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.