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Guide to wedding loans

 (Pexels)
(Pexels)

Planning on getting married? Funding your nuptials is no easy feat. According to the most recent National Wedding Survey carried out by Hitched, the average cost of a UK wedding in 2021 stood at £17,300. This is 90% up on the average cost of a wedding in the pandemic-driven 2020, which stood at £9,100.

Unless this is cash you have to hand, you’ll need to consider how to go about borrowing to fund your big day.

Consider a loan

One option to consider is a personal loan. This will enable you to borrow a fixed sum over a fixed period of time – and at a fixed rate of interest. It comes with the advantage of knowing upfront how much you’ll pay back each month – and for how long – both of which can prove a blessing as you set out in the early days of married life.

Equally, as personal loans are unsecured, your home is not at risk (as it would be with a secured loan). And with some lenders, if you apply online and are deemed ‘eligible’, you could potentially get the money in your account the same or next day.

 (Novuna)
(Novuna)

1. Novuna Personal Finance

APR (representative) 2.70%

Early Repayment Charges* Yes

Late Payment Charge** £25

Our verdict

Novuna Personal Finance (formerly Hitachi Personal Finance) is offering the leading APR at a representative 2.70% (fixed) for personal loans of this size. However, the deal is only available for a minimum term of two years, compared to the 12 months offered by many other personal loan providers.

Pros

  • Leading representative APR

  • Quick approval process

Cons

  • Only for terms of between 2 and 5 years

  • Late payment charge of £25

 (MBNA)
(MBNA)

2. MBNA

APR (representative) 2.80%

Early Repayment Charges* Yes

Late Payment Charge** £0

Our verdict

There are no fees for paying extra off your balance if you wish, but charges apply to full early repayment. Up to two months’ payment holiday per year are available for eligible borrowers, which can be taken in consecutive months.

MBNA loans are available via Lloyds Bank.

Pros

  • Low representative APR

  • Up to 2 payment holidays per year

Cons

  • £25 late payment fee (after 7 days)

 (Cahoot)
(Cahoot)

3. cahoot

APR (representative) 2.80%

Early Repayment Charges* Yes

Late Payment Charge** £0

Our verdict

cahoot offers a representative APR of 2.80% on loans up to £20,000, although the availability of larger loans at a low rate shouldn’t encourage you to borrow more than you need or can afford.

You can overpay on your cahoot loan at no extra cost, although the lender charges a fee for early repayment in full.

There’s no charge for a missed payment either (although your credit score is likely to take a hit). The same deal is available from parent bank, Santander although the 2.80% rate is capped at the lower borrowing level of £15,000.

Pros

  • Low representative APR

  • Loans up to £20,000 at 2.80%

  • No fee for late payment (although your credit score will be affected)

Cons

  • Minimum age 21

  • No branch network

 (M&S Bank)
(M&S Bank)

4. M&S Bank

APR (representative) 2.80%

Early Repayment Charges* Yes

Late Payment Charge** £0

Our verdict

At a representative APR of 2.8%, personal loans from M&S are up there with the best. The same rate applies from 12 months all the way up to seven years which offers a good dose of flexibility too.

You can overpay on your M&S loan free of charge but will be charged a penalty to settle the full balance ahead of your selected term.

Pros

  • Same rate on terms up to 7 years

  • Low representative APR

  • No fee for late payment (although your credit score will be affected)

Cons

  • £10,000 minimum income requirement

 (Tesco Bank)
(Tesco Bank)

5. Tesco Bank

APR (representative) 2.80%

Early Repayment Charges* Yes

Late Payment Charge** £12

Our verdict

Tesco Banks also offers a representative 2.80% APR. While that rate only applies to terms of between 12 and 60 months, it is possible to take a loan over as long as seven years.

Tesco Clubcard holders can ‘positively affect your application’ according to the lender’s website, although it’s not mandatory to have one to apply.

Pros

  • Low representative APR

  • Terms up to 7 years

Cons

  • £12 late payment fee

  • Clubcard holders could be at an advantage

*Based on a settlement figure as set out under the Consumer Credit (Early Settlement) Regulations 2004. This states that if you have less than 12 months remaining of your loan, providers can charge up to 28 days’ interest. An extra 30 days’ interest can be added on if there is more than one year of the loan term remaining, taking the total maximum penalty to 58 days’ interest.

