June 14th, 2011
Should You Take Out a Loan For Your Wedding?
6 Comments |
**It’s Wedding Week here on the Credit Karma blog! Tune in each day for a new post about money-savvy wedding planning and honeymooning as well as tips for wedding guests this summer.**
The average wedding costs a whopping $27,800, according to The Knot.
For many, that’s an unreal cost. Some couples resort to financing their wedding with a high-limit credit card or a wedding loan.
A wedding loan is essentially a personal loan, which you’d take out with most banks as well as peer-to-peer lending companies like Lending Club. Like most personal loans, you’ll simply specify the purpose of the loan when you apply.
Before you resort to funding your wedding by taking on considerable debt, let’s talk about the pros and cons of taking out a personal loan to fund a wedding or honeymoon.
You get the wedding of your dreams without draining your savings. If you’ve built up a nice savings fund, you might not want to spend it all on a wedding. Keep it for a financial emergency.
It’ll take the burden off of the parents. If your parents have offered to help, you can ease their burden by applying for a loan for a portion of the costs.
Personal loans generally have low APRs. Prosper’s rates for personal loans start at 7.5%, which is significantly lower than most credit cards. So instead of putting your wedding costs on a high-interest credit card, it might be worth it to get a low-interest wedding loan.
You can fund your honeymoon, too. The wedding’s great, but what you’re really looking forward to is a relaxing honeymoon. Lending Club quotes APRs as low as 6.78% for vacation loans.
You’ll enter your new marriage with debt. True, you might score a low APR, but it’s still debt. And if you’re already making payments on student loan, credit card, auto loan, or mortgage debt, adding another monthly debt repayment isn’t wise.
If your credit’s not great, you could get stuck with a high interest rate. Lenders look at your credit history to determine the terms of your loan, like your APR. If your credit is fair or poor, you could get saddled with an APR as high as 35%.
You’re taking on a large amount of debt for a four-hour event. Car loans get you helpful transportation for years to come. Student loans get you a degree that will—hopefully—help you in your future career. Sure, a personal loan may spiff up your wedding-day memories, but in the end you’ll be saddled with debt just to throw a big party.
Bottom Line: Although a wedding loan could give you the wedding of your dreams, it could also land you in nightmarish debt. Don’t take on unnecessary debt. Instead, find ways you can save on your wedding and honeymoon. You—and your wallet—will be happier for it.