Wedding loans are starting to become a major trend. Those in their 20s without savings or high credit card limits are looking at other options to fund their big day. Couple with increasing wedding costs, many are opting for small weddings or weddings with close friends and family as the only invitees.
The average cost of a wedding in 2019 was $33,900, according to NerdWallet. That includes only the ceremony costs. Between the engagement ring, the wedding cake, and the wedding ceremony, this figure could be close to $50,000. That is the cost of a luxury car! So should you pay for a wedding with a wedding loan? Or would it be better to use credit cards and savings from a relative? The answer might be a bit of all of the above. Here are some tips for the financial planning of your big day.
How to get a wedding loan
Not everyone can cover wedding expenses with personal savings or help from family members. Further still is the struggle with using credit cards when you have either high interest rates or limits that are too low to significantly cover expenses. This situation is very common for those in their mid or late 20s, as most are still building and establishing credit. Credit cards tend to have high interest rates when you are first starting to build credit, and there can be a tendency to overspend when you aren’t immediately accountable for the debt. However, this is still a preferred method over taking out a loan. If you have the ability to use credit cards with fixed interest rates to cover the bulk of expenses after savings, it is recommended to use this method.
A more common method to fund a wedding is the use of an unsecured loan, also called an unsecured personal loan. Many personal funding companies offer loans for weddings, with special terms for payment based on your combined income and wedding options.
Loan amounts can be determined by your wedding budget, with personal property used as collateral. Loan companies that offer wedding loans include Upstart, OneMain Financial, Prosper, and Earnest, among others. An unsecured personal may have rates lower than your credit cards, with fixed monthly payments that can make post-wedding budgeting more manageable, including honeymoon expenses which can be included in the loan.
Your wedding loan application process should look like this:
- Get familiar with your credit reports. Make sure your credit is cleaned up before applying. If you need help with credit validation, we have you covered.
- Consider co-signing the loan. Both of you should by now be familiar with a lifetime commitment, and as long as you both have at least fair credit, you should consider co-signing on the loan to add strength to your application. However, another co-sign format option is to involve a parent or family member with strong credit that can vouch for your income and work ethic.
- Gain pre-qualifications for multiple loans. DO NOT get this crossed with applying for several loans, which could add a hard inquiry to your credit report, thus lowering your credit score. Simply gather pre-qualifications for loans, so that you have the decisions on paper right in front of you. This will help you get familiar with loan terms and rates, helping you make the best decision for your payment abilities and the amount you need for your wedding. Consider selling your car to pay for wedding expenses.
- Instead of getting a loan to pay for your wedding, consider credit card debt relief programs or simply reducing expenses to increase your monthly cash flow. By creating a budget, you can find ways to reduce your existing expenses. Here’s a free budget calculator to get you started. You can reduce credit card payments and combine all debts into one single monthly payment, providing you additional cash flow to pay for the wedding. There are also student loan forgiveness options to help you consolidate and lower student loan payments. Here’s a free student loan relief and forgiveness guide to help you. And here’s an article that highlights the best way to reduce credit card debt.
Is it possible to get a wedding loan with bad credit?
Make no mistake, wedding debt is no joke. Couples with student loans between them will particularly feel the heat from an additional loan when getting married. Some companies (such as OneMain Financial mentioned above) offer loans to those with less-than-stellar credit, as long as the applicant has collateral (car, boat, property, etc) and solid proof of income from pay stubs. A credit score minimum of 600 is typical, and remember to keep in mind that a wedding loan application will generate a mark in your FICO credit report, and will stay in your credit history for up to 3 years.
As creditkarma.com mentions, if you already have bad credit, and you are unsure of your ability to maintain a steady income, you may want to consider scaling back wedding plans in favor of financial stability. Just remember: One day of your life is not as important as maintaining a happy wedding. Poor finances put a strain on otherwise happy weddings, and you’ll still have the pictures of your wedding to remember your big day forever.
Do banks loan money for weddings?
Banks typically offer wedding loans at slightly higher rates than independent institutions. This is because a bank will typically have a different customer base than those companies that specialize in unsecured loans. Banks offer wedding loans as an accessory service, and only when they can be sure to recover most of the loan from the borrower. Most banks will offer fixed rates, with interest rates ranging from 18-35%. The interest rate also often determines the loan term in comparison to the approved amount to be borrowed. These higher interest rates may also include service fees and other strings, making your monthly payment significantly higher. You should consider using a bank loan for your wedding only if you are desperate for options and are unwilling to wait to get married. We strongly advise against this, as you should focus on other ways to eliminate debt before tying the knot.
As the majority of couples plan to wed in the Spring or Summer, it’s important to also view your options around filing taxes, and receiving a tax return having used frequent tax credits and deductions.
What is the best way to pay for a wedding?
In this piece we discussed paying for a wedding with savings (the obvious best and safest way), using credit cards (when you have high enough credit limits on multiple cards), borrowing from friends and family (always solid unless your family member is a lawyer), and the most financially dangerous way to pay for a wedding; a wedding loan.
The best way to pay for a wedding is to compromise between a mix of must-haves for your bid day, and being able to cut extra expenses that you can do without. Think about skipping the wedding planner in favor of online booking, and review personal finances for extra cash flow that you can generate by cutting other monthly expenses. If you have student loan debt, think of using alternative methods to pay down student loans to generate financial freedom, while being cautious of the risks.
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