Something borrowed: does a personal loan work to pay for a wedding?

Many couples use credit cards to help pay for a wedding, but some take out wedding loans —  unsecured personal loans whose interest rate is based on the creditworthiness of one or both spouses-to-be.

While no-interest credit cards can be cheaper for those with excellent credit, a personal loan in a specific amount may help couples stick to a spending plan, and fixed monthly payments may make budgeting after the wedding easier.

But no one — no one — recommends that you begin your married life in debt.

The average American wedding cost $32,641 in 2015, up 4.5% from the previous year and 21% from five years ago, according to The Knot’s 2015 Real Weddings Study.

The bride’s parents still bear most of the wedding costs on average, contributing 44% of the budget, but couples are a close second, contributing 43% of the budget, the study found, followed by the groom’s parents at 12% and others at 1%.

Those who take out online personal loans aren’t borrowing anywhere near those amounts. Online lender LightStream, which caters to borrowers with excellent credit, says its average wedding borrower gets $17,472 and repays it over four years.

LightStream’s wedding loan volume tripled in the past year, says company spokeswoman Julie Olian; she attributes the jump to increased awareness about such loans.

At online lender Prosper, the number of loans for “special occasions” such as an engagement ring or wedding expenses has grown by more than 100% in the past year, the company says. The average loan amount is $9,534.
Here's what you need to know about wedding loans:

Who can get a wedding loan?

You don’t need to flash an engagement ring to get a wedding loan. Anyone can apply for one, and what matters most are your credit score, credit history and debt-to-income ratio. The better your credit, the lower the interest rate you’ll get.

Though some online lenders market loans specifically for weddings, you can spend the money on practically anything.

Most lenders lend money only to an individual, so the partner with better credit typically should apply for the loan. Some online lenders allow co-signers, so if neither of you has great credit, asking a parent to co-sign the loan is an option. Keep in mind that your co-signer is on the hook if you can't make the payments.

Where to get a wedding loan

Your local credit union is a good first stop whenever you’re considering a personal loan. Credit unions offer low rates and help you tailor the loan to make it affordable. The maximum annual percentage rate at federal credit unions is 18%.

Online lenders are another source for personal loans. These lenders use different criteria to evaluate applicants, and most of them will give you a quote without it affecting your credit, so it pays to compare your options. There are lenders for borrowers with good credit and bad credit. Reputable online lenders charge a maximum APR of 36%.

LightStream is one of only a few companies to offer interest rates tailored for weddings. As of May 2016, the APR range is 5.99% to 14.49%.

Wedding loans vs. credit cards

Credit cards are the most popular option for covering wedding expenses, experts say.

If you have good or excellent credit, you may qualify for a 0% APR credit card. These cards charge no interest for the first 12 to 18 months, after which a high interest rate kicks in. They’re not advisable unless you know you can pay off your balance within the promotional period.

The downside of any credit card is that it can tempt you into overspending, says Liz Weston, NerdWallet personal finance columnist. “If you’re using a card to finance something you couldn’t afford otherwise, you need to rethink what you’re spending,” she says.

On the other hand, wedding loans come with a fixed interest rate, and you get only the loan amount you ask for, which means they’re better at keeping you within budget.

“Couples are more diligent in what they spend on when they take out a loan than when they use a credit card,” says Richard Rosso, a certified financial planner with Clarity Financial in Houston, Texas, whose clients have taken out wedding loans.

The downside is that you and your partner will be stuck making monthly payments for a long time, typically two to five years, unless you create a budget to pay it off early. Most online lenders charge no penalty for prepaying a loan.

Why shouldn’t you get a wedding loan?

Financial experts agree that a wedding loan is something to avoid, especially if you aren’t in a rush to get married.

“If you start your marriage by going into debt, you are setting yourself up for a rocky beginning,” says Jarett Topel, a certified financial planner with Topel & DiStasi Wealth Management in Berkeley, Calif.

Many young couples already are bringing high levels of student debt into their marriages, Rosso says, and adding more debt for a one-time event isn’t wise.

A better way for would-be spouses to build their financial future is to save up for the dream wedding — or simply have a simpler, less expensive one.

“Plan the wedding far enough off so that you save the money,” Topel says. “Or go to City Hall and get married now, and when you make money and save it, go have a big ol’ party.”

Amrita Jayakumar is a staff writer at NerdWallet, a personal finance website. Email: ajayakumar@nerdwallet.com. Twitter: @ajbombay. This article first appeared at NerdWallet.