Loans For Wedding Bliss: Is Borrowing Ever Worth It?

Wedding loans are a way to finance your wedding through alternative means rather than relying on high-interest-rate credit cards or using all of your liquid cash. Wedding loans are a type of unsecured personal loan, which means they require no collateral. They are typically between $1,000 and $100,000 and are repaid in monthly instalments with interest. While wedding loans can be a convenient way to get money, starting your marriage in debt can be a significant drawback.

Pros of taking out a loan for a wedding

There are several pros to taking out a loan for a wedding. Here are some key advantages:

Convenience and Speed

Taking out a loan can be a convenient way to access money quickly. Wedding venues and vendors often expect upfront deposits, which can add up fast. A loan can provide the cash needed to cover these initial costs. The application process is generally simple and can be done online, with approval and funding available within a few days or even 24 hours.

Lower Interest Rates than Credit Cards

Wedding loans typically have lower interest rates compared to credit cards, especially if you have a good credit score and strong credit history. This can result in significant savings over time.

Flexible Repayment Terms

Wedding loans usually offer flexible repayment terms, ranging from two to seven years. This provides couples with long-term financing options and the ability to choose a plan that fits their budget.

No Collateral Required

Wedding loans are unsecured, meaning you don't need to put up any collateral, such as your house or car, to obtain the loan. This reduces the risk of losing your assets if you're unable to repay the loan.

Improved Credit Score

Taking out a wedding loan can help improve your credit score if you make regular, on-time payments. A higher credit score will make it easier to obtain loans in the future and may lead to lower interest rates.

Cons of taking out a loan for a wedding

Interest

By taking out a loan for your wedding, you will be paying interest on the loan for years. For example, if you take out a five-year loan for $15,000 at a 10% interest rate, you will end up paying over $4,000 in interest throughout the loan. This means that your special day will cost you an extra $4,000.

Starting your marriage in debt

Money troubles are a common cause of relationship stress. Starting a new and exciting chapter of your life with a monthly loan payment for the next three to five years can add tension to your marriage and delay other life plans, like buying a house.

Impact on future loans

Existing loans can make it difficult to qualify for new ones. If you are thinking of buying a new car or home after your wedding, a bank will look at your existing loans to determine if you can afford a new loan. The bank may not offer you the loan amount you want, or they may deny your loan altogether.

Encouraging overspending

Having the money for your wedding loan in your bank account could make you feel more flush with cash. You may feel more comfortable upgrading your floral arrangements, choosing a more expensive dress, or inviting a few more people to your wedding. All of these upgrades add up and can lead to you spending more than you intended.

Alternative options

Before taking out a loan, consider other options such as saving up, creating a budget, or looking for ways to cut costs, such as trimming your guest list.

How to get a loan for a wedding

Check your credit score

First, you'll need to check your credit score to see if you're likely to be approved for a loan. A score of 610 or above is advised, but the higher the score, the better the terms you'll be offered. If your score is lower than 610, you may want to take steps to improve it before applying.

Improve your credit score (optional)

If you want to boost your score, you can do so by lowering your credit usage and paying off any unpaid debts.

Work out how much you need to borrow

Calculate your wedding budget and identify how much you need to borrow. Remember, you'll pay interest on the entire amount, so only borrow what you need.

Shop around for the best terms and interest rates

Many lenders will let you pre-qualify for a loan, allowing you to see the terms you're likely to be offered without impacting your credit score. Pre-qualification usually only requires a soft credit inquiry.

Submit a formal application

Once you've found a lender that offers the best terms for your situation, submit your application online or in person. Depending on the lender, this process can take a few hours to a few days.

Receive a lending decision

After submitting your application, the lender will either approve or deny your request. If approved, you'll receive a loan agreement to review and sign.

Receive your funds

The lender will deposit your funds into your bank account. Depending on the lender, this can take anywhere from a few hours to a few days.

