How a personal loan for a funeral works
A personal loan could be the best way to find the funds you need for a funeral. Personal loans are available through:
- Banks
- Credit unions
- Online lenders
As you figure out how much you can afford to repay, don't forget to add in the cost of the extra fees some lenders tack on to a personal loan. Here are some of the fees that can make your loan more expensive:
- Origination fees
- Administration fees
- Late fees
- Early payoff penalties
While shopping for the funeral loan, make it a point to learn everything you can about any fees a lender may charge and factor them into your loan decision.
Most personal loans work similarly. You apply for a loan, get prequalified, and learn more about the interest rate you're being offered and the total cost of the loan. It's then that you decide if you'd like to move forward.
Pros and cons of personal loans
Personal loans may be helpful, but they're not perfect. Here are a few pros and cons of taking out a personal loan to pay for a funeral.
Pros
- You have the funds required to bury your loved one.
- Although you certainly won't be thinking about it at the time, each payment you make on the personal loan can help build your credit score.
Cons
- If you're already under financial stress, a new personal loan will only add to it.
- It's easy to get swept up in the belief that you must purchase all the "bells and whistles" for the funeral, which can lead to overspending.
Since emotions will likely run high during this time, consider bringing someone you trust along to help you review the pros and cons before making a final decision.
Getting a low-interest funeral loan
As mentioned, deciding how to pay for a funeral comes at a potentially stressful time in your life. While this is not a comprehensive list, the following tips are worth keeping in mind as you shop for a loan.
Consider your credit score
If your credit score is too low to qualify for a low-interest loan, you may want to encourage someone with a higher credit score to apply.
Don't take on anyone else's debt
If you've agreed to split funeral costs, finance only your portion, regardless of how you choose to pay. Sure, people close to you may follow through, but it's not worth the risk of paying the entire amount back by yourself and possibly losing a relationship.
Spend only what you can afford
Remember that the relative "fanciness" of the funeral does not matter. What you'll find important in the upcoming months are memories of your loved one.
How to apply for a funeral loan
1. Find out how long funding will take
As you shop for the right loan, ask each lender how long it will take to receive the loan proceeds once your loan has been approved. If you took the loan out for another purpose -- like renovating a kitchen or consolidating existing debt -- you might have more time available. However, since the funeral home will want to be paid, funding time is essential.
2. Gather the documents you'll need
Gathering the documents you need ahead of time can make the loan process much smoother. Among the documents a lender may ask you to supply are:
- Proof of identity
- Proof of address
- Employment information
- Proof of income
- Bank statements
- Tax returns
3. Fill out a loan application
The loan application covers the basics, including who you are, where you live, and how you earn your income.
4. Wait for word from the lender
It's common practice for lenders to check if you prequalify for a loan based on the basic information you provide. If a lender deems you prequalified, that means it has confidence that you can be approved when you go through the more in-depth qualification process.
5. Make a decision
Once a lender informs you that you're prequalified, the lender will also tell you how much you can borrow and your total APR. If you decide it's the right loan for you, permit the lender to proceed with the qualification and underwriting processes.
Note: Be sure to borrow the minimum amount you need to bury your loved one, regardless of how much you're told you can borrow.
6. Provide documents promptly
Your lender may contact you and ask for additional information. For example, a lender may want to know more about your employment background if you haven't been in your current position for long. The faster you can provide the information they seek, the faster your loan can be processed.
7. Await loan proceeds
As long as the application and underwriting process goes smoothly, you should have the funds you need within a few days.
