According to The Knot 2018 Real Weddings Study, the average U.S. wedding cost $33,931 in 2018. By comparison, the U.S. median household income was $61,372 in 2017.
To be sure, The Knot’s study averaged more than 14,000 wedding bills. Its sample size no doubt included blockbuster weddings with six-figure price tags, plus some low-key backyard affairs that cost a few grand at most. Most couples earning close to the U.S. median household income aren’t shelling out $34,000 to tie the knot. But some are, and they’re probably turning to outside funding sources for help.
Those blessed with family money or well-heeled friends may have no trouble funding a lavish wedding with private contributions, perhaps combined with personal savings. Those not so fortunate may have no choice but to downsize their nuptials or defer the celebration until they’re better positioned to realize their vision.
Some budget-constrained couples choose a different path: borrowing to cover some or all of their wedding costs.
For many a younger couple without substantial assets to borrow against, an unsecured personal loan through a company like Credible is the most flexible, affordable borrowing option. That’s not to say it’s advisable to take out a personal loan to fund a wedding; in fact, paying for a wedding on credit is rarely called for, and all fiscally responsible couples owe it to themselves and their marriages to carefully consider the downsides before taking this course.
Here’s a look at how personal wedding loans work, when using personal loans to cover wedding expenses makes sense, and the alternative options and strategies that all couples should weigh carefully before going into debt to make a memory.
How Wedding Loans Work
Covering wedding costs is a common reason to get a personal loan. For practical purposes, an unsecured personal loan taken out for the express purpose of funding your wedding is no different than one taken out for any other permissible purpose, such as debt consolidation, home improvement expenses, or medical bills. Personal loan rates and terms generally don’t vary by loan purpose. Your interest rate or offered terms shouldn’t change simply because you state that you plan to use your personal loan to cover wedding expenses rather than, say, consolidate credit card debt.
Wedding Loan Rates & Terms
Personal loan rates and terms do vary considerably by lender and borrower. A well-qualified borrower with a minimum FICO score of 720 – ideally, above 740 – can expect personal loan offers with:
- Origination fees of 2% or less (if any)
- Rates below 12% APR (including any origination fee and subject to change with prevailing benchmarks)
- Terms of at least five years, and perhaps as long as seven
A borrower with good credit (a minimum FICO score of 660 to 680) can expect personal loan offers with:
- Origination fees of 4% or less (if any)
- Rates under 15% (including any origination fee and benchmark-dependent)
- Terms of at least three years, and perhaps as long as five
If your borrower profile isn’t as attractive – your credit score is lower than 660 or your debt-to-income ratio is higher than 40% – then you should expect offers with higher rates, higher fees, and shorter terms.
Comparing Wedding Loans
Because every lender is different, it’s imperative that you shop around with multiple lenders and resist the temptation to accept the first decent loan offer you find.
In most cases, soliciting an initial loan offer doesn’t hurt your credit score. It’s only when you accept a lender’s offer and formally apply for the loan, which requires consenting to a credit check, that your credit score may take a temporary hit. If the information you provided during your initial inquiry is accurate, and no hidden issues (such as an unusually high debt-to-income ratio) arise during the underwriting process, you may only need to apply for a single loan – namely, the most favorable offer you receive.
What makes for a favorable offer? As an example, here’s how seemingly small rate and term changes could affect your monthly payment and total financing costs on a $10,000 wedding loan:
- 8% APR: With a 36-month term, the monthly payment is $313.36, and interest charges total $1,281.09. With a 60-month term, the monthly payment is $202.76, and interest charges total $2,165.84.
- 11% APR: With a 36-month term, the monthly payment is $327.39, and interest charges total $1,785.94. With a 60-month term, the monthly payment is $217.42, and interest charges total $3,045.45.
- 14% APR: With a 36-month term, the monthly payment is $341.78, and interest charges total $2,303.95. With a 60-month term, the monthly payment is $232.68, and interest charges total $3,960.95.
