The wedding industry is undergoing a significant transformation, especially among millennials and Gen Z couples, who are increasingly opting to self-fund their dream weddings. This shift stems from a desire to avoid placing financial burdens on their parents. However, this well-intentioned decision can lead to the need for external funding, as the soaring costs of weddings often require couples to turn to personal loans tailored for wedding financing.
The rise of wedding loans can be attributed to couples’ aspirations for personalization, unique experiences, and the allure of destination or themed weddings. Social media platforms like Instagram amplify these desires, driving a culture where validation and “likes” are integral to the wedding experience.
According to the IndiaLends Wedding Spends Report 2.0, approximately 26% of brides and grooms who plan to self-fund their weddings are considering personal loans. Among those contemplating borrowing, 68% intend to secure loans ranging from ₹1 lakh to ₹5 lakh. This survey, conducted in October-November 2023, polled 1,200 millennials and underscores the growing trend of wedding loans.
Factors Driving Couples to Seek Wedding Loans
A recent survey, “Destination ‘I Do’” by Skyscanner, reveals the increasing popularity of destination weddings among millennials and Gen Z. About 85% of respondents reported planning or having experienced a destination wedding. The survey, which took place in July 2024, included 2,000 participants from India.
Destination weddings come with heightened expenses, such as transporting guests to remote locations, hiring wedding planners, and securing luxury accommodations. These financial pressures often necessitate taking out wedding loans. The appeal of flexible loan options and rapid approvals makes wedding financing an attractive choice for couples who wish to maintain a lavish wedding without straining their finances.
Eligibility Guidelines for Wedding Loans
Wedding loans are classified as personal loans by banks, non-banking financial companies (NBFCs), and fintech lenders, which means they share similar eligibility criteria. Generally, to qualify, borrowers should have a good credit score, ideally above 730, which indicates responsible credit behavior. Lenders also look for proof of stable income and recent bank statements, along with a solid repayment history without missed or delayed payments over the past one to three years.
Before opting for a wedding loan, couples must assess their financial situation to ensure they can manage the repayments comfortably.
Crucial Loan Terms to Know Before Signing
Before committing to a wedding loan, borrowers should familiarize themselves with important loan terms. Interest rates for wedding loans typically range from 9.99% to 24% per annum, influenced by factors such as the borrower’s credit profile, loan amount, and tenure. Processing fees usually vary from 1% to 4% of the loan amount.
These loans come with repayment tenures ranging from 12 to 84 months, depending on the lender. It is essential for borrowers to be aware that missing repayments or defaulting on unsecured loans can result in penalty charges, damage their credit score, and lead to legal repercussions. For example, the State Bank of India charges a 3% prepayment fee on the outstanding amount if the EMI is paid in full or in part before the loan term ends, while Tata Capital imposes a 4.5% fee on the principal outstanding at the time of loan foreclosure.
Be Aware of the Financial Traps
One of the main drawbacks of wedding loans is the high-interest rates associated with them, similar to other personal loans. Failing to repay or delaying payment can incur hefty penalties and adversely affect the borrower’s credit score. A poor credit score can hinder access to future loans and result in higher interest rates. Moreover, foreclosing a loan before maturity can come with substantial charges.
The Wedding Loan Checklist
Couples should carefully evaluate their long-term financial goals, such as saving for a home, building an emergency fund, family planning, asset creation, or retirement, before committing to a wedding loan. It’s crucial to consider ongoing financial commitments, such as student loan repayments, and assess the practicality of repaying the loan.
Creating a wedding budget that aligns with the couple’s financial wellbeing is essential to avoid undue stress post-wedding. Additionally, considering potential future financial burdens, such as a child’s birth, job loss, medical emergencies, or unforeseen circumstances, is vital.
Other Options to Wedding Loans
To make weddings more budget-friendly, couples can cut back on extravagant expenses by opting for local venues or community centres rather than high-end hotels or resorts.
Planning ahead and saving can also alleviate financial pressure. Couples should consider discussing EMI options with vendors instead of paying upfront. Some lenders offer loans against stocks and mutual fund investments, which often come with lower interest rates than unsecured personal loans.
Another alternative is withdrawing from low-interest yielding investments, such as fixed deposits and endowment insurance plans, to fund wedding expenses without incurring high-interest debt.
Final Thoughts
While the desire for a spectacular wedding is understandable, it’s crucial for millennials and Gen Z to assess the financial implications of taking out wedding loans. With soaring costs and the potential pitfalls of high-interest loans, couples should tread carefully before committing to debt for the sake of social media validation. By making informed decisions and exploring alternatives, they can create memorable weddings without jeopardizing their financial future.
