How To Take Out A Wedding Loan (and If You Even Should)

She said yes to the proposal. The possibilities seem endless. You picture a wedding worthy of the epic connection the two of you feel. There’s just one problem–you don’t exactly have the funding in place. Enter: the wedding loan.

Love and excitement can’t pay a caterer or book a DJ. And unfortunately, neither can you. Turns out your fiance’s parents’ house is underwater and your folks got really into Bitcoin moments before Bitcoin crashed. The student loan people are breathing down your neck. So the wedding’s not exactly off but it’s also not exactly on, either.

Your hopes recede. You are disappointed, even desperate. Trolling the internet hoping to make your impossible dream possible, you stumble on an ad for a service offering wedding loans. It seems too good to be true. This wonderful financial institution is eager to give you enough money to pay for a dream wedding. Your fiancé will be a vision in her bridal dress. Champagne will flow and music will play as you enjoy a perfect memory that will last forever. And all you have to do is promise to pay the money back.

Of course, it’s not that simple. Wedding loans can be complicated and expensive. Finding the right loan for you requires considerable time and research. And while they might seem like an easy answer for a cash strapped couple, it’s import to consider the downsides of taking out wedding loans.

Are Wedding Loans a Good Idea?

Let’s get this out of the way early: you should view wedding loans as a weapon of last resort. Personal finance experts strongly caution against wedding loans. In fact, two financial planners contacted for this story flatly refused to comment based on the premise.

Personal finance advisors object to wedding loans because they believe married couples should save for the future instead of burdening themselves with debt at the start of their marriage. When you borrow for a wedding, it comes at the expense of your future. Your wedding lasts mere hours but debt sticks with you for years. Going into debt to pay for the ceremony and reception robs you of money you could put towards buying a home, your retirement, your kids’ college funds or some other future purchase.

“This will have a material impact on all of your other long term savings goals, whether it’s buying a car or saving for a house, because all those different loan providers will look at your debt to income ratio,” financial planner Roger Ma said. “If you take out this $50,000 loan and have $800 payments on just your wedding loan, that’s gonna start impacting your other goals. That’s not necessarily the way you want to start out your marriage.”

Ma, founder of the New York City-based financial advisement firm Lifelaidout said that borrowing money to pay for a wedding goes against a core principle of money management: never spend more money than you have.

“As a financial planner, or even as a nonfinancial planner, I’d say that one of the keys to building wealth and having a solid financial situation is spending less than you make,” Ma said.

You may have other options you can explore than taking out a loan, like putting off the wedding and restricting your budget during the delay to build up a wedding fund.

Wedding Loan Vocabulary Terms

OK, so you can’t avoid taking out a loan to pay for your wedding. The wedding needs to happen. Your fiancée’s  beloved Aunt Sally is on her deathbed and you have to get married before she croaks. Or you’ve got super-rich wedding guests bringing in sacks of money as gifts. Or maybe you’re taking out a loan to cover a small part, but not all, of your wedding expenses.

So let’s do your wedding loan the best way possible.

First, make sure you are using the correct vocabulary when you’re considering a wedding loan. An important first step is understanding that there’s no such thing as a wedding loan. Yes, financial institutions advertise wedding loans. But technically, what they’re offering is a personal loan for a wedding. It’s a more important distinction than it may seem.

Banks and other lenders offer loans for specific reasons, like automobiles (car loans), education (student education loans), businesses (small business loans) or real estate (mortgages). They don’t loan money specifically for weddings.

Banks that offer wedding loans are offering personal loans that you’re choosing to use to pay for a wedding. Unlike a car loan or a mortgage, the money from a personal loan can be spent in a variety of ways. You can use it however you want. Common uses for personal loans include consolidating debt, home improvements, covering an accident and, yes, paying for a wedding.  

