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Something borrowed – personal loans for weddings

Something borrowed – personal loans for weddings

With most marriage celebrations costing in the tens of thousands of dollars, could a wedding loan be a competitive option for hosting the wedding of your dreams?

Australia’s warmer months are fast approaching, which means we’re also coming up to wedding season. You could pay for a wedding using your hard-earned savings, but once the confetti has settled, you might start wedded life without much money to fall back on if times get tough.

Historically, “something borrowed” implied a bride would symbolically “borrow” the happiness of another bride with a long and successful marriage. However, if you’re looking to secure the wedding of your dreams, without spending your life savings, your something borrowed could be the money you need to afford it.

When are the most and least popular times to get married?

According to the Australian Bureau of Statistics (ABS), the most popular month for Australian weddings is the last month of Spring, and the least popular is the first month of Winter.

In 2017, 11.1 per cent of weddings took place in November, which was almost twice as many as in June, which only had 5.3 per cent.

The ABS also found that the number of weekends in a month influences its number of weddings.

Pros of wedding loans

Quicker than saving

According to MoneySmart, the average Australian wedding costs more the $36,000 – and that’s before the honeymoon!

To put this in perspective, if every week you put $400 in a savings account with a 2 per cent interest rate, it could take around a year and nine months to save up the money you’d need.

With a personal loan, it’s possible to borrow all the money you need to pay for your wedding at once, and to receive this money as a lump sum soon after your successful loan application has been approved.

Simplify your wedding budget

You could pay for your wedding using a combination of:

  • savings from your bank accounts;
  • credit card balances, and;
  • money borrowed from friends and relatives.

However, keeping track of how much money is owed to whom, and for what, can make budgeting a nightmare.

Using a wedding loan to put all of your money in one place could help make managing things much simpler, sparing you a few headaches.

You can slowly but surely pay off your debt

Putting off paying for your wedding can seem convenient in the short term, but lead to problems further down the line. For example, leaving credit card balances outstanding can lead to big interest charges over time, and owing money to family and friends can put pressure on your relationships.

The benefit of  getting a personal loan means you agree to a regular repayment schedule. This ensures you’ll make steady progress towards paying for your wedding and clearing your debt.

Cons of wedding loans

Debt pressure on a new relationship

While a wedding loan is meant to help deliver marital bliss, it could lead to the opposite effect. Having a big debt hanging over your heads can put a lot of pressure on young newlyweds, adding stress to your relationship.

Having an outstanding wedding debt in your credit history could also affect your credit score, making it more difficult to borrow money in the future. If you applied for a joint personal loan, both spouses could have their credit scores affected.

Wedding loans may cost more than other personal loans

It’s an open secret that many venues, caterers and other party services may raise their prices when the W-word gets mentioned. Personal loans for weddings may also cost more than some other personal loans, but for different reasons than you may expect.

Lenders often charge lower fees and lower interest rates for secured personal loans. These loans are seen as less risky, as they’re guaranteed by the value of an asset – often the product being purchased, such as the vehicle you buy with a car loan. If a borrower falls behind on their repayments and defaults on the loan, the lender can make their money back by repossessing and selling the security.

Unfortunately, a great party and a lasting relationship don’t provide the kind of financial value that can be used to secure a loan. This means that many wedding loans are unsecured loans, meaning they are seen as riskier, and have higher interest rates and fees.

It may be possible to get a more affordable deal by securing your wedding loan with a deposit, the value of your car, or equity in your home, but you may risk losing this security if you run into trouble paying back the loan.

Your loan amount is fixed, but your wedding budget isn’t

You may choose to minimise your wedding debt and only borrow as much money as you need to cover your wedding’s expected costs. However, according to MoneySmart, around one in three Australians blow their wedding budget, meaning you may need to find some other way to pay for extra expenses.

If you borrow too little with your wedding loan, not every lender will let you “top up” your loan by borrowing more money. Applying for credit elsewhere could also be tricky when you already have a loan currently outstanding.

When applying for your wedding loan, you could try to borrow more than you think you’ll need, to compensate for future budget blowouts.

However, you need to remember that even if you don’t end up needing the extra money, you’ll still need to pay it back, plus interest.

Line of Credit personal loans

Another option to consider is to pay for your wedding with a line of credit – a sort of hybrid of a personal loan and a credit card.

When you successfully apply for a line of credit, you’ll be approved to borrow up to a maximum credit limit. Unlike a typical personal loan, you won’t receive this money as a lump sum up front – instead, you can draw down smaller sums as they’re needed, up to the maximum limit.

You’ll only pay interest on the money you’ve borrowed, which could be helpful for managing your wedding’s individual expenses if you’re organising your event in advance.

Compare your options

Choosing a wedding venue, florist, or caterer typically means comparing different quotes and deciding which one offers the best combination of affordability and value for you.

The same goes for choosing a wedding loan – use a comparison website like RateCity to look at the costs and benefits of different wedding loansbefore making a decision that suits your finances.

You can use a personal loan calculator to estimate the cost of a loan before applying, to decide for yourself whether the extra costs will be worth it.

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Learn more about personal loans

How much can you borrow with a bad credit personal loan?

Borrowers who take out bad credit personal loans don’t just pay higher interest rates than on regular personal loans, they also get loaned less money. Each lender has its own policies and loan limits, but you’ll find it hard to get approved for a bad credit personal loan above $50,000.

