Personal loan: Should you organise your wedding with borrowed money? Experts say this

If you have a wedding at home which is due in a month or two, and are clueless as to how will you arrange the money -- there is a little that you can do apart from raising a loan from a bank or a financial institution. But there is no specific loan given for a wedding per se. 

Although there is no loan given categorically for a wedding, what one can --alternatively -- do is to raise a personal loan. For the unversed, a personal loan is an unsecured loan that is given by a bank or a financial for meeting expenses that come unanticipated.

The larger question that arises here is whether one should finance a wedding with borrowed money i.e., personal loan, or not?

Experts believe that personal loan should be the last resort when it comes to a wedding.

"When you start earning, you need to create a fund for the short term goals which include wedding. The choices may be different for men and women. While women may want to buy gold and gold ETF, men can invest in large hybrid funds in order to save for the wedding. Also, if the savings are not enough, you can raise a personal loan as the last resort. You need to then see from where you can raise an interest-free loan – may from your office or a friend," says Sridharan Sundaram, a Sebi-registered investment advisor and founder of Wealth Ladder Direct. 

Chethan Shenoy, director and head, product and research, Anand Rathi Wealth Limited, says, “Spending beyond your means is never advisable -- taking a loan to fund such expenses is even worse. Today personal loans gets processed in minutes making it easy to borrow for anything. However, getting into a debt trap is easy and one should be cautious. A wedding loan only makes sense if you already have at least 70 percent of the required funds.”

Deepak Aggarwal, a Delhi-based chartered accountant and wealth advisor, echoes similar sentiments when he says, “Since personal loan bears a higher rate of interest, one should bank upon it only when there is no other alternative. And when you do, borrow a little money under this head.”

Nitin Rao, Head, Products and Proposition, Epsilon Money Mart, says, “Financing a wedding with a personal loan can provide immediate access to funds, allowing for a memorable event without depleting savings. However, it's essential to consider the long-term financial impact, including interest rates and repayment terms, which can add to the overall cost. Data suggests that weddings can cost anywhere from ₹10 lakh to ₹1 crore, making it crucial to evaluate the affordability of monthly repayments. Ideally, couples should balance their aspirations with financial prudence to avoid future debt stress.” 

Still, if you decide to raise a personal loan, it is recommended to keep the following points in mind.

Personal loan for wedding: 5 key points to keep in mind

1. Higher interest rates: While personal loan is an unsecured loan, interest rates charged on it is typically higher. So, you may end up paying somewhere around 11-16 percent interest on your loan when you raise it to finance your wedding.

2. Other alternatives: Apart from personal loan, there are a number of alternatives such as loan against FD, or loan against jewellery which charge a relatively lower rate of interest. 

So, if you can raise some other alternative form of funding, you should opt for it instead of a personal loan.

3. At prepayment: The loan should ideally be repaid as soon as possible. So, if you have some spare funds, you can use them to prepay a part or full personal loan. But the prepayment comes at a cost and you have to pay an interest on the outstanding amount at the time of prepayment. 

So, taking a loan is easy, you can't just repay as and when you want. Additionally, it is not allowed to prepay the loan in the first 12 months of raising the loan.

4. Blend of options: As much as possible, you can avoid taking a personal loan. But if the need so arises you can use a blend of own savings, personal loan and investment so that the dependence on personal loan is as low as possible.

5. Optimum Budget: There is another thing that you need to keep in mind which is to keep the budget as low as possible when the wedding is financed through a high interest rate bearing personal loan. So, the budget should be kept as low as possible.