Wedding Loans

A wedding loan option

Unsecured loans, also called personal loans or signature loans, involve borrowing money without putting up any collateral. LendingTree personal loan offers allow you to shop for the best rates and terms for personal loans up to $35,000.

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What are wedding loans?

The cost of the average 2016 wedding was $35,329, according to the XO Group. It’s the highest recorded average, and a heavy price to pay to walk down the aisle. It’s one that most people can’t float even with savings.

To finance these costs, many couples turn to wedding loans. Wedding loans aren’t something your financial institution will have on their register of products. Rather, they will issue you a personal loan you can use to finance wedding expenses.

When you get a personal loan, you will receive all your money upfront. You can get an unsecured personal loan for your wedding — which means you won’t have to put up any collateral — but you will have to make monthly payments throughout a set term.

Personal loans come with either fixed or variable interest rates. Fixed rates tend to look higher when you’re comparing loan options, but because they stay stable throughout the course of your loan term, your loan payments and costs are predictable. Variable rates change with the market, so you may see increased rates after you start paying, making monthly payments less predictable.

With good credit and a favorable debt-to-income ratio, you may be able to get a personal loan with an interest rate much lower than a credit card APR, but rates vary widely by lender, loan term, loan amount and application qualifications.

Why get a wedding loan?

Wedding loans can help you avoid potentially undesirable situations like dipping into your savings or using credit cards with high interest rates to cover the costs of the celebration. It can also allow you to avoid asking family for money, but if you’re comfortable with that and can get a 0 percent interest loan from a family member, that may be a good route to take. It would allow you to spread out the costs of the event without incurring interest charges or loan origination fees. However, you may not have family members who are able to loan such a large sum, or you may be wary of the strain such a large loan would place on your relationship.

Borrowing money for a wedding could also help you preserve your savings. A solid emergency fund is an important financial tool to have at your disposal, and you may want to keep that money where it is should a catastrophe pop up. Keep in mind that if your savings is allocated to something like a home purchase, though, taking out a large personal loan may affect how much money you can borrow for a mortgage, or even put your approval in jeopardy.

Wedding loans may help you afford the day of your dreams, but be careful: You want to be sure you can afford any loan you take out.

The risks of financing your wedding

Financing your wedding may be able to help you afford more in the moment, but it can lead to financial stress down the line. Not only will you have to repay the money you borrowed to afford a great venue or invite more guests, but you’ll also have to repay interest.

Tara Falcone, a certified financial planner  and owner of ReisUP LLC, cautions against financing your big day.

“If you cannot afford a luxurious wedding upfront, you’re still not going to be able afford it with a credit card or personal loan,” she says.

Merging finances with your partner “is tricky, anyways,” she says. “The last thing you should do is put a heavy debt burden on the relationship from the get-go.”

Money problems are one of the top three causes for divorce, according to the Institute for Divorce Financial Analysts. (The other two, incompatibility and infidelity). Adding debt to a new marriage could start problems early on. The money you have to allocate toward repaying a wedding loan could make it harder for you to reach other financial goals, like saving up to buy a house, have children or get out of student loan debt.

How to get a personal loan

If you are interested in getting a personal loan to fund your wedding day, the first thing you’ll want to do is some comparison shopping. You can use this tool to see who is offering the best rates and terms for your specific situation.

Here are some of the line items you’ll want to consider:

  • Loan amount. How much will the lender let you borrow?
  • APR. APR includes both interest rate and any origination fees, and it is the most effective way to compare the costs of financing across a range of lenders and products.
  • Term. Your term is the amount of time you will be repaying your loan. Longer loan terms tend to have lower interest rates, but you’ll be paying a lower interest rate over a longer period of time. In many cases, this makes longer loan terms more expensive despite a lower APR.

Once you’ve identified a handful of lenders, fill out the application. Most will allow you to do so online. Be prepared with all of your basic identifying information, including your Social Security number and address, along with documentation to verify your income. Paperwork requirements can vary from lender to lender.

Know that you do not have to be married to take out a joint loan for your wedding. You will need to put both partners’ information on your application, and understand that you will both be financially responsible for repayment, regardless of what happens to your marriage or individual employment situations down the line.

If one partner has a stronger credit history than the other, it may be more advantageous to have the partner with the better credit apply on his/her own. This is especially true if the partner with the less-desirable credit score has low or no income.

