Recent reports are that weddings now have an average cost of $30,000.
Yes, you read that right, $30,000. At least, this is based on The Knot 2014 Real Weddings Study published in TheKnot.com.
Unfortunately, the idea of dowries is long gone. This means that if you’re planning an “average” wedding there are basically three ways you cold pay for it. You might be able to tap your parents, save up the money yourselves or turn to credit cards and personal loans.
No basic difference
Wedding loans are basically no different than normal personal loans. It’s just a loan designated to pay for your wedding expenses. It can vary from $2000 to $35,000 just like a personal loan.
Your credit scores
If you think you’ll be taking out a wedding loan makes sure you first check your credit scores. If you haven’t seen yours recently – or ever – you can get it free on websites such as Credit Karma and Credit Sesame and from the three credit bureaus – Experian, TransUnion and Equifax. There is nothing complicated or mysterious about a credit score. FICO scores, which are the ones used by most lenders, range from 350 to 800. As you might guess, the higher your score, the better. On the downside, if your score is, say, 600 or less you might have a very hard time getting a loan.
The pros and cons of wedding loans
The biggest pro of getting a wedding loan is that means you wouldn’t need to empty out your savings accounts. Plus it would take the burden off of you, your future partner for life and everybody’s parents.
Personal loans can have a low APR although they are currently ranging from 9% to 14.99%. And their terms are generally three years to five years.
On the downside, you would be starting your married life burdened with debt. According to a study published on NCSU.edu, Americans usually spend 80% of their waking hours think about their finances. Whether they are earning, spending or just pondering on their financial state, the fact remains that our minds are constantly focused on money. When you add debt to it, the perception of money is tainted by a bit of negativity. For newlyweds, this can cause a strain to the relationship. The study mentioned that instead of focusing on building the relationship, newlyweds use up their energy to think about their own debt.
No matter how low an APR you could get, that’s still money that must be paid back. And if you don’t have great credit – like 700 or above – it will take you literally years to repay it and may make it difficult for you to pay for the other things you will need as you begin a life together.
Questions to ask yourselves
Before you go to your bank or credit union for a wedding loan there are some questions you need to ask yourself. First, are you sure it’s worth taking on a large amount of debt to pay for a one-day event? Second, will you be able to repay the money without suffering too much hardship? Do you have an emergency plan for repaying the money in the event you or your spouse was to lose your job? Maybe most important, do you and your soon-to-be spouse agree that this would be the best way to finance your wedding? Finally, what will you be losing out after the wedding as the result of the payments you will be required to make?
Consider the other options
With the idea of starting your married life owing $20,000, $30,000 or more, there are options. For example, you could extend your engagement so that you would have more time to save up money for the wedding. You could also reduce the cost of your wedding by prioritizing and deciding what’s really important to you about the big day and then cutting back in other areas. We know of one couple that got married recently in a simple ceremony with no bridesmaids or groomsmen, no wedding cake and no big other expenses. What they spent their money on instead was a big party following the ceremony.
Another option is for one or both of you to take on a part-time job and earmark the money you earn to pay for your big day.
How not to finance your wedding
Probably the worst way to finance your wedding would be to use credit cards. They are by far the most expensive way to borrow money at interest rates that average 15% and can even be higher. Plus, the credit card companies’ number one goal in life is to keep you in debt. There are several ways they do this. The first is by offering those minimum monthly payments. Pay just them and instead of being debt-free in three to five years it could take you literally 10 or more years to pay them off. Plus if you were ever to make a late payment you would not only get hit with a steep fee but your interest rate could be increased and your credit limits reduced.
If borrow you must
If you and your partner have agreed you need to get a loan to finance your big day there is a less expensive way to do this. It’s to get what’s called a peer-to-peer loan. There are a number of websites that offer these loans including Lending Club, Prosper, SoFi and Upstart. The advantage of these loans is they have much better interest rates than you could get from a bank or credit union and definitely a much better one than with credit cards. The reason why they can offer interest rates as low as 6% is because the entire loan process is done online. Lenders have no overhead and pass their savings on to their borrowers in the form of lower interest rates. Also, peer-to-peer lending eliminates the middleman – the bank or credit union and their profit margins. These loans come directly from the lenders, which can be another person, a group of individuals or an institutional investor. Of course, to get that really low-interest rate you will have to have a very good credit score the same as if you were getting a low-interest bank loan.
It’s important but…
There’s no question about the fact that your wedding day is important and should be treated as such. However, it’s also important to think things through carefully and to take steps so that you won’t end up being in debt for 10 or more years. Before you decide to pay for your big day with a wedding loan take some time to think about what’s really best for you, your bride or groom and your futures.