Does refinancing a personal loan hurt your credit score?

Personal loan refinancing means taking out a new loan with more desirable terms in order to access a more competitive interest rate, longer loan term, better features, or even to consolidate debts.

In some situations, refinancing a personal loan can improve your credit score, while in others, it may have a negative impact. If you refinance multiple loans by consolidating these into one loan, it could improve your credit score as you’ll have only one outstanding debt liability. Your credit may also improve if you consistently pay the instalments on time.

However, applying to refinance with multiple lenders could negatively affect your credit if your applications are rejected. Also, if you delay or default the repayment, your credit score reduces.

What is a personal loan?

A personal loan sits somewhere between a home loan and a credit card loan. Unlike with a credit card, you need to sign a formal contract to access a personal loan. However, the process is easier and faster than taking out a mortgage.

Loan sizes typically range from several hundred dollars to tens of thousands of dollars, while loan terms usually run from one to five years. Personal loans are generally used to consolidate debts, pay emergency bills or fund one-off expenses like holidays.

Can you refinance a $5000 personal loan?

Much like home loans, many personal loans can be refinanced. This is where you replace your current personal loan with another personal loan, often from another lender and at a lower interest rate. Switching personal loans may let you enjoy more affordable repayments, or useful features and benefits.

If you have a $5000 personal loan as well as other debts, you may be able to use a debt consolidations personal loan to combine these debts into one, potentially saving you money and simplifying your repayments.

What is a bad credit personal loan?

A bad credit personal loan is a personal loan designed for somebody with a bad credit history. This type of personal loan has higher interest rates than regular personal loans as well as higher fees.

Can I merge my personal loan with my home loan?

Yes, you can refinance your home loan and, in the process, merge or consolidate your personal loan and home loan. By doing so, you can lower the number of debts you have, and you may also reduce the total interest you have to pay.

However, you should consult a financial advisor or a mortgage broker to confirm that you are decreasing your total outstanding debt, including interest payments. The repayment term for a home loan can be much longer than that for a personal loan, and by merging the two, you could be repaying a higher amount over the full term.

Can I repay a $3000 personal loan early?

If you receive a financial windfall (e.g. tax refund, inheritance, bonus), using some of this money to make extra repayments onto your personal loan or medium amount loan could help reduce the total interest you’re charged on your loan, or help clear your debt ahead of schedule.

Check your loan’s terms and conditions before paying extra onto your loan, as some lenders charge fees for making extra repayments, or early exit fees for clearing your debt ahead of the agreed term.

Are there alternatives to $2000 loans?

If you need to borrow $2000 or less, alternatives to getting a personal loan or payday loan include using a credit card or the redraw facility of your home, car or personal loan.

Before you borrow $2000 on a credit card, remember that interest will continue being charged on what you owe until you clear your credit card balance. To minimise your interest, consider prioritising paying off your credit card.

Before you draw down $2000 in extra repayments from your home, car or personal loan using a redraw facility, note that fees and charges may apply, and drawing money from your loan may mean your loan will take longer to repay, costing you more in total interest.

Is a personal loan a variable or fixed-rate loan?

Depending on the personal loan lender, you may be able to choose between a fixed and a variable interest rate. But, there are a few distinct differences between the two, so it’s important to weigh up the pros and cons before deciding on what’s right for you.

A fixed interest rate loan gets you the convenience of knowing exactly how much you need to repay each fortnight or month. On the other hand, you generally won’t be able to make lump sum or advanced payments to close your personal loan early - or at least not without a penalty.

With a variable interest rate personal loan, you may be able to get a longer loan repayment term, with the option of paying off the loan early. You typically won’t need to pay any additional charges for an early full repayment either. The potential disadvantage with an interest rate that can change is that your repayment is not entirely predictable, as it can fluctuate with the market. However, you’ll likely have more options as more lenders offer a variable interest rate personal loan.

What is the average interest rate on personal loans for single parents?

Like other types of personal loans, the average interest rate for personal loans for single parents changes regularly, as lenders add, remove, and vary their loan offers. The interest rate you’ll receive may depend on a range of different factors, including your loan amount, loan term, security, income, and credit score.

Should I get a fixed or variable personal loan?

Fixed personal loans keep your interest rate the same for the full loan term, while interest rates on variable personal loans may be raised or lowered during your loan term.

A fixed rate personal loan keeps your repayments consistent, which can help keep your budgeting consistent. You won't have to worry about higher repayments if your rates were to rise. However, on a fixed loan you’ll also potentially miss out on more affordable repayments if variable rates were to fall.

How can I get a $3000 loan approved?

Responsible lenders don’t have guaranteed approval for personal loans and medium amount loans, as the lender will want to check that you can afford the loan repayments on your current income without ending up in financial hardship.

Having a good credit score can increase the likelihood of your personal loan application being approved. Bad credit borrowers who opt for a medium amount loan with no credit checks may need to prove they can afford the repayments on their current income. Centrelink payments may not count, so you should check with the lender prior to making an application.

What is credit history?

Your credit history covers everything to do with applying for loans. It includes the number of loans you’ve applied for, the amounts you’ve borrowed and your record of meeting repayment schedules.

Where can I get a personal loan?

The Australian personal loans market contains dozens of lenders offering several hundred different products. Personal loans are available through a range of institutions, including:

There are three main ways to access personal loans. You can go through a comparison website, such as RateCity. You can use a finance broker. Or you can directly contact the lender.