Marry? Here is the best type of personal loan to cover the party
Avoid this type of loan for your wedding.
- A whopping 45% of newlyweds have gone into debt for their weddings.
- Secured and unsecured personal loans are the most common ways to borrow the cost of a wedding.
- Payday loans are the worst type of loan one can get.
Marry? Congratulations on your big day! They will join 2.5 million other couples this year. This is about 15% higher than the annual average and a 30% jump from 2021. COVID-19 has thwarted many wedding plans and many couples have postponed their weddings until this year. Unfortunately, the average cost of weddings has also increased.
The average wedding cost in 2019 was $24,700. For 2020, the number fell to $20,286 due to COVID, but for 2021, the number rose by over 33% as the average wedding cost skyrocketed to $27,063.
According to LendingTree, 45% of newlyweds go into debt for their weddings. If you’re looking to borrow money to cover your wedding, it’s important to understand the pros and cons of the different options available. This can help you not start your marriage off on the wrong foot.
Can I get a wedding loan?
While there is no such thing as a wedding loan, many couples take out personal loans to pay for their wedding. Before getting a personal loan, it is important to understand the different types of personal loans and find the right one for you. Personal loans fall into two categories: unsecured and secured loans.
Secured loans are backed by collateral such as real estate, cars, and other assets. Unsecured loans do not require collateral. Couples who take out a wedding loan usually take out an unsecured personal loan. You can get a personal loan for your wedding if you qualify.
Unsecured Personal Loans
An unsecured personal loan is not secured by any collateral. As a result, unsecured loans pose a higher risk for lenders. Lenders typically require a higher credit rating to qualify for an unsecured loan. Common examples are credit cards, student loans, and payday loans. Here are other types of unsecured loans that can be used for a wedding:
- Personal loans: A personal loan is money that you borrow from a financial institution. You receive a one-off cash payment and must repay the loan in regular monthly installments.
- credit cards: A credit card is a line of credit that you can use to make purchases. You must make at least the minimum payment each month.
- Peer-to-Peer Lending: Peer-to-peer (P2P) lending, also known as social lending or crowd lending, is borrowing from other people. Financial institutions are cut out as a middleman. Many websites allow P2P lending between individual borrowers and lenders.
- payday loan: Payday loans are short-term, high-interest loans that are usually due in one lump sum by your next payday. Currently, 37 states regulate payday loans due to high costs. A typical two-week payday loan can have an annual percentage rate (APR) of up to 400%. In comparison, credit card APRs can range from 12% to 30%. Payday loans should be viewed as a last resort.
Secured Personal Loans
A secured personal loan is backed by collateral. Examples are auto loans and home equity lines of credit. Secured loans typically have lower interest rates and are easier to qualify for than unsecured loans. Financial institutions pledge your collateral so that they can seize the assets used as collateral if payments are not made. Here are other types of secured loans that can be used for a wedding:
- Secured Personal Loan: With this type of loan, you deposit cash into an account that serves as collateral. The borrower borrows against the collateral and repays the principal and interest to the lender.
- Secured credit card: Similar to a secured personal loan, you deposit cash into an account that serves as collateral. The borrower receives a line of credit in the amount of the deposited amount.
- Home equity lines of credit: A home equity line of credit (HELOC) is a revolving loan backed by the equity in your home. You can use the credit like a credit card if needed.
- Home Loans: Like a HELOC, a home equity loan is backed by the equity in your home. With a home equity loan, on the other hand, you receive a lump sum cash payment. You must repay the loan in regular monthly installments.
- pawnshop: Pawnshops are short-term loans secured by an item value that people in pawnshops receive. Because they are secured by subject matter, they are cheaper than payday loans but more expensive than a traditional loan. Pawn shops are regulated by the government.
What is the best personal loan for a wedding?
According to LendingTree, nearly half (47%) of newlyweds who incurred wedding debt say money prompted them to consider divorce, compared to just 9% of couples who didn’t borrow for their wedding. Ideally, one avoids going into debt for a wedding.
If you do decide to take out a loan, a secured loan such as a HELOC may be your best bet as it typically offers the lowest interest rate. If you don’t have the necessary collateral, look for an unsecured personal loan with the best rates and terms. Many brick-and-mortar and online banks allow you to pre-qualify on their websites.
Personal loans are typically between $500 and $50,000. For both secured and unsecured loans, your credit rating is an important factor in determining the interest rate and loan terms you will receive. Improve your credit score and keep your financial documents in order before applying. Avoid payday loans to avoid extremely high interest rates.
If you use a credit card, be careful not to max it out. Credit bureaus want you to keep your total credit utilization under 30%. That means if your credit card limit is $10,000, don’t spend more than $3,000 on that card. A low utilization rate is an indicator that you are managing your loan obligations well. However, a higher interest rate is a signal to potential lenders or creditors that you are having trouble managing your money and could affect your credit score. If you have a large purchase like a wedding to make, call your credit card company to see if they’ll increase your limit and try lowering your interest rate.
Your wedding is an important day in your life. You’ll want to balance the expense with the wedding of your dreams. One in four couples wish they had spent less money on their wedding. Stick to a budget and prioritize the costs that matter most to you and your partner. This will help keep your budget on track when you’re tempted to overspend. Keeping your expenses reasonable and getting the right type of personal loan can help you avoid some nasty money-related arguments.
The Best Personal Loans of Rise for 2022
Our team of independent experts scoured the fine print to find the handpicked personal loans that offer competitive interest rates and low fees. Start reviewing The Ascent’s best personal loans for 2022.