Are you considering taking out a loan for a wedding? The average cost of a wedding ceremony and reception adds up to around $30,000 — substantially more than most Americans have in their savings account. On top of the cost, many vendors require an up-front deposit. If your dream wedding is just out of reach, you may want to consider how loans will affect your credit report and consider taking out a loan to cover your wedding costs.
Unsurprisingly, lots of cash-strapped couples tend to put their wedding expenses on credit cards, knowing that they may not be able to pay off the balance. As you probably already know, credit cards charge extremely high interest rates. In the long term, taking out a personal loan is a much more financially savvy move. (Note: From the lender’s perspective, a wedding loan is a personal loan.) But wedding loans are increasingly popular: According to The Washington Post, wedding loans skyrocketed in popularity in 2019. On average, couples borrow $16,000 for their wedding loan.
Financial advisors will probably tell you to either take time to save up for your wedding or to downsize your celebration. But if those aren’t options you’re willing to consider, it’s better to take out a personal loan than to rack up charges on a credit card. Financial institutions can almost always offer better interest rates — especially some of the newer, online-only lenders.
Even if you know you want a wedding loan, there are pros and cons that every couple should consider.
How much you get depends on a few factors, including your credit score and your income. Technically, you could borrow enough to cover the cost of your entire wedding — personal loans typically tap out at $25,000 to $50,000, depending on the institution.
A better question to ask is: How much money can I pay back over the next few years?
That depends on a couple of factors.
To get an idea of what type of loan you can secure, check your credit score — also referred to as your “FICO score.” Many credit card companies offer this bit of information for free. If your credit score is over 700, you may be able to secure a loan at a favorable rate. Less than 700? Consider taking more time to build up your credit before you apply for a wedding loan.
Long engagements aren’t a bad thing. Consider setting aside money in a high-yield savings account. These types of accounts often come with the option to organize your savings into “buckets,” allowing you to ear-mark your savings for wedding wish-list items like wedding dress, caterer, and venue.
With micro and backyard weddings on the rise, no one will be surprised if you don’t invite every single member of your extended family. Cutting down on the number of invites is one of the easiest ways to save on major expenses like venue size, catering, and the bar.
And while you save, you can follow a few basic tips to improve your credit. Pay your student loans on time and build your credit history by paying off your credit card balance in full every month.
Finances are extremely personal. While most financial advisors would agree that it’s better to wait and save for the wedding they want, couples don’t always have a lot of time to plan. Only you know how much your wedding is worth to you. Long-term thinking is essential when you make the decision. In ten years, will you care if there was an open bar or a live band?
If paying interest on a loan feels better than compromising on your wedding celebration, then use the financial tools available to make a plan that works for you.