Your wedding loan will probably be an unsecured loan, which means you’re not putting any property on the line when you borrow the money. A mortgage or a car loan is a secured loan; if you don’t pay the loan back, the lender can seize the home or car. Lack of collateral makes lenders nervous because there’s no consolation prize if they don’t get their money back.

In lieu of collateral, lenders of unsecured loans do two things to make sure they get at least some money back: charge a lot of interest and demand quick repayment. A mortgage agreement typically lasts decades. The bank is happy to wait for the money to trickle in because they can take the house if the trickle stops. Because they’re generally unsecured loans, wedding loan interest rates can get pretty high, especially for people with bad credit. When there’s no collateral, banks want their money back fast, with interest. It’s not like they can take the wedding back after you danced and drank the night away.

You can borrow against property you own to secure your loan and receive better terms. With a car title loan, you put up a car as collateral. And a Home Equity Line of Credit, or HELOC, you borrow against the value of a house or a condo.

How FICO Score Impacts Wedding Loans

How much will a loan cost? Much of that depends on how you appear in the eyes of FICO, the most common and important credit scoring agency. FICO sorts information collected from the three major credit reporting agencies, Experian, TransUnion and Equifax, to predict what will happen when people borrow money.

You’re not a flesh and blood person to FICO. FICO sees you the way Neo learns to see the Matrix: as numbers moving through patterns in space.

Fico ranks your credit by five factors:

Payment History: Whether or not you’ve paid your bills on time accounts for 35 percent of your credit score.

Credit Utilization: The percentage of your available credit you counts for 30 percent of your FICO score. If you’ve charged $1,500 on three credit cards with $2,000 limits, you owe $4,500, or 75 percent, of your $6,000 total credit. That’s a dangerous utilization ratio: Nerdwallet recommends keeping it under 30 percent.

Age of Credit Accounts: The amount of time you’ve had credit open forms 15 percentof your score. The longer your credit history, the better.

Recent Credit Inquiries: When someone starts applying for multiple new accounts, it’s a red flag for lenders. Background checks make up 10 percent of credit scores.

There are wedding loans for bad credit, but may be for less money than you need and charge higher interest than you want to pay. Your credit score will be an important tool for navigating your loan and it’s easy to get. You’re legally entitled to receive one free copy of a credit report from Experian, Transunion and Equifax every 12 months through annualcreditreport.com.

Assets and Employment Needed for Loans

Credit scores show how you’ve used money and credit in the past but that’s not enough for lenders. But a credit score isn’t enough to make anyone trust you with their money. A lender needs solid proof that you are who you say you are, won’t disappear with the money and can pay the money back. Be prepared to supply a small mountain of documentation showing that you have a job and aren’t likely to skip town.

Lenders don’t give money to people who are broke and out of work. When you apply for a loan, you need to offer proof of employment and assets. Expect to provide lenders with pay stubs going back at least 30 days, at the bare minimum, to prove you have a job. In addition, some lenders may request W2 tax forms or copies of your tax returns—in some cases, they might want to see several years’ worth of returns. Have recent bank statements for all of your accounts and documentation on assets like stocks, mutual funds, retirement accounts, automobiles and life insurance policies handy as well.

For many people in this gig economy of ours, pay stubs don’t really factor into your life. If you’re self employed or an independent contractor, proving you have a job is trickier. Some lenders require year-to-date profit and loss statement and balance sheet prepared and signed by you and your accountant. Stubs from or copies of recently deposited checks or 1099-misc tax forms could help as well.

Lenders like seeing that you’ve lived in the same place for a while. It makes you seem less likely to slip out of town in the dead of night with their money. So you need to supply some form of proof of occupancy. If you own your property, supply a deed, mortgage or mortgage statement.  Otherwise, a rental/lease agreement with your name on it works. If your name isn’t on the lease, look for a utility bill, like water, gas, a landline phone or electricity, that contains both your current address and your name.