** Late or missed loan payments will negatively affect your credit score

What exactly is a ‘wedding’ loan?

A wedding loan is an unsecured personal loan, but one with a specific purpose. As part of the online application process, you will be asked why you want the cash. You simply need to state that you want to borrow money to help finance a wedding. (Other reasons to take a loan might include ‘home improvements’ or ‘debt consolidation.’)

Some lenders may take the ‘purpose’ into consideration when making their decision over whether or not to offer you a loan. That said, saying you want to use it to pay for a wedding shouldn’t count against you.

And, once you’ve been accepted, the way the loan works will be the same, irrespective of what you use it for.

How much can I borrow and over how long?

Typically, with a wedding loan, you will usually be able to borrow between £10,000 and £15,000. Some lenders allow you to go up to £25,000.

Generally speaking, you can choose to repay a personal loan over 12 months up to five years. That said, with a loan of £25,000, you may be offered an even longer repayment period. But while a longer period means lower monthly payments each month, you could end up paying more interest overall.

When taking out a wedding loan, the best approach is to work out what you can realistically afford to pay each month, and then borrow as little as possible over the shortest period.

Interest rates on personal loans

As a borrower, you may be able to find personal loans with a very competitive annual percentage rate (APR).

The key is to do your research and compare rates carefully. When comparing deals, be aware that smaller loans tend to come with higher APRs than larger loans. Don’t let this be a reason to borrow more than you need, however.

You may not get the advertised rate

With a wedding loan, it’s important to note that the rate you actually get will vary depending on the amount you borrow and your individual circumstances. This includes your credit rating.

While lenders can advertise low interest rates, legally, these only need to be offered to 51% of successful applicants. The remainder will then be offered higher rates.

To get the very lowest loan rates, you are going to need a squeaky-clean credit record.

If your credit rating is a little patchy, there are some simple steps you can take to improve it. These include getting registered on the electoral roll, ensuring you pay all your bills on time, and taking action to correct any incorrect (or old) information.

Check for early repayment charges

Be sure to check what the penalty will be for repaying your wedding loan in full before the end of the term. This can often be equivalent to between one and two months’ interest.

Go in with your eyes wide open

While a wedding loan might appear to be a great way to borrow, taking on debt is a big commitment. This is especially the case if you decide to borrow a large amount.

Opting for a wedding loan is not a decision that should be entered into lightly. It’s vital to ensure you can afford to meet all the monthly repayments.

And you need to remember that any debt that you take on will need to be repaid eventually.

Be sure to carry out a soft search

Avoid making lots of applications in quick succession when applying for a wedding loan, as multiple ‘searches’ could leave ‘footprints’ behind on your credit file and damage your score.

The best approach is to use an ‘eligibility checker’ tool which enables you to carry out a ‘soft search’ to find out the likelihood of you being accepted.

While this type of search is still recorded on your credit record, lenders can’t see it, so it won’t have an impact on any future applications you make for credit.

What are the alternatives?

  • Save up – to avoid getting into debt to pay for your nuptials, you may want to think about saving up instead. The big upside of using savings is the fact you won’t be charged interest

  • Turn to the bank of mum and dad – if you are extremely lucky, you may be able to turn to your parents, or another family member, for financial help, even if it’s in the form of an interest-free loan

  • Put it on plastic – if you’re looking to borrow a more modest sum, you could pay for your wedding with a 0% purchase credit card. This will mean you can spend without having to pay interest for a given period, say 18 months or more. Note however, that credit card borrowing limits tend to be much lower than with a personal loan. And, you need to be sure you’ll be able to pay off what you owe before the introductory period is over. If not, interest rates could rocket.

Pay the deposit on a credit card

At the very least, when it comes to funding your wedding, it’s worth putting the deposit on your credit card. This way, you will get protection under Section 75 of the Consumer Credit Act.

Protection under Section 75 applies if you pay for goods or services costing more than £100 and up to £30,000, and you get this even if you only put the deposit on your plastic.