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Why Your Best Wedding Dress Loan Is a Personal Loan

| Money Rates Columnist.
min read

wedding-dressThe Smart Way to Pay for Your Wedding

You want your wedding day to be memorable for the right reasons. And that means you want to avoid buyer's remorse: that nagging feeling that you've bought the wrong things - or, worse, that you couldn't afford them. So take care when you're deciding how you pay for your wedding. It's a good way to start out on a long and happy marriage.

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The Best Wedding Dress Loans Are ... Savings

Few things can spoil a big day more than a sick feeling of dread in the pit of your stomach. And you're most likely to experience that if you've splurged so much on making your wedding perfect that you know you're about to begin married life with seriously rocky finances.

The best way to avoid that is to get someone else (usually parents or in-laws) to pick up the tab. But that's not always an option. And, if it's not for you, the second-best way is to budget carefully and borrow smartly. In other words, stretch the dollars you have, and make sure you can comfortably afford any debt you take on. A personal loan may help with the latter.

If you're planning on a long engagement, you can do yourself a huge favor. Start saving now.

A 2018 survey for Dave Ramsey's Ramsey Solutions found money was the No. 1 issue married couples argue about. And, also in 2018, a different survey, reported by MarketWatch, found that "41% of divorced Gen Xers and 29% of Boomers say they ended their marriage due to disagreements about money."

So, if you want to begin your marriage on firm foundations, you need to be sensible about your wedding spending. After all, how many couples do you know who divorced because their wedding day wasn't quite as Instagram-perfect as they'd dreamed?

Stick to Your Budget and Plan Your Borrowing

Don't even think about committing to a cost or buying an item for your wedding before you've set an overall budget. Add your savings and contributions from your family to the sum you can comfortably afford to borrow (meaning easily manageable monthly payments) to see the most you can pay for your wedding.

Then carve up that total sum according to your priorities. That involves listing all types of expenditure as line items: one for the venue, one for catering, one for the wedding dress ... down through all your costs -- plus a contingency to cover those inevitable unexpected expenses.

And, if those add up to more than your total budget, economize. Seriously, you now know what you can afford. Why take on long-term misery and risk your relationship for a few hours of perfection?

Set a Wedding Dress Budget

How important is your wedding dress in your list of spending priorities? Because the more you spend on it, the less you'll have for other things. You might have to choose a less glitzy venue. Or have a cash bar rather than a free one. Or make do with fewer bridesmaids or groomsmen.

You probably won't have to make such extreme sacrifices if you're content to stick to the average cost of a wedding dress. WeddingWire reckons that's $1,000. However, The Knot puts it at over $1,600. But, if you go for something at the high end of the designer spectrum, you're likely looking at $10,000 and up.

By now, you may already be questioning how realistic your budget is. The temptation is to push it higher because this is "the most important day of your life." But remember how destructive financial problems are to couples' relationships. Letting your head rule your heart at this point may be best for your heart in the long run.

A Wedding Dress Loan?

Assuming you're going to have to borrow, you have to decide how to structure the loan(s) you use to pay for your wedding. Is it better to have one big one to cover everything or a series of smaller ones, including a stand-alone wedding dress loan?

Well, the choice is largely yours. But don't try making a flurry of credit applications within a few months. All you're going to do is send up red flags among lenders. Understandably, they're likely to look at your credit report and assume you have big money troubles. Why wouldn't they infer you're trying to buoy up your failing ability to stay afloat financially?

And each application for any sort of credit account (personal loan, credit card, mortgage, auto loan ...) involves your harming your credit score. That impact usually goes away completely after a few months of on-time payments. But, after too many applications, there could be a cumulative effect that sees you getting a worse rate on your last loan than your first.

OK, so now you know to limit the number of accounts you open to pay for your wedding. But what sort of accounts should you open?

Credit Cards

Generally, using your credit card(s) to finance even part of your wedding costs is a very bad idea. But there are two main exceptions. First, when you're just covering minor expenses, totaling a few hundred dollars, that you can easily pay down within a few months.

And, secondly, when you get a card that offers a 0% APR for an introductory period, often 15-21 months. Providing you zero the balance before that introductory period ends, this is as cheap as borrowing gets. Just remember to include the cost of paying this down when you're calculating your total budget.

And there's one other thing to bear in mind: the risk to your credit score ...

How Credit Cards Can Threaten Your Credit Score

You probably think you're free to spend up to your credit card's credit limit. And you are. Sort of. But credit scoring technologies don't see it that way.

Each month, they look at your balance as a proportion of your credit limit. And, if that balance is higher than 30% of that limit, your score's going to fall. This is called your "credit utilization ratio." And, over months and years, having too high a ratio can seriously harm your score -- and see you paying thousands more for your future borrowing.

That ratio applies to balance-transfer cards, just like all the others. So, if you get one, you'll need a credit limit of $3,000 to buy a $1,000 wedding dress. And $5,500 for a $1,600 one.

Related: Credit Check for Personal Loans

A Personal Loan to Pay for Your