Downsize Your Dream Wedding or Finance it? Experts Weigh in

The wedding of your dreams can leave you with a nightmare of a bill.

The average wedding in 2016 cost $35,329, according to The Knot, and that didn’t even include a honeymoon.

Whether it’s the result of our society’s obsession with getting hitched or just your huge guest list, trimming that final price can be a struggle.

Sometimes, those who can’t afford to pay out of pocket for their weddings turn to wedding loans to finance some — or all — of their big days.

But is it a smart money move? Or are these folks setting themselves up for a mountain of problems before they even say “I do?”

What Is a Wedding Loan?

The term “wedding loan” has buzzed around the internet, but there is actually no such thing. Instead, the term refers to taking out a personal loan to finance a wedding.

Personal loans are commonly used for long-term finances, such as tackling credit card debt or education expenses.

When it comes to getting a personal loan, the requirements are strict. Since they generally don’t require any collateral, you often need a high credit score to get one from a bank.

Nearly every financial adviser I contacted told me the same thing: Taking out a personal loan for a wedding is not something they would ever suggest. Most recommend putting a personal loan toward an appreciating expense, such as home renovations.

Instead, financial advisers recommended couples avoid taking out personal loans for their weddings altogether by downsizing their wedding plans or cutting costs.

Joe Toms, president of Freedom Financial Network’s asset management unit, also recommended budgeting more and cutting costs. But once those options are exhausted, he said there are a few situations when personal loans make sense:

• When cost cutting and careful planning aren’t enough. Let’s be real: No one in their right mind would have their wedding guests eat off paper towels — at least, I hope not. If a couple has already cut as many costs as possible but they still don’t have enough cash on hand to cover the costs, it might be time to consider a personal loan, Toms said.

• When the couple doesn’t have other significant debt, and the payments will work into their newlywed budget. You don’t want to start your new life together sinking in payments you can’t make. That said, if your budget has room for the monthly payment, it might be OK to go for it.

• When they’re faced with using either a personal loan or credit cards. Toms wrote that average rates on personal loans range from 14-18%, whereas credit cards have interest rates between 15-25%. This means you can save thousands of dollars in interest in the long run if you go with the personal loan.

Additionally, personal loans have fixed interest rates and repayment periods, so you’ll never be hit with a surprise increase from market fluctuation.

A Wedding Loan Story

Amneet Bhurji, finance manager at Student Loan Hero, took out a personal loan for her wedding, but not because she couldn’t cover the expenses.

Bhurji comes from a large Indian family, as does her husband. In their culture, Bhurji says, weddings are more for the parents. While she and her husband originally wanted to have a small wedding, they eventually decided to go the traditional route.

As a result, they had two weddings, one in each of their hometowns of Chicago and San Francisco. The total cost? More than $100,000.

Their parents paid for the bulk of the weddings, but Bhurji and her husband offered to pay for any extra costs that might not already be covered.

Although she had money in her savings, she was reluctant to use it because it was earmarked for a down payment on a house.

Bhurji decided to take out a $20,000 personal loan to cover the additional wedding costs instead of digging into her savings.

She and her husband ended up paying it back in less than six months — 30 months sooner than the loan’s terms required.

The newlyweds also bought a house about a year after their wedding.

While Bhurji describes her situation as “unconventional,” she says it was a smart money move on her part.

“I’m really big on using credit — but obviously, using credit responsibly,” says Bhurji. “My philosophy is, so long as you’re using it to the point that you can afford, it’s actually beneficial. I do think credit can work for you as long as you’re responsible while you’re using it.”

She still recommends folks have the type of wedding they can afford, but she says they shouldn’t be afraid to reach for a reasonable personal loan if they don’t want to diminish their savings for their big day.

That doesn’t mean go out and get a huge loan for a lavish wedding, though. Remember, this isn’t free money. If you can get by without one, Bhurji recommends not getting one.  

Overall, Bhurji is content with their decision to take out a personal loan and says it even helped boost their credit, which worked in their favor when they got their mortgage.

Why Are We So Afraid to Spend Our Savings?

While I chatted with Bhurji, a bigger question came to my mind: Why are we so afraid to spend our savings?

“I think it’s different for everyone. I think everyone has this limit in their mind of how much needs to be sitting in their savings accounts and you just don’t ever want to go and dip into that unless it’s absolutely dire,” says Bhurji. “I think in that sense, we knew we were using our savings for something we really needed, so we didn’t want to spend it on something lavish or fun.”

Bhurji also says their financial goals made them hesitant to tap into their savings. They wanted to put as much money down as possible on a new home, and pulling money out of this savings for their wedding would have dropped their possible down payment.

Though they paid off the loan in six months and could have done the same had they pulled the money from savings, they saw it as a sort of psychological win to use the loan instead of drawing from their hard-earned savings.
The main thing to remember when it comes to loans is they aren’t free money — the interest always adds up.

If you’re going to borrow, always keep the amount within your means, and never miss a payment.

Kelly Anne Smith is a junior writer and engagement specialist at The Penny Hoarder. Catch her on Twitter at @keywordkelly.