Is it possible to get a personal loan for a wedding?
Although some lenders advertise wedding loans, what they're really advertising is a personal loan that can be used to cover wedding expenses. Most lenders don't care if you use a personal loan to restore a classic car, remodel a kitchen, or pay for your dream wedding.
How to identify the best wedding loan
Whether you go with a brick-and-mortar bank, online bank, or credit union, there are certain hallmarks that the best wedding loans have in common.
- Offers a loan in the amount you need to borrow
- Offers a low interest rate
- Provides a loan term and monthly payment you can afford
- Charges no, or very low fees, and does not slip an unnecessary fee in by calling it something else (like "administrative cost")
How do wedding loans work?
Wedding loans work like any personal loan. Once you've decided on a lender and fill out a loan application, the lender will check your credit history to get a sense of how you've managed debt in the past. There are two types of personal/wedding loans: Unsecured and secured.
Unsecured loan
An unsecured personal loan is granted based solely upon your credit history and promise to repay the loan. The interest rate is tied to how risky the lender views the loan to be. The higher your credit score, the lower the APR you're likely to be offered.
Secured loan
Another type of loan is referred to as a secured personal loan. With a secured personal loan, you put something of value up as collateral, helping to reduce the risk to the lender. Typically, anything of value can be used as collateral. For example, a piece of fine art, classic automobile, coin collection, or jewelry might be acceptable to the lender.
The interest rate on a loan secured by collateral may be lower than the rate on an unsecured loan. That's because the lender knows a secured loan involves less risk. If you fail to make payments, the lender has the legal right to take possession of the collateral, sell it, and recoup the loss.
It's important to note that not all lenders offer secured loans. Your best move is to call around to learn which lenders accept collateral.
How to get pre-approved for a wedding loan
The personal loan pre-approval process is fairly straightforward:
- You provide personal information, like your name, address, place of employment, and how much you earn.
- The lender takes a deep dive into your credit history by pulling a credit report.
- The lender figures your debt-to-income (DTI) ratio. DTI compares your monthly financial obligations to how much you earn. Ideally, a lender wants to see a DTI of 36% or less. To figure DTI, add your fixed monthly payments, like rent, auto payment, credit card payments, and child support. Divide the total by your monthly income. Let's say your debts amount to $2,500 and your income is $7,000. Your DTI is just shy of 36% ($2,500 ÷ $7,000 = 0.357).
- Once a lender determines you're a safe credit risk, it will let you know you're pre-approved and how much you can borrow.
What about borrowers with poor credit?
Having a poor credit score does not necessarily mean a loan is out of the question. However, bad credit loans carry a much higher interest rate than loans granted to borrowers with excellent credit.
If your credit score is not quite where you need it to be to snag a lower interest rate, you may want to consider waiting until you can boost your credit score or explore other options for financing your big day.
How to pay for a wedding without taking out a loan
If your wedding budget is getting out of hand, you have options. Read through these suggestions and see if any of them work for you, but first, create a spreadsheet.
You may find that coming up with a plan to pay for your wedding is easier with a spreadsheet of expenses. As you'll notice, some of the following ideas include referring to your spreadsheet. In no particular order, here are four ideas for paying for a wedding without taking out a loan.
1. Give it time
Once you decide to get married, it can be difficult to postpone the event. However, if you're concerned about going into marriage with a loan to pay off, waiting gives you the opportunity to save for each wedding expense as you're able. For instance, you may spend a few months saving up to pay for a professional photographer, and another month or two saving to purchase invitations or another wedding expense. Each time you put money into your savings account and check an expense off your spreadsheet, you're that much closer to having your wedding fully paid for.
2. Scale back
There are few things lovelier than a small, intimate wedding. Imagine yourself surrounded by the people who love you most in the world, marrying your partner, and going into marriage with no additional debt. That's what a scaled-back wedding can do for you. Take a look at your spreadsheet. What's important to you and what can you live without? For example, if you've always imagined a blow-out reception, why not keep the wedding ceremony small and direct funds toward a reception you can afford?
3. Do it yourself
Although wedding magazines may make you feel as though there's "one right way" to put on a show-stopping wedding, it's simply not true. The people sharing your wedding day don't care about how many flowers surround you, or how many attendants stand next to you. For guests, it is all about sharing your special day. The people who matter are not interested in how much you spend on clothes or decorations. They just want to know you're happy.
Why not cut back on expenses by doing much of it yourself? Gather friends together one evening to create flower arrangements, and ask a family member to make fancy cupcakes. You may not be able to do it all yourself, but it is possible to trim your wedding budget significantly by taking on some of the labor yourself.
4. Take on short-term debt
If you have a good credit score, consider applying for a credit card with a 0% promotional rate. Here's how a card with a promotional rate works:
- You apply for the credit card.
- The credit card company checks your credit report.
- If your application is approved, the credit card company tells you how much your spending limit is. The higher your credit score and income, the higher the spending limit is likely to be.
- 0% APR promotional rates typically last for 12 to 18 months.
- Build your wedding budget around the spending limit.
- To figure out how much it will cost to repay the credit card in full, divide the amount you plan to spend by how long the promotional rate will last. For example, if you're spending $15,000 and have a 0% promotional rate for 18 months, the monthly payment will be $833.
Sure, $833 a month can put a dent in your monthly budget, but consider this: Paying it off in 18 months means you'll pay nothing in interest. Not a single cent.
Now, let's imagine you take out a personal loan for $15,000 with an APR of 9%. You want a lower monthly payment so you extend the loan to three years. Your monthly payment is $477, but by the time you pay the loan off in 36 months, you've paid an additional $2,172 in interest.
Imagine going into a new marriage without the psychological burden of debt. That means there are no loan terms to worry about, no monthly repayments to come up with, and no new debt impacting your credit score. Even the best personal loans can't beat that.
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