- 17% APR: With a 36-month term, the monthly payment is $356.53, and interest charges total $2,834.98. With a 60-month term, the monthly payment is $248.53, and interest charges total $4,911.55.
When interest rates remain constant, shortening the loan term always reduces total interest charges while raising the monthly payment. Lengthening the loan term always reduces the monthly payment while increasing total interest charges.
How to Use a Personal Loan to Cover Wedding Costs
You can use your wedding loan’s proceeds in one or more of the following ways.
Pay Wedding Expenses Directly
In this scenario, your loan must be funded before you make your first wedding-related outlay – likely the deposit on your venue or with an in-demand vendor, such as a florist or officiant.
Moving forward, you keep the loan’s proceeds in an FDIC-insured checking account and use that account’s debit card to place deposits and pay bills as they arise. You’ll need to keep sufficient funds on hand through the big day to cover last-minute expenses and account for a likely flurry of post-wedding bills.
Pay Back Wedding-Related Savings Drafts
In this scenario, you draw on liquid savings to cover wedding expenses as they arise. You then apply for your wedding loan at your convenience and use the funds to replenish your savings as needed.
The major disadvantages here include potential financial strain while your savings are depleted – after all, you can’t control when financial emergencies strike – and the potential for long-term damage to your personal saving or retirement goals. Under normal circumstances, you don’t want to dip into emergency savings or make early withdrawals from tax-advantaged retirement accounts (with an exception we’ll get into later) to place deposits or pay vendors up front.
If you don’t have sufficient savings to cover all anticipated wedding expenses up front, you may need to take a hybrid approach here – covering what you can out of your savings, then using part of the loan to replenish your savings and the remainder to cover costs directly.
Pay Off Wedding-Related Credit Card Charges Before They Accrue Interest
In this scenario, you use a cash back or travel rewards credit card to make initial deposits and payments shortly before your loan is funded. After your loan is funded, you continue to use your credit card to cover wedding expenses as needed. You then use your loan’s proceeds to pay off your credit card balances in full before they come due, avoiding interest on the charges. (You’ll still pay interest on your loan balance, of course.)
The main advantage of this strategy is a 1% to 2% boost – and perhaps more – from your credit card’s rewards program. Assuming you’re able to use your loan’s proceeds to zero out post-funding credit card balances, the main drawback of this strategy is the risk that your personal loan application may be unexpectedly denied after you rack up significant credit card balances.
Pros of Using a Personal Loan to Fund Your Wedding
It’s never necessary to use a personal loan to fund your wedding. You and your betrothed can always choose an alternative course of action that doesn’t require taking on significant debt. Using a personal loan to fund your wedding does have certain advantages, though.
1. You May Not Need to Compromise Your Vision
You’ve been daydreaming about your wedding day since you were a kid, and it’s finally near. Are you willing to compromise on the vision you’ve nurtured for years?
Many couples aren’t – or, at least, not without exhausting all other options. Whatever the downsides, funding or supplementing your wedding budget with personal loan funds reduces the likelihood that you’ll need to seriously compromise your wedding vision. You can do a lot more with, say, a $15,000 loan and $2,000 in savings than with only $2,000 in savings.
Just know that a personal loan is not a license to spend and that you’re unlikely to be able to borrow the full cost of a lavish wedding. Most online-only personal lenders cap borrowing limits at $30,000 to $40,000, near the average cost of a U.S. wedding – and that’s for borrowers with FICO scores north of 740 and incomes above $100,000. Less-qualified borrowers should expect lower borrowing limits.
2. You’ll Have Funds Ready for Deposits
If you’re planning a traditional wedding, you’ll almost certainly need to put down multiple deposits to secure key elements of your wedding, such as:
- The venue
- Catering, if separate from the venue
- Wedding photography or videography
- Music (DJ or band)
- Bridal party attire
- The officiant
- The rehearsal dinner venue, if separate from the reception venue
In some cases, you may be expected to pay a vendor’s entire bill up front. Depending on the number of advance payments you’re required to make and the cost of each, you’re likely looking at a potential outlay of four figures before you even say your vows. If you don’t have that kind of money on hand, a lump-sum personal loan could come in handy.
