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Should You Finance Your Wedding With A Personal Loan? Know Here... - Outside View by PersonalFN
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Should You Finance Your Wedding With A Personal Loan? Know Here...
Dec 19, 2017

A couple of weeks back, we wrote about how to get your personal finances in shape.

Today we are going into the details of a Personal Loan availed for weddings in particular.

Most people cross the wedding budget, just to celebrate it in the best possible way. Many won't hesitate to borrow money when facing a shortfall. Though the trend is changing, some couples depend on their parents to finance their weddings. Life is uncertain. We do not always achieve our financial goals.

The extravagant plans for a wedding day are never ending. And if you haven't planned well, these expenses can dissolve your savings.

Similarly, Nirali Gada, a Chartered Accountant, is getting married in six months. Mr & Mrs Gada have a Rs 10 lakh wedding fund. A medical emergency last year liquidated a majority of their savings.

Mr Gada enquired about credit opportunities with his bank. He was offered Wedding Loan.

What is Personal Loan and how it can be used to finance your wedding?

Wedding loan is a personal loan issued specifically to meet your marriage expenses. Often the wedding expenses overshoot and you or your parents would be compelled to borrow money from family or friends. But you can now opt for a wedding loan without any hesitation. Wedding loans are personal loans specifically offered to meet wedding expenses.

How to go about applying for personal loan

You can apply for a personal loan for wedding either at Non-Banking Financial Companies, and Banks, involved in lending and financing services. Many NBFCs and banks allow you to apply for a wedding loan online.

If you earn a salary of Rs 15,000 per month from a registered organization, you will be eligible for a personal loan.

What are Personal Loan eligibility criteria to finance a wedding?

Before you visit a lender to avail for wedding loan, do check your eligibility. This is dependent on several factors such as your credit score, monthly income, other ongoing EMIs, etc. These terms vary from one lender to another.

The eligibility criteria are as follows:

Age limit: If you are a salaried employee, then the age limit is 21-58 years. Age limit for a self-employed businessman or woman and professional is 25-65 years.

Monthly Income: Your net monthly salary is crucial to sanction a loan. Some lending institutions have minimum monthly income criteria. While at some banks the eligibility criteria is Rs 25,000 per month.

Nature of employment: Some of the basic employment types are salaried employees, professionals, Self-employed person or professionals.

Employment Term: If you have been job-hopping in the recent past, an approval could be difficult. For instance, many lending institutions sanction loans to employees with at least two years' work experience, and at least one year from your current employer.

Similarly, self-employed professionals must have a minimum of three years' experience. Some consider your overall work experience.

Credit Score: This is a score assigned to you by a credit information company (for example companies such as CIBIL, Equifax, High Mark). It gives a prospective lending institution, a perspective about your history as a borrower.

A high credit score also gives you the bargaining power to negotiate better loan terms for yourself. Some banks have a minimum CIBIL Score requirement of 700, while some have 750. A score in the range of 700-900 is desirable. Learn how to get your credit score card for free!

Minimum Loan Amount: A wedding loan ranges between Rs 5 lakh to Rs 25 lakh.

However, different banks and financial institutes assess different criterias when sanctioning a loan. For some a high credit score is more important, while for some, it is the current loan repayment capacity of the borrower.

Hence, check and compare all the terms and conditions before finalizing anything. Getting a loan is easy, but repaying might not be that easy.

Let us look at the approximate cost of loan for marriage purpose...

How much EMI do I need to pay on Wedding Loans?

These loan products are re-packaged and sold as wedding-day loans. Interest rate varies from one bank to another. Further, the loan amount and interest rate is different for every borrower. With a good credit score, you can negotiate for wedding loan with low interest rate.

Hence, your EMI depends on your principal loan amount, rate of interest, and loan tenure.

Loan Tenure: The maximum tenure for a Personal Loan is usually 5 years. But the shorter the tenure of a personal loan, the better it is.

Loan Amount (Rs) Rate of Interest (%) Loan Tenure (years) EMI (in Rs) Total cash outflow (in Rs)
15,00,000 15% 1 1,35,387 16,24,644
2 72,730 17,45,520
3 51,998 18,71,928
4 41,746 20,03,808
5 35,685 21,41,100

A longer tenure reduces the EMIs, making repayments comfortable. And opting for a shorter tenure (of say two to three years) increases the EMI amount. You ultimately pay higher interest on the personal loan for your wedding.

