Wedding Loans: How Do They Work & When Should You Consider One?

What Are Wedding Loans?

• Paying off medical bills
• Purchasing a car
• Consolidating debt

How Do Wedding Loans Work?

What Can You Use a Wedding Loan For?

• Venue 
• Catering
• Decorations
• Attire
• Rings
• Destination travel costs
• Rehearsal dinner
• Liability insurance
• Honeymoon

Benefits of Using Personal Loans for Your Wedding

• Get quick funding. Most online lenders process loan applications quickly. If approved, you could get cash transferred to your bank account as soon as the same day.
• Avoid credit card debt. You may qualify for a better interest rate on a wedding personal loan than you would if you put those expenses on your credit card. Plus, you’ll repay the funds over a fixed loan term, instead of potentially dragging out credit card debt with minimum payments.
• Pay vendors who don’t accept credit cards. Not all wedding vendors accept credit cards, and some may charge an extra processing fee if you do opt to charge the costs. Using a wedding loan lets you pay with a check or cash instead.
• Enjoy fixed rates. In many cases, personal loans come with fixed interest rates. You’ll have a set payment that doesn’t fluctuate each month like a variable-rate loan would.

Disadvantages of Using Personal Loans for Your Wedding

• Longer loan terms. Many personal loans come with terms between three and five years — and sometimes even longer. It may be stressful to have to continually pay for an event that’s so far back in the rearview mirror of your life.
• Increases your debt-to-income ratio. Taking on more debt has the potential to lower your credit score. Plus, the more money you owe compared to how much you earn (aka your debt-to-income ratio) impacts your ability to qualify for other financing, like a mortgage.
• Rates could be high. Interest rates are determined by several factors, including your credit score. If your credit history is short or you have no credit history at all, you may end up with a high rate in order to qualify for a personal loan. If a trusted person agrees to cosign the personal loan, that could help you get approved, but comes with its own set of risks.
• Could overspend on your wedding. Having a plan for how you intend to spend the personal loan funds is a wise move so you don’t end up overspending.

Should You Apply for a Wedding Loan?

• You don’t want to dip into your savings. Having an emergency fund is important. If an unexpected expense did occur, you wouldn’t have to scramble for a personal loan for emergencies since you have cash on hand.
• You can’t pay upfront deposits. Many wedding vendors require upfront deposits to secure their services. A wedding loan can help you cover those, even if you’ll have the cash later on to cover some or all of those costs.
• You don’t want credit card debt. If you don’t have enough cash to cover your wedding, a personal loan can help you avoid revolving credit card debt. Cards typically come with higher rates than personal loans and a less predictable repayment schedule.

Typical Repayment Options for Wedding Loans

• The lender may deduct the origination fee from the loan funds before they’re deposited into your account.
• Some lenders add the origination fee to the balance of the loan. In this scenario, you’ll be paying interest on the amount of the loan plus the origination fee. 
• If you have the cash on hand, you may be able to pay the origination fee separately from the loan and not pay interest on that amount. 

Alternatives to Using a Personal Loan for Your Wedding

• Cash. Using your savings or a cash gift from a family member can help you avoid taking on debt and paying interest. However, using up your saved funds could put off other financial goals, like buying a house or paying down student loans.
• Credit cards. If you already have credit cards, you may prefer to fund your wedding with those instead of applying for a personal loan. Just be aware of your existing credit card debt and how realistic it is for you to pay down a new balance in a timely manner. 
• Home equity loan or line of credit. If you own real estate, you could tap into low-interest financing through either a home equity loan or a line of credit. Rates are typically some of the lowest out there because you use your home as collateral.

The Takeaway