If you’re living with your parents for free and they cover all utility costs, well, you should really think about growing up and moving out. Then think about whether you’re really ready for  marriage. Then think about whether you should put yourself in debt for a marriage when you can’t afford to take care of yourself. After that, look for a driver’s license, voting registration, a cell phone bill or any business correspondence mailed to you while living at your mom’s.

Loan Sources: Friends/Family, Banks, Credit Cards and Credit Unions

Friends and family. They charge the best interest—it could be as low as zero, in fact. They might even forgive the loan altogether. But you run the risk of destroying a relationship even just by asking about it.

“Certainly, if parents have excess cash that they’re willing to lend to you at a zero or low interest rate, certainly that would probably be the best avenue,” Ma said. “Sometimes the parents just forgive the loan at the end.”

Credit cards. Just over a third of couples getting married pay for wedding expenses with credit cards. That’s not a big deal if you’re on top of your payments. However, funding your wedding with cash advances on your credit cards is a bad idea.  

“You’re gonna have 20, 25 percent interest rate and then you start getting into a really bad downward spiral because if you’re not able to pay that each month, it gets pretty bad,” Ma said.

Credit Unions and Small Banks. Wedding loans from credit unions offer better terms than loans from larger financial institutions. Neighborhood credit unions offer personal loans at lower rates than banks and online lenders and can be friendlier to applicants with bad credit.

Large Corporate Banks. Most larger banks like Bank of America have gotten out of the personal loan business. As NerdWallet notes, of America’s five biggest banks, only Citibank and Wells Fargo offer personal loans and personal lines of credit. Both banks exclusively lend to bank customers who meet minimum credit and income requirements.

• Citibank only offers personal loans to their “prime” customers with large cash reserves and higher credit ratings. While Citibank personal loans are small—new customers usually only borrow between $2,000 and $12,500, their interest rates are relatively low, ranging between 7.99 percent to 16.49 percent.
• Wells Fargo lends to people with better than average to excellent credit. Wells Fargo offers higher dollar loans to its customers. If you have good credit and a Wells Fargo account, you could qualify for a loan as high as $100,000 with interest as low as 6.99 percent or as high 23.99 percent APR.

Peer to Peer and Online Lenders. Online lenders like Lending Club, SOFI and Prosper offer unsecured personal loans over the internet for up to $40,000. Some will offer personal loans for borrowers with bad credit  and charge loan service and origination fees, as well as interest rates that can reach as high as the mid 30s. Borrowers usually need to pay the money back quickly—The Lending Club’s loan period is three years, for example.

“When you have a 600 credit score or something like that, maybe like a Citi or HSBC won’t offer you a personal loan, but that may be where a Lending Club comes in,” Ma said.

Shop Around: But Monitor Soft and Hard Credit Checks 

The short guide to lending institutions above is meant as a general guideline. Individual lenders will offer different deals—it doesn’t hurt to see what might be available, as long as you take precautions.

“I think they can certainly shop around and see,” said Ma. “I’m sure they can talk to a loan officer and tell them about, give them the overview of their situation and say given my credit score or my assets/liability profile, could you at least give me an estimate of what the interest rate and all in fees would be so then they can start to comparison shop before having to provide the documentation for several different institutions. I think a simple phone call would be appropriate first.”

The slight risk you run with shopping around for a deal is that having your credit report pulled multiple times in a short space of time dings your credit score. Make sure to ask your lender if they are doing a soft or hard check on your credit. Only the hard checks, where your credit report is pulled, impacts your FICO score. And while lenders are asking you questions, ask some questions about them. Find out how they operate and what fees the loans entail. You may qualify for special rates or offers. For example, the USAA offers personal loans exclusively to veterans and active members of the military.

“I’d compare the interest rate among the different providers,” Ma said. “I would look at what upfronts and potential closing costs there were and I would evaluate the responsiveness or the customer service of the banker.”

Of course, Ma said, if your credit is bad and your options are limited, you’re probably going to borrow from whoever is willing to offer you a loan.

Have you considered a nice low-key afternoon at a courthouse?