Should You Say “I Do” to the Personal Loan This Wedding Season?

Particularly in the Indian cultural context, where celebrations, especially weddings, are known for their grandeur, the costs associated with venues, catering, photography, attire, makeup, choreography, jewellery, receptions, decorations, and other elements can escalate significantly. The financial requirements to arrange such a dreamlike event can be substantial.

The average expenditure for an Indian wedding typically ranges from Rs 8 Lakhs to Rs 50 Lakhs. However, for those desiring a lavish celebration with a stunning ring, delectable cuisines, and designer attire like an Armani suit or a Sabyasachi Lehenga, the expenses can become exorbitant. Planning for such costs might pose a challenge, especially if you have not dedicated savings for this significant occasion. In such circumstances, individuals often contemplate opting for options like personal loans or marriage loans to alleviate the financial burden of wedding expenses.

However, the question lingers: Is saying 'I do' to a personal loan a prudent decision in the context of wedding finances? Let's explore the considerations and implications of such a financial choice in the following discussion.

What Is a Personal Loan?

A personal loan is an unsecured loan that does not require security or collateral and is granted with minimal documentation. The borrowed funds can be utilised for any valid financial purpose. As with any conventional loan, repayment is obligatory in accordance with the mutually agreed-upon terms with the bank, typically spanning from a few months to a few years, structured in easily equated monthly instalments (EMIs).

Can You Use a Personal Loan to Finance Your Wedding?

You can utilise the personal loan amount in any manner you desire, whether for a vacation, purchasing a gadget, covering medical expenses, home renovations, financing your children's education, or covering your wedding expenses. The lenders generally do not ask for the reason to avail of a personal loan.

What Is a Marriage Loan?

A marriage loan or wedding loan is a type of personal loan designed to address the financial requirements associated with your marriage. When wedding expenses exceed expectations, individuals or their parents may find themselves in a situation where borrowing from family or friends becomes necessary. However, with the option of a wedding loan, you can confidently meet your wedding expenses. These loans are tailored personal loans explicitly provided to cover wedding costs.

What Are the Benefits of Taking a Personal Loan to Cover Your Wedding Expenses?

1. It's Unsecured:

A personal loan or wedding loan does not require collateral, providing accessibility to a broader applicant base. Applicants can secure the loan using personal and professional details, eliminating the need to provide pledged security. This accessibility enables you to cover wedding costs without concerns about risking your assets.

2. Minimal Documentation:

Acquiring a personal loan for a wedding is a straightforward process and requires minimal documentation. Upon meeting the eligibility requirements, the loan amount is swiftly deposited into your account within hours.

3. Convenient Application Process:

Applying for personal loans is a hassle-free online process and involves minimal paperwork. Just visit the bank's website or Mobile Banking app, complete the personal loan application form, and upon approval, the bank promptly transfers the loan amount to your account.

4. Sufficient Loan Amount:

A personal loan offers the flexibility to finance even the most extravagant Indian weddings. One notable characteristic of personal loans is the ability to apply for the desired loan amount without restrictions, providing the freedom to plan your dream wedding. Many leading banks and NBFCs extend personal loans of up to Rs 50 lakhs, a sum that can readily cover the expenses of most Indian weddings.

5. Speedy Processing and Disbursement:

Lenders often ensure a swift turnaround for personal and marriage loan applications. With a well-prepared application, proper paperwork, and a sound credit history, the processing duration is typically 1 to 3 working days, and the approved loan amount is directly disbursed to your registered bank account. Certain leading banks offer instant personal loans that can be disbursed into your bank account within a few minutes.

6. Extended Repayment Tenure:

Personal loans usually offer a flexible repayment period ranging from 12 to 60 months. Applicants can tailor the monthly instalment amount and select a repayment duration that does not strain their finances.

7. Competitive Interest Rates:

Due to the high competition in the personal loan segment, these loans are now offered at competitive interest rates, enabling borrowers to meet monthly obligations comfortably.

8. Cost-effective Alternative to Credit Cards:

Opting for a personal loan is a more cost-effective choice compared to accumulating debt on a credit card. Credit card debts often entail higher costs than personal loans, making the latter a preferable financial option.

9. No Need to Liquidate Your Investments:

Considering that the average cost of Indian weddings amounts to several lakhs, individuals often liquidate their investments in mutual funds and fixed deposits (FDs) to meet these expenses. Opting for a personal loan can mitigate this need, preserving your investment goals and financial plans.

What Are the Potential Cons of Taking a Personal Loan to Cover Your Wedding Expenses?

Taking a personal loan to cover wedding expenses may seem like a convenient option, but it comes with its share of drawbacks that can significantly impact your financial well-being in the long run. Here are some potential cons to consider before opting for a personal loan for your wedding:

1. Temptation to Overspend:

The accessibility of extra funds through a personal loan can lead to the temptation to overspend on wedding-related expenses. Without the constraints of specific spending categories, individuals may find themselves succumbing to the allure of extravagant choices. This lack of restriction can result in unnecessary expenditures, pushing the total loan amount higher than initially planned.

2. Long Repayment Period:

One of the significant drawbacks of taking a personal loan for a wedding is the extended repayment period. Depending on the loan amount and your current repayment capacity, the loan could take several years to repay fully. While this might not pose an immediate financial burden, it can impact your long-term savings and financial health.

3. Higher Interest Rates:

Personal loans, including those designated for weddings, typically come with higher interest rates compared to secured loans. Since these loans are unsecured, meaning they do not require collateral, lenders charge higher interest rates to mitigate the risk.

The higher interest rates associated with personal loans can result in substantial interest payments over the life of the loan. This financial strain may limit your disposable income, making it challenging to manage day-to-day expenses or save for other important financial goals. The burden of interest payments can significantly impact your overall financial stability.

4. Heavy Penalties for Late Payments:

In addition to the high interest rates, personal loans often come with heavy penalties and fines for late or missed payments. Every late payment incurs additional charges, further adding to the financial stress. These penalties not only require you to allocate extra funds from your current income but can also negatively impact your credit score, affecting your ability to secure favourable terms for future financial endeavours.

5. Impact on Credit Score:

Consistently making late payments or defaulting on a personal loan can harm your credit score. A lower credit score can limit your ability to secure favourable interest rates on future loans, including home loans or car loans. Maintaining a good credit score is crucial for overall financial health, and a personal loan with frequent late payments can compromise this.

6. Potential for Financial Stress:

The cumulative impact of overspending, extended repayment periods, high interest rates, and penalties can lead to significant financial stress. Managing the monthly EMIs along with other financial obligations may become challenging, impacting your overall financial well-being and potentially causing stress and anxiety.

To conclude:

If you lack a financial plan for your wedding, a personal loan may provide immediate relief. However, it is essential to carefully consider the potential drawbacks. The temptation to overspend, coupled with the long repayment period, higher interest rates, and associated penalties, can create a financial burden that extends beyond the wedding celebration. Exploring alternative financing options or creating a realistic budget may help mitigate these risks and ensure a more stable financial future.

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KETKI JADHAV is a Content Writer at PersonalFN since August 2021. She is an MBA (Finance) and has over seven years of experience in Retail Banking. Ketki specialises in covering articles around banking, insurance, personal finance, and mutual funds and has been doing it for over three years now.

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This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.