3. You May Not Have to Dip Into Your Savings
Even if you and your partner have substantial savings, you may have legitimate concerns about raiding them, temporarily or not. For instance, you might have just one type of savings at the moment – say, an emergency fund you’ve worked carefully to build over the years, and that you’ve committed not to touch except in times of real trouble. You may decide that a loan’s interest costs and budgetary impact are worth it compared with depleting your emergency reserve.
4. It May Be Cheaper Than Using a Credit Card
Unless you’re eligible for a 0% APR promotion (more on that in a moment) or qualify for a very low regular APR, carrying credit card balances is almost always more expensive than taking out a personal loan, especially if you make the bare minimum payments and struggle with those balances for years. While carrying balances may be inevitable in true emergencies, your wedding does not qualify as such.
5. Funding Is Faster Than Some Other Credit Products
Many online-only lenders fund approved loans in as little as one business day. Assuming there are no underwriting delays, well-qualified borrowers might wait only 36 to 48 hours from the initial round of loan inquiries to full funding.
That’s far faster than even the best-qualified borrowers can expect from some other credit products. Even if your online credit card application is approved on the spot, as is the case for many well-qualified borrowers, you’ll wait several days to get your card in the mail.
If you’re set on borrowing to fund your wedding and time is of the essence, the choice is clear. That doesn’t make it the prudent choice, however.
Cons of Using a Personal Loan to Fund Your Wedding
Consolidating high-interest credit card debt is a far better use of a personal loan’s proceeds than covering what’s ultimately a large vanity expense, however meaningful it is to you and your loved ones. Consider these drawbacks of using a personal loan to finance your nuptials – or any other discretionary purchase.
1. You Won’t Avoid Financing Charges
All else being equal, credit card interest rates usually top personal loan rates. But you can pay off your credit card balances in full before they accrue any interest at all. That isn’t the case for personal loans.
When you take out a personal loan, you commit to paying at least some interest on your borrowed balance. That’s because each personal loan payment includes principal and interest; how much depends on your loan’s amortization schedule. Once make your first payment, your loan is no longer free, even if it has no origination fee.
2. It May Adversely Affect Your Creditworthiness
Your wedding loan could temporarily lower your credit score or otherwise lessen your appeal to lenders.
On the credit score front, the biggest risk is the possibility that you’ll miss a loan payment. Missing even one payment due date is grounds for some lenders to issue an adverse report to the three major credit reporting bureaus. If your financial situation is seriously affected by a sudden job loss or major unexpected expense, and you become unable to make loan payments for multiple months, the hit to your credit could end up being far worse, particularly if your loan is charged off and sent to collections. Payment history information generally remains on your credit report for seven years, so a lapse can have far-reaching consequences.
On the non-credit front, a new installment loan on your personal balance sheet raises your debt-to-income ratio (DTI) in the absence of a proportional income increase. Though it’s not a FICO score component, DTI is a major factor in lenders’ underwriting decisions. High DTI is grounds for rejection; few personal loan providers lend to borrowers with DTIs above 50%, and many write off those above 40%. Mortgage lenders generally don’t lend to borrowers with DTI above 43% – something to think about if you’re planning to buy a house soon after tying the knot.
3. You May Be Required to Put Up Collateral
If your credit is good – generally, if your FICO score is higher than 660 to 680 – you probably won’t be asked to put up collateral to secure your wedding loan. If your credit score is lower, you may need to put up the title to your car or another asset valuable enough to secure your loan. Your unsecured loan options, if any exist, will likely feature high interest rates, short terms, and high origination fees beyond what you’re willing or able to accept.
Beyond credit damage, secured loan delinquency presents a serious risk: the loss of the asset that secures the loan. Think carefully before proceeding.
