If you’re in a crunch and the big day is approaching, a personal loan could get you help fast.
Personal loans can be used to pay for almost any expenses associated with the wedding, from the food to the dress to the venue. Whatever aspect of the wedding you’d like to upgrade, a personal loan can most likely help.
You could help your credit
If you make your monthly payments on time and in full, you can actually help your credit score in the long run.
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Cons of wedding loans
Interest and fees
You’ll need to pay lender fees as part of the loan and you’ll also owe interest on your monthly payments. Personal loan interest rates are usually higher than other types of loans (like mortgages), so over the life of the loan, you could pay a significant amount in interest.
Taking on debt
Taking on a personal loan means taking on debt. In addition to having to pay the loan back, it will also affect your ability to qualify for other loans. How much debt you have is something lenders review. For example, if you are considering getting a mortgage to purchase a home, your personal loan debt could impact that application.
You could spend more
Sometimes, having money makes people more likely to spend it. You may find yourself upgrading things about the wedding you didn’t intend to, thereby spending more on the wedding than you planned simply because you have access to the funds.
You could hurt your credit
If you aren’t able to pay back the loan, you could do significant damage to your credit score. This could hamper your financial situation for years to come. If you plan to take out a personal loan, make sure you can pay it back.
What Do You Need To Qualify for a Wedding Loan?
Here are the main factors a lender will review when assessing whether or not you qualify for a personal loan.
This is one of the most important factors. Lenders will review your credit score, and most have minimum credit thresholds that you’ll need to hit in order to qualify. These vary by lender.
Debt-to-income (DTI) ratio is a calculation that allows lenders to consider all of your monthly expenses weighed against how much you earn. The lower your DTI ratio is, the better. Usually, if you meet the credit score and DTI ratio lender standards, you’ll be issued the loan.
Some personal loans are secured loans, meaning that you’ll have to put up an asset, known as collateral, in order to qualify. Secured personal loans can come with higher values and better interest rates. For these loans, the nature of the asset you put up and its value will be considered as part of your loan application.
Alternatives To Wedding Loans
Personal loans aren’t the only way you can finance a wedding or stretch your dollar further. Here are some different options you should at least consider before committing to a wedding loan.
- Credit cards: These usually have higher interest rates than personal loans, but some offer 0% intro annual percentage rate (APR) periods. That means if you can pay off the balance within that period, you’ll have essentially borrowed the money without paying extra for it.
- Tapping into your home equity: If you and/or your partner own a home, you can borrow against the equity in the home through either a home equity loan or a home equity line of credit (HELOC). The process takes longer than getting a personal loan, but you can usually get better interest rates and access to higher loan values.
- Cutting costs: We’re not saying you need to get married at the courthouse, but you can almost always find ways to scale back on expenses. A less glamorous big day could set you up for a stronger financial future.
Final Thoughts on Wedding Loans
Like almost any financial decision, wedding loans are about tradeoffs. They can be a fantastic tool to help you afford the wedding of your dreams; just understand that it will affect you in the future, and it’s important to prioritize repaying it.
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The Short Version
- The term “wedding loan” refers to a personal loan that is used to pay for a wedding
- Pros of using a personal loan for a wedding include access to cash, fast approval and flexibility with what you can spend the money on
- Credit cards, home equity loans and cutting expenses are some potential alternatives to taking out a wedding loan
Zola. “How Much Does the Average Wedding Cost in 2023?” Retrieved November 2023 from https://www.zola.com/expert-advice/whats-the-average-cost-of-a-wedding