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.

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 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.

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.