How to get the best rate

Lenders will determine your interest rate based on a number of different factors, including your credit history and income.

For a personal loan, having a DTI below 36 percent is considered good, and a good way to improve it is by paying off your debt.

Paying off revolving debt (e.g. credit cards) will also help you improve your credit utilization rate. This number looks at how much credit you have extended to you, versus how much you are actually using. Using a small amount of your available credit can have a positive effect on your credit score, which can help you qualify for lower interest rates when you are borrowing money.

You could also work to improve your DTI and credit utilization by increasing your income and, as a result, pay more toward your debt. Go for that promotion at work. Bring up salary at your annual performance review. Start a side hustle. The more documentable income you bring in, the better. Plus, you can use that extra cash to save for your wedding so you won’t feel like you have to finance it.

When looking at your credit history, one of the determining factors will be your debt-to-income (DTI) ratio. A debt-to-income ratio is calculated by dividing total recurring monthly debt by gross monthly income. For example, if your monthly debts equal $1,000 and your gross monthly income is $4,000, your DTI ratio is $1,000 / $4,000 = 0.25 or 25 percent.

Lenders prefer for borrowers to have a debt-to-income ratio of less than 36 percent, with no more than 28 percent of that debt being paid toward the mortgage. Generally, it’s difficult for a borrower with a DTI ratio greater than 43 percent to be qualified for a loan.

Other ways to finance a wedding

If a personal loan doesn’t sound like the right solution for you, there are other options. Falcone, the financial planner, used a credit card with a 12-month, 0-percent APR promo to pay some of her wedding expenses upfront.

“We could technically afford our wedding, but we didn’t want to dip into savings,” she says. “We used it for large, upfront expenses. The caterer, for example. We made sure to pay it off in full, chunk by chunk, over the course of six months. We could do that at 0-percent interest with no financing costs.”
Because she paid off her balance in full before the promotional rate expired, she was able to maintain her savings and dodge paying any interest on her wedding expenses. If you have good credit, you may be able to qualify for a credit card with such a financing promotion — with some offers available now, you could get nearly two years of interest-free financing on new purchases.
Another option is a home equity line of credit (HELOC), if you’re a homeowner and have equity in your home. When you have a HELOC, you can tap it for specific amounts of money when you need it.

How to use a wedding loan responsibly

If you choose to pursue a personal loan, you’ll need to know how much money you need up front. It’s important to not borrow more than you need. If you do, you’ll end up paying unnecessary interest.

On top of not borrowing more than you need to pay your wedding bills, you also want to make sure you keep your wedding budget in a range where you’ll be able to reasonably pay off your debt. Missing loan payments can significantly damage your credit standing, which could hurt your ability to rent a home, get a mortgage or, in some cases, get a job.

To avoid these pitfalls, sit down with your partner and figure out how much you can reasonably afford to pay each month. Then, weigh your budget against the personal loan quotes you receive. If your wedding expenses will result in a monthly bill that will exceed your budget, you must lower your wedding expenses.

How to avoid financing a wedding with loans or credit

Falcone passionately warns against the dangers of financing a wedding you can’t currently afford. She also has some tips for keeping your costs down so you won’t have to apply for credit in the first place.

First, for her wedding, she kept her guest list as small as possible. The same XO Group study that found the record-setting average wedding expenditures also found that cost per guest had gone up over previous years. Consequently, one of the most effective ways to cut your wedding costs is to limit your guest list.

Falcone also looked at the resale market. For example, she wanted a very specific — and very expensive — wedding dress for her big day. She researched what she might be able to sell it for after she and her husband had exchanged vows.

“I knew I’d be able to sell it for roughly half of what I paid for it,” she says. “I essentially split the cost with another bride.”

Finally, she negotiated and stuck firmly to her budget with each vendor.

“Whenever a company or a provider hears the term ‘wedding,’ for whatever reason, instantly the prices jack up,” she says. “If you have a set budget in mind for food, venue, music, a photographer or flowers, make sure you go into the meetings with that number, and don’t budge. A lot of times they’ll be willing to work with you rather than lose your business.”

Falcone also notes that while the decision will have to be weighed for each individual couple, waiting to get married in order to save for a more lavish event is another option. If you must have a big, expensive wedding, she recommends this over going into debt.