Wedding Loans: Should You Finance the Big Day?

Weddings have a habit of costing more than the number you started with, and by the time you've booked the venue, the photographer, the catering and everything else, "just put it on savings" doesn't always stretch far enough. A wedding loan is one option. Here's how to think about whether it's the right one.

The decision is easier to make when the costs are visible. A loan is not free money and it is not a disaster either. It is a trade: money now, in exchange for a fixed repayment for a fixed number of years, plus interest and fees. This is general information rather than advice about your circumstances, and the aim is to put the real numbers in front of you before the deposits start falling due.

What a wedding loan actually is

It's typically an unsecured personal loan, used for wedding-related costs, repaid over a fixed term at a fixed or variable rate. There's nothing special about the "wedding" label. It's the same product as a general personal loan, just marketed for the occasion.

Unsecured means no asset sits behind the loan. The lender has nothing to repossess if repayments stop, so unsecured rates are generally higher than secured ones. That is the trade for not putting your car or anything else on the line. Terms are usually shorter than a car loan, and the loan is regulated under the National Credit Code, which means the lender has to make reasonable enquiries about your situation and assess that the loan is not unsuitable for you before approving it.

How it compares to a card or a payment plan

A personal loan has a fixed term and a fixed end date. A credit card does not, which is the practical difference between the two. Card debt can survive the wedding by years if you are only making minimum repayments, and card rates tend to be higher than personal loan rates.

Supplier payment plans and buy-now-pay-later arrangements are a third thing again. They can be genuinely useful for spreading a deposit, but several running at once are hard to track, they show up on your bank statements, and lenders look at them when assessing a later application. If you use them, keep a list of what is due and when.

Why some couples choose to finance part of it

There are three reasons that come up more than any others, and none of them are about wanting a bigger wedding.

• Timing. Deposits for venues and vendors are often due well before the wedding itself, sometimes before all your savings have caught up
• Spreading the cost. A loan turns one large upfront hit into manageable repayments over a set term
• Keeping savings intact. Some couples would rather finance the wedding and keep their savings for a house deposit or other priorities

That last one deserves a caveat. A personal loan reduces your borrowing capacity on a home loan, because the repayment is counted against your income in the assessment. Keeping savings intact and taking on a loan can look neutral and is not, if a mortgage application is somewhere on the horizon.

The case for saving instead

Financing a wedding means paying interest on a day that, however memorable, doesn't appreciate in value the way a house deposit or investment might. If your date isn't locked in and you've got flexibility, saving up avoids interest altogether. Worth weighing against how much the loan actually costs over its term.

There is a middle path that gets overlooked. Financing only the part you cannot cover, and only the part that has to be paid before the date, usually costs far less than financing the whole event. A shorter, smaller loan is also easier to get approved and easier to clear afterwards.

What it costs, in numbers you can check

Here is an illustration. The numbers are invented and deliberately round so the arithmetic is visible, and they are not a market rate or a quote. Say you borrow $10,000. Over three years the repayment works out at $300 a month, so you repay $10,800 in total. Over five years the repayment drops to $200 a month, and you repay $12,000. The longer loan is $100 a month easier and $1,200 more expensive.

That is the whole trade in one paragraph. A longer term always looks more affordable and almost always costs more, because you are paying interest on the balance for longer. The question is not which repayment you can manage, it is which total you are prepared to pay for the flexibility.

Where it costs more than people expect

Three things push the real cost above the number in the ad. The first is the term, as above. The second is fees: an establishment fee at the start and a monthly account keeping fee across the life of the loan both belong in your total, which is why the comparison rate is usually higher than the headline rate. The third is borrowing more than you need, because a loan approved at $25,000 when you needed $8,000 costs you interest on the difference for years.

It is also worth being honest about the timing. The repayments continue long after the day itself, through whatever else the next few years bring. A loan that fits comfortably today should still fit if one income changes.

What a lender looks at

An unsecured personal loan has no asset behind it, so the assessment leans entirely on you. Expect the lender to look at:

• Your income, its type, and how long you have been earning it
• Your living expenses, as they appear on your bank statements rather than the figure you nominate
• Existing debts, including credit card limits, buy-now-pay-later accounts and any other loans
• Your credit file, including repayment history and recent enquiries
• Stability, meaning time in your job and time at your address
• What the funds are for, which lenders do ask about on a personal loan

Most lenders also apply a serviceability buffer, assessing the repayment at a rate above the one you are quoted, so the approval can come back lower than you expected. Multiple applications in a short period are visible on your credit file and read as stress to the next lender who looks, so it is worth comparing options before submitting anything rather than after a decline.

Should you apply together or separately?

Both are possible and they behave differently. A joint application counts both incomes, which can lift the amount available, and it makes both of you liable for the full debt rather than half each. A single application keeps the debt in one name, which can matter if one of you has a clearer credit file or if you want the other person's capacity kept free for something else.

Neither is automatically better. What matters is that whoever signs understands that the liability is real and does not end if circumstances between you change.

If you do finance it, a few things worth doing

Borrow only what you need to bridge the gap. If you've got $10,000 saved and the wedding's costing $25,000, you don't need to finance the whole $25,000. Just the shortfall.

Compare the total cost, not just the repayment. A longer term looks more affordable per fortnight but usually costs more in total interest. Check both numbers before deciding on a term.

Watch for fees. Establishment fees and early repayment fees vary a lot between lenders. Worth checking before you commit, especially if you think you might pay the loan off early with wedding gifts or bonuses.

Check whether extra repayments are allowed. If you expect a bonus, a tax refund or gift money after the day, a loan that lets you pay lump sums in without penalty is worth more to you than a slightly lower advertised rate.

Keep the wedding budget and the loan separate. The loan amount is a ceiling, not a budget. Deciding the total first and borrowing the shortfall is a different exercise from being approved for an amount and then spending up to it.

What to have ready before you apply

Personal loan applications stall on missing paperwork more than anything else. Pull this together first.

• Photo identification for each applicant
• Recent payslips, or tax returns and recent BAS if either of you is self employed
• Three to six months of statements for your main transaction account
• A list of existing debts with limits, balances and repayments
• A realistic monthly expense figure that matches what the statements show
• A written total of the wedding costs, what is already paid, and what is still owing
• A copy of your own credit report, so nothing on it surprises you mid application

If the budget is already stretched

Sometimes the honest answer is that the numbers do not work yet, and that is a normal outcome rather than a failure. Moving the date, trimming the guest list or shifting a supplier are all cheaper than borrowing, and none of them cost interest.

If you are already behind on other repayments, or borrowing to cover existing repayments, free financial counselling is available in Australia through the National Debt Helpline. Financial counsellors are independent, they do not sell loans, and the service costs nothing. It is a sensible call to make before taking on new credit rather than after.

The bottom line

There's no wrong answer here. Some couples would rather enjoy the day now and pay it off over time, others would rather wait and save. What matters is knowing the real cost either way before you decide.

Work out the shortfall, get the total amount payable in dollars for each term you are considering, and check what it costs to pay the loan out early. Those three numbers turn the decision into arithmetic rather than a feeling, which is about as much certainty as this kind of choice allows.

Compare City runs personal loans for weddings the same way we run every other loan. Real numbers, side by side, no pressure either way.

More on wedding loans and personal loans.