Hence, your wedding loan tenure can range anywhere between one to six years. Some banks have a restriction on loan tenure depending on your employment status.

Interest rate: The interest percentage determines your EMI and has a bearing on your budget and long-term financial wellbeing. Hence, the EMI you pay every month is an important aspect in your decision.

In fact, a variety of factors: your age, income stability, whether salaried or self-employed, number of years of work experience (in the current job/business/profession) and total), your credit score, existing EMIs (if any), and your repayment capacity, loan tenure, are considered.

So, make sure you apply for a personal loan with the best interest rate.

Currently, personal loans are being issued at the rate of around 13% - 15% per annum.

Processing fee & other charges: Personal Loans are subject to processing fees and other (hidden) charges. The processing fee is a one-time fee levied by lenders. It is a certain per cent of the Personal Loan amount, but subject to a minimum amount. It varies from lender to lender. A higher processing fee impacts your total cash outflow, while you apply for a Personal Loan.

The other charges include:

  • Stamp Duty (As Per The Stamp Act),
  • Default Interest Rate On The Overdue Instalment,
  • Late Payment Fee,
  • Cheque Bounce Charges,
  • Duplicate Interest Certificate Issuance Charge,
  • Duplicate Statement Issuance Charge,
  • Duplicate Amortization Schedule Charge,
  • Issuance Charge For Photocopy Of Loan Agreement/Documents,
  • Prepayment Charges (Also Known As Foreclosure Charges)

All of these should be examined carefully.

Processing fees range between 0.5%-2% of your total loan amount. Loan foreclosure/pre-payment charges range between 2% - 5%.

Hence, opt for a wedding loan with low interest rate and with better terms.

Yu can calculate your loan EMIs within split of seconds with PersonalFN's Personal Loan Calculator.

What are the documents required?

Banks and NBFCs thoroughly scrutinize your personal documents before approving a loan. They asses your loan re-payment capacity, current income, and basic other details as follows:

  • Proof of Identity such as PAN Card, Aadhaar Card, Voters Id, Driving License, etc.
  • Proof of Residence can be Aadhaar Card copy, Passport, Voters ID, etc.
  • Income Proof such as your salary slips, Form 16 and salary account bank statement if you are salaried employee. And in the case of self-employment, an acknowledged ITR for the last 2 years, Bank statement of the primary account for the last 6 months, trade license, and ownership of business are required.

Though the documentation process is simple and easy, it's better to have all documentation in order when applying loan for marriage purpose.

Why consider a personal loan for Wedding.

Typically, Indian weddings are a fancy and expensive affair. Even a decent low-profile wedding can cost you a fortune and erode your savings. But you have an option of Personal Loan, but opt for it prudently and here are some of its benefits...

Affordable EMIs:

Equated Monthly Instalments help you achieve your dreams and goals when you cannot finance them by other means. It allows you to pay back the loan in systematic manner.

Less documentation:

Documentation for a wedding loan is easy and simple.

Loan Approval Turnaround:

These days your loan is approved within 48 hours and the money is disbursed to your account within two days post approval.

Multiple Tenure Option:

You can adjust the loan tenure and chose a suitable repayment schedule. Wedding loan tenure ranges between one to seven years.

Hence, chose the loan tenure that is appropriate to your financial situation.

Now, when enquiring about a wedding loan, keep these points in mind:

  • Only apply how much is necessary.
  • Opt for an affordable option.
  • Stay within your budget.
  • Asses your savings first.
  • Have a repayment plan in place.
  • Ensure you have adequate insurance.
  • Keep your family and spouse in the loop.

To Conclude...

Remember wedding is just a beginning of your new journey and not an end. And personal loans come at a cost. You can opt for wedding loans in case you are falling short of some amount to meet up the overall wedding expense.

Avoid financing your entire wedding cost with the help of personal loan. Fix your finances and make some savings. Opting for a loan is not a bad option, but the fact that you have to borrow money it means you cannot afford it right now. Hence, be cautious and avoid making any hasty decisions which might land you in a debt trap situation.

Further, if you need superlative value assistance in financial planning, reach out to us on 022-61361200 or e-mail at info@personalfn.com . We will happy to help you.

Till then...

Happy Planning!

This article first appeared on PersonalFN here.

PersonalFN is a Mumbai based personal finance firm offering Financial Planning and Mutual Fund Research services.

Disclaimer:

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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