4. You’re Likely Looking at a 3-Year Commitment (at Least)
Three years is the shortest loan term reliably offered by online personal loan providers. That means that if you make payments on time without any prepayments, you can expect to be paying off your wedding loan for 36 months from its origination – not as long as you hope your marriage will last, but long nonetheless.
Assuming your wedding loan has no prepayment penalties – and most unsecured personal loans for borrowers with good credit don’t – you can and should put any unused loan funds toward payoff after you settle your last wedding bill. That said, if you’ve borrowed carefully and stayed close to an accurate wedding budget, you’re unlikely to have much left over.
5. Your Wedding Isn’t an Investment in Your Future
Some personal loan purposes have a better return on investment than others. For example, some home improvements projects increase your home’s resale value, and a sustained effort to pay down high-interest credit card debt can put you on the path to financial freedom. Unfortunately, however beautiful or memorable the day turns out to be, your wedding is unlikely to strengthen your personal or household financial position; in fact, it’s likely to do the opposite.
6. It May Be Bad for Your Budget
Taking out a personal loan to fund your wedding is bad for your budget in two ways.
First, assuming a three-year commitment, you’re looking at 36 equal hits to your monthly budget. Using the lowest-cost loan example above – $10,000 borrowed at 8% APR for 36 months – that’s 36 equal payments of $313.36 each, or 10.4% of income for a couple earning $3,000 per month after taxes.
Second, using a personal loan, rather than savings, to cover wedding expenses can lead to overspending. Without careful planning and a healthy measure of discipline, you may be tempted to spend more than you would if you were depleting your own savings. It’s like lifestyle inflation; after all is said and done, you may find that you allowed your wedding budget to expand to fit your loan balance without realizing it.
7. It Sets a Risky Precedent
Beyond the potential short- and long-term consequences for your budget, a wedding loan could set a questionable precedent that haunts you for years to come.
If you’re able to settle your wedding loan without falling behind on payments or suffering serious financial pain, you may feel empowered to take out even more frivolous loans in the future – say, to fund a family vacation or finance a splashy jewelry purchase. Continually servicing installment debt could dampen your long-term savings rate, impacting your financial resilience, limiting your kids’ education options, and perhaps delaying your retirement.
Alternatives to Using a Personal Loan to Fund Your Wedding
Before applying for a wedding loan, carefully consider each of these alternatives. Most require no new debt, and those that do may carry lower costs than an unsecured personal loan.
1. Drastically Downsize Your Wedding Plans
If you’ve been dreaming of your wedding day for years, this is undoubtedly the most painful option for you. But it’s also unquestionably the most fiscally responsible. And according to some experts, a cheaper wedding could be good for your marriage too.
Even if you wind up taking on some debt to fund your wedding, you should always look for opportunities to save money on your wedding. Consider:
- Doing as much of the prep work as possible on your own (with help from friends and volunteers)
- Having friends and acquaintances supply labor on your wedding day in lieu of gifts
- Calling in favors or offering in-kind trades to reduce vendor bills (for instance, you might offer your professional services for free to vendors who do the same for you, if your needs align)
- Forgoing a paid DJ or band
- Looking for sensible opportunities to reduce wedding food and drink costs (such as skipping the open bar and serving family-style meals)
Ultimately, the lengths to which you’re willing to go to control your wedding budget depend on the extent to which you’re willing to compromise your wedding dreams.
2. Start a Wedding Savings Fund
If you haven’t already done so, sketch out a detailed vision for your wedding and estimate its total cost. For this exercise to work, you’ll need to get quotes from vendors and do some per-guest consumption calculations. Your estimate – or, more likely, estimated range – is the amount you’d need to borrow to finance your wedding without other sources of funding.
Next, get loan quotes from at least a half-dozen lenders. This can quickly be done through Credible. Within minutes you will have quotes from up to 11 different lenders. Select a quote with a term that fits your time horizon and a monthly payment your budget can absorb. Rather than applying for that loan, however, sock away an amount equal to your quoted monthly payment each month in a CIT Bank Savings Builder account.
