What Are Funeral Loans and Where to Find Them
Losing a loved one is hard enough without worrying about how you’ll pay for a funeral. If you don’t have enough savings to pay your loved one’s burial expenses out of pocket, funeral loans can help you cover the upfront costs while you pay them back over time. However, there is a lot to consider before you commit to financing a funeral.
What are funeral loans?
At its core, a funeral loan is a personal loan that’s used to cover burial expenses. The funds from these loans can be used to cover the costs of funeral home services, burial and cremation or any other expenses you may incur while putting a loved one to rest.
Like all installment loans, the funds from a funeral loan will be delivered to you in one lump-sum payment. You can then use those funds to cover your loved one’s funeral expenses as you see fit. Then, when your repayment period begins, you’ll repay what you’ve borrowed over a series of regular monthly payments.
Although there are sometimes fees associated with taking out a personal loan, the interest rates are typically more affordable than if you were to charge the same amount on a credit card.
What are the costs associated with financing funeral expenses?
Before you decide whether applying for a personal loan to cover funeral expenses makes sense, it’s a good idea to break down how much this financing method can cost you. With that in mind, here’s a look at some of the most common personal loan fees you’ll find.
- Origination fees: Origination fees are charges imposed by the lender to cover the administrative costs of generating a new loan. These fees are typically expressed as a percentage of the loan amount and can range from 0% to 12%. However, they can also typically be rolled into the loan amount, allowing you to pay for them over time.
- Interest charges: Interest is included in your monthly payments as a fee the lender extends in exchange for borrowing money. The interest rate you’re given will depend on your credit score. However, as of the time of writing, the average 24-month personal loan interest rate is 12.35%, according to the Federal Reserve.
- Prepayment penalties: Not many lenders charge prepayment penalties anymore, but this is a fee for paying off the loan early. But, when it happens, it’s typically either expressed as a flat charge or as a percentage of the remaining loan balance.
- Late fees: Some lenders charge late fees on payments received after their agreed-upon due date. Be sure to research lenders to learn their individual policies. For instance, SoFi does not charge late fees while Discover charges a $39 fee for each occurrence of late payment.
How much does the average funeral cost?
According to the National Funeral Directors Association (NFDA), the median funeral consisting of a viewing and a burial cost $8,300 in 2023. Meanwhile, funerals with cremation had a median cost of $6,280.
Should you take out a loan to cover funeral costs?
Like any financial decision, taking out a loan for funeral expenses has its pros and cons. Here’s more information on what to consider as you weigh your options:
| Pros | Cons |
|---|---|
Provides access to necessary funds: If you can’t afford to pay for funeral costs out of your savings or emergency fund, taking out a loan to cover the cost can help you access the money you need quickly. May help improve your credit score: If you can keep up with your monthly payments, paying back an installment loan can actually help you improve your credit score over time. Can reduce stress: Planning a funeral is stressful in its own right, but applying for a loan can help you stop worrying about where the money is coming from. | Creates more debt: Taking on more debt can have potentially negative consequences if you’re unable to keep up with your payments, including causing your credit score to drop. May involve paying high interest rates: While bad credit loans do exist, you may be subject to higher interest rates if you have a lower score. Encourages sole responsibility: Unless you apply with a co-borrower, taking out a personal loan leaves you solely responsible for paying it back. If your circle is large enough, it may be worth looking into alternative options, like crowdfunding, where you can share the cost burden. |
Tips for taking out funeral loans
If it seems like a funeral loan, might be the best choice for you, here are a few tips to help you get the most bang for your buck.
- Research funeral costs: The Federal Trade Commission (FTC) offers a handy funeral pricing checklist that you can use to estimate costs and compare prices.
- Get estimates from different funeral homes: Prices for services may vary depending on the funeral home. Be sure to visit a few different establishments and gather estimates to increase your chances of finding a provider in your price range.
- Check your credit score: Some lenders publish the minimum credit score that they will accept for a personal loan on their websites. By choosing a lender where your score aligns solidly with its acceptable credit score range, you can increase your chances of being approved for a loan.
- Shop around for a loan: Collect prequalification offers from multiple lenders before applying for a loan. Doing so can help you save money on interest charges and find terms that work well for you. Just be sure to give each lender the same information so that you can make an apples-to-apples comparison once you have the offers in hand.
Alternatives to taking out a funeral loan
If taking out a funeral loan is not the right choice for you, don’t worry. There are alternative options available, including:
Life insurance
Life insurance policies are designed to cover end-of-life costs, including funeral expenses. Before applying for any funeral loans, it’s worth checking if your loved one held a life insurance policy.
Since the average payout can vary widely, it can be hard to guess how much you’ll receive. For instance, in Alabama, the average policy is $64,000 while it’s $276,000 in California. However, regardless of where you’re located, the amount should be enough to cover at least some of the funeral costs.
Funeral home financing
Many funeral homes offer their own financing options. In this case, the funeral home typically works with a partner lender who can help you secure the financing you need.
Since each funeral home may have a different partnership arrangement, it’s important to ask questions about the available loan terms and to make sure you can comfortably repay them before signing on the dotted line.
O% APR credit cards
As the name suggests, 0% APR credit cards offer an introductory rate period where you can pay down your balance without accruing any interest. If you’re confident that you can pay off any remaining funeral expenses before your introductory period ends, this financing method can be a smart way to save on interest charges.
However, there is some risk involved. If you’re unable to pay off your balance in full before the introductory rate period ends, you’ll likely be stuck with a much higher interest rate than you’d find with a personal loan.
Frequently asked questions
Yes, it’s possible to get funeral loans from either traditional brick-and-mortar banks or online lenders. Traditional banks can often offer in-person assistance, but online lenders may offer a faster application and approval process.
Since repaying a personal loan typically involves agreeing to a monthly repayment schedule, it is very possible to pay monthly for a funeral. That said, you’ll have to check with your lender to see what specific repayment terms they offer.
If you can’t afford to pay for a loved one’s funeral expenses upfront, it’s entirely possible to finance the cost. You can do so by taking out a funeral loan, opening up a 0% APR credit card or exploring individual funeral home financing options.