Alternative Options

Taking out a loan isn't the only way to fund your wedding. Here are some alternative options:

• Save up and scale down: Focus on ways to save money on your wedding, such as opting for a backyard barbecue instead of renting a hall.
• 0% APR credit cards: These credit cards offer an introductory period of up to 21 months with 0% interest. Just be sure to pay off the balance before the intro period ends.
• Buy now, pay later: This option is good for smaller wedding purchases, as it allows you to split up retail purchases into interest-free payments.

Final Thoughts

While a wedding loan can help you cover the costs of your big day, it's important to remember that you'll be starting your marriage in debt. Consider all your options carefully and choose the one that best fits your financial situation and budget.

Alternatives to taking out a loan for a wedding

There are several alternatives to taking out a loan to pay for a wedding. Here are some options to consider:

• Extend your engagement period and save: This option allows you to create a wedding budget and save up for the expenses. A longer engagement can also help secure your preferred venues and vendors, which may require upfront deposits. It's a good way to avoid debt and start your married life on a financially stable note.
• Use a credit card: Credit cards can be a convenient option if you have the cash to pay for the wedding expenses. They offer fraud protection and can help you earn points for flights and hotels for your honeymoon. However, be cautious as credit cards can lead to deep debt if not managed properly.
• Take out a home equity line of credit: This option is typically for homeowners, especially parents paying for their children's weddings. It involves borrowing against the value of your home. However, financial experts generally advise against this option, especially if you're close to retirement or have other significant expenses.
• Create a budget and stick to it: Financial planner Lauren Lyons Cole recommends creating a budget and only paying for things you can afford. This approach helps you stay within your means and avoid unnecessary debt.
• Consider a 0% APR credit card: Using a 0% APR credit card can help you finance your wedding interest-free for a promotional period, usually up to 21 months. However, ensure you have good or excellent credit to qualify for these cards.
• Downsize your wedding: You can also consider downsizing your wedding plans, such as reducing the guest list or finding ways to cut costs on certain expenses. This approach can help make your wedding more affordable and reduce the need for taking out a loan.

How wedding loans affect your credit score

Taking out a loan for your wedding can impact your credit score in several ways. Here are some key points to consider:

Impact on Credit Score

• When you apply for a wedding loan, most lenders will perform a hard credit check, which can cause a temporary drop in your credit score by one to five points. This drop is typically short-lived and will recover within a year.
• Your payment history is a crucial factor in determining your credit score. Making timely payments on your wedding loan can help build your credit score over time. Late payments, on the other hand, can cause significant harm to your score.
• Taking out a wedding loan can increase your overall debt, which may negatively affect your credit score. Lenders consider your debt-to-income ratio when evaluating your creditworthiness.
• If you apply for a joint loan with your spouse, both of your credit scores will be considered. If one of you has a poor credit score, it may be challenging to qualify for the loan or result in a higher interest rate.
• Wedding loans often come with interest rates and additional fees, increasing your overall debt. Higher debt can impact your credit utilisation ratio, which is a factor in calculating your credit score.

Improving Credit Score

• Making timely payments on your wedding loan can help improve your credit score over time. Lenders report your payment history to credit bureaus, and consistent on-time payments reflect positively on your credit report.
• Wedding loans can help diversify your credit mix, which is a factor in calculating your credit score. Having a mix of credit types, such as instalment loans and revolving credit, can improve your score.
• If you are able to secure a wedding loan with a lower interest rate than your credit card, it can help improve your credit score. Lower interest rates mean lower overall costs, making it easier to manage your debt.

Maintaining a Good Credit Score

• It is essential to make timely payments on your wedding loan to maintain a good credit score. Late or missed payments can negatively impact your score.
• Keep your credit utilisation ratio low by minimising the use of credit cards and other high-interest debt. Focus on paying off existing debts to improve your creditworthiness.
• Monitor your credit score regularly and review your credit reports for any inaccuracies. Disputing errors on your credit report can help improve your score.
• Work on improving your credit mix by diversifying your types of credit. This can include a combination of instalment loans, mortgages, and credit cards.
• Finally, remember that your credit score is just one aspect of your financial health. It's important to consider your overall financial situation and ensure that taking out a wedding loan aligns with your long-term financial goals.

Frequently asked questions