If you don’t want to wait three to five years to build your wedding fund, look for opportunities to trim excess fat from your budget and increase your income. A garage sale is a great way to generate a one-time windfall; to generate an extra income stream regularly, consider a side hustle. Use an automated savings app like Digit to capture digital loose change that you might otherwise spend.
3. Ask for Cash (Up Front) in Lieu of Gifts
Most of the items on a wedding registry are destined to gather dust in your attic. Cash is a whole lot more useful.
Most penny-pinching 20-somethings can’t afford to pay for lavish destination honeymoons out of pocket. Many lack the budgetary bandwidth to save for a honeymoon at all. Instead of traditional gift registries, they encourage wedding guests to contribute cash to their honeymoon registries – a glorified vacation savings account.
The honeymoon registry is an increasingly common hack for frugal newlyweds who can’t wait to take the vacation of their lives. It’s also kind of frivolous. More practical is a wedding budget registry – a discretionary fund that collects guests’ cash gifts in advance, which you can use to cover wedding costs as they arise or pay down credit card balances incurred during a promotional APR period.
4. Raise Money (or Take Low-Interest Loans) From Friends & Family
If your immediate circle contains liquid assets and generosity in ample measure, a wedding budget registry may be overkill – and may reduce the volume of cash gifts you receive on your actual wedding day. You may be in a position to raise most or all of your wedding budget through grants or low-interest loans from loved ones.
You’ll want to negotiate terms with each contributor individually, accounting for context. Your parents may be willing to contribute no-strings-attached funding if circumstances allow, but make it clear to more distant relations and non-relatives that you’re willing to pay the funds back with or without interest.
5. Take Advantage of a 0% APR (or Low-APR) Credit Card Promotion
This is an option for well-qualified borrowers looking to finance relatively small amounts.
Most credit card issuers limit 0% APR introductory purchase promotion offers to applicants with FICO scores above 680 or 700, low credit utilization, and low debt-to-income ratios. The better your credit score and DTI, the higher your credit limit is likely to be. However, to avoid damaging your credit score, you’ll want to keep your credit utilization ratio under 50%, or no more than $3,000 on a $6,000 credit limit.
It goes without saying that you’ll want to limit credit card charges to wedding-related expenses during the promotional period. You’ll also want to avoid charging more than you can pay off during the promotion. Promotions that last longer than 21 months are increasingly rare, and most last more like 15 to 18 months. In some cases, interest accrues retroactively, resulting in ruinous charges on balances carried past the end of the promotion. Try to charge the bulk of your wedding expenses, or at least the costliest ones, during the first month or two, then focus on paying them down over the remainder of the promotion.
6. Use a Secured Loan or Credit Line
For many young couples, marriage comes before homeownership. But that’s not always the case. And second marriages are far more likely to bring at least one homeowner to the altar.
If you or your spouse-to-be own a home, consider applying for a home equity loan or home equity line of credit (HELOC) through Figure.com. It’s likely, though not guaranteed, that your secured home equity product’s interest rate will be lower than an unsecured personal loan’s, and you may reap tax benefits if you and your spouse plan to itemize deductions – though you’ll want to consult a tax professional for guidance.
If you or your spouse have a well-funded 401(k) plan, you may have an even lower-cost borrowing option. Generally, plan holders can borrow the greater of $10,000 or 50% of their vested account balance, up to a maximum of $50,000. Though you must repay the loan with interest, you’re ultimately repaying yourself – meaning that, dollar for dollar, you may actually make money on the loan.
I’ve never attended a wedding that wasn’t memorable in its own way, and I still remember my own wedding like it was yesterday. There’s something to be said for pulling out all the stops to create a unique experience that you, your spouse-to-be, and your guests will cherish for years to come.
There’s also something to be said for starting off married life on sound fiscal footing. Which will you choose?
Are you thinking about taking out a personal loan to fund your wedding? Have you considered any alternatives?