Congratulations, you’re engaged! Of course, unless you’re planning to elope, you’re going to need a lot more than luck to get through your wedding day. How you decide to pay for your wedding will be one of the first important decisions you make as a couple — and there’s a chance you’re thinking about getting one of those wedding loans you’ve seen advertised.
You know the ones with rates “as low as 7.49%” to cover all the expenses associated with the dream version of your big day. Of course, you don’t have to go into debt just to get married — and, in fact, it may be a good idea not to, given the stress financial troubles can put on a marriage.
But if you decide to go that route, it’s important to know exactly what you’re signing yourself up for. Here, we break down what you need to know if you’re thinking about getting a wedding loan.
The Cost of a Wedding
The average cost of a wedding in the United States is $26,645, according to the website, Cost of Wedding. Couples typically spend between $19,984 and $33,306, excluding a honeymoon. That’s a big chunk of change to cover out of pocket, but your wedding can easily be much less expensive — without eloping. (Many couples do pay less than $10,000 for their wedding, the website says.)
For instance, you could get your wedding dress at Goodwill, tell invitees that you’re registered at your bank, and throw a helluva buffet-style reception on a shoestring. There are thousands of articles on the internet about how to throw a frugal wedding, but if those approaches make your eyes cross and you’ve decided you want to go all out on your big day, there are options when it comes to borrowing money.
What’s a Wedding Loan?
You may have seen the ads: “Have the wedding of your dreams!” “No assets required.” “No hidden fees.” “Pick up your check tomorrow.”
First, what is a loan? Well-known lenders, as well as some that seem more fly-by-night in nature, offer wedding loans, which are really ordinary personal loans when you remove the window dressing. Personal loans are installment loans, meaning you pay a predetermined monthly payment at a set interest rate over a specified period of time.
According to a 2015 survey from The Knot, 32% of couples believe having access to credit and/or loans will allow them to spend beyond their budget. If they are opting to take out personal loans, there’s a good chance they’re paying double-digits for them.
Rates on personal loans can vary by lender, location and credit score, among other factors, but to give you an idea of the costs, one online lender lists the average annual percentage rate (APR) on all its personal loans at 12.76%, as of the second quarter of 2016.
Hopefully you won’t have to borrow the whole amount you’ll need for your wedding and can draw on savings, income and family contributions for many expenses, especially the ones where a deposits expected — for example, the place where you’ll be having the reception and the caterer, each of which may require a 50% down payment.
Let’s say you decide to borrow $15,000. If you take out a wedding (read: personal) loan in that amount and are charged 12.76% for four years, your 48 monthly checks will be $400 each. You might be able to chip away at that rate if you have excellent credit (more on that below), borrow from the bank or credit union where you have your checking or savings account, and allow automatic withdrawal of loan payments.
Other Borrowing Options
You’ll likely get a better rate if you have some serious security to put up as collateral, such as your home. In that case, you would be better off getting ahome equity line of credit (HELOC), in which the average interest rate is much lower. (As of late 2016, it was hovering just below 5%).
Not only would you get a lower rate, there will probably be some tax deductions you could take, which wouldn’t be possible with a personal loan. If you were to take out $15,000 at once, at 5%, you’d have to send in about $345 a month to pay it off in four years (not including any closing costs).
Only you can judge whether it makes sense to put your house or condo on the line to finance this one day (because, yes, if you default on the HELOC, the bank can technically start foreclosure proceedings). Many personal finance experts will encourage you not to go that route – and virtually all of them will be horrified by the notion of borrowing against your 401K or other retirement savings.
All In the Family?
Perhaps there’s a family member who could loan you the money. You may be able to create a win-win situation: You can offer the lenders – say, your parents — an interest rate that’s less than you would have to pay a bank or credit union, but more than they are currently earning. (Five-year CDs are currently paying about 1% on average.) If you borrow $15,000 at 3% for four years, your monthly payment would be $332.
Approach family and friends with a specific plan, including the interest rate you’d pay them and how much you’ll repay each month. Put the agreement in writing so you won’t be tempted to put that bill low on your priority list. Propose late charges if you miss payments by more than a certain amount of time, and have a plan for what will happen if you default on the loan.
Watch out! You could be putting family relations in jeopardy if you can’t live up to the terms.
Should You Charge It?
Another option to consider adding to the mix is a credit card that offers a great introductory APR on new purchases. There are plenty of them out there offering 0% for a year or more. Credit.com makes it easy to find cards that fit this bill.
There are a few important hitches:
- Never be late with a payment. Otherwise, you’ll be paying a lot more than 0% in interest.
- Be sure you can pay off what you owe by the time the intro period is over, when the rate is likely to go up significantly. (You may be able to find another card to transfer the balance to down the road, but you can’t really count on that. Plus, you’re generally charged a fee every time you transfer a balance.)
- Watch out for your credit limit. If you charge up to 30% of your available credit limit, your credit score could take a sizable hit, which might make other lenders nervous enough to jack up the rates on your other cards.
Credit Card Tips:
- Call your current card issuers and ask for an increase on your existing credit lines.
- Be careful not to use credit cards with high interest rates to finance purchases you won’t be paying off immediately.
- Use credit cards as opposed to checks or cash when you can. That way, you’ll be able to take advantage of the cards’ purchase protection if you have a dispute with a vendor.
Check Your Credit
Remember, if you’re trying to get wedding financing with bad credit, it can really cost you. A stellar credit score will at least make personal financing more affordable since it will help you qualify for the best rates and terms. That’s why it’s a good idea to see where you stand before you apply. (You can view two of your credit scores, updated every 14 days, for free on Credit.com.)
If you’re feeling as though there are no really good borrowing alternatives for your wedding … good! “Few things can put more stress on a relationship than financial woes,” as personal finance author Gerri Detweiler writes.
Go back to the drawing board and come up with a way to make your wedding day special without leaving you with a bill that will only cause trouble over time. After all, you have your debts, and your beloved’s probably got a few, too. The last thing you need is another big monthly expense.
When Wedding Insurance Makes Sense
While you’re taking another look at cutting expenses, you might want to consider adding one — for wedding insurance — especially if you’re going to have a pricey party. You wouldn’t buy a car without insurance, would you? Yet many a perfectly fine car can cost a lot less than many a wedding. And given all the other wedding-related expenses, this one is fairly modest:
“At roughly the cost of including one additional guest at your wedding, wedding insurance is a smart idea for couples who want to protect the significant investment that this important occasion represents,” says the insurer Fireman’s Fund to both straight and gay couples.
“Inclement weather; flood, fire or power failure at the event venue; lost or damaged attire; photographers and videographers who lose the event images or video; and other vendors who fail to show up can all spell disaster.”
According to The Knot, a basic wedding insurance policy costs between $155 and $550, depending on how much protection you want. While some companies are now offering “cold feet” coverage, it’s not usually included. But if you pay extra, in some circumstances, you can even get protection from that.
USA TODAY personal finance columnist Sandra Block offers excellent advice on wedding insurance:
- Liability coverage “will protect you from lawsuits if an exuberant guest slips and falls in the conga line,” she writes.
- Sudden death or illness. “If the groom has an appendicitis attack the day before the wedding,” Block explains, “wedding insurance will cover the cost of non-refundable deposits.”
- Lost or damaged formalwear. “If the bridal store files for bankruptcy before you pick up your Vera Wang gown, wedding insurance will cover the cost of a new dress.”
- Photography mishaps. “Your wedding photos are supposed to provide a lifetime of memories, but what if they’re all out of focus?” Block asks. “Or the photographer simply disappears? Wedding insurance policies will cover the cost of reassembling your wedding party and retaking the photos or videos.”
As with other forms of insurance, it pays to shop around. Get recommendations from folks who have been recently married. Call your current insurers and see what they are offering. Discuss the “what ifs” that worry you most — for example, are you concerned that one of you may be called up by the military? It may be part of the policy, or you may be able to purchase additional coverage.
It all boils down to how much of a gambler you are — and how much additional stress you want to have or avoid.
All the best to the happy couple! May the celebrations be grand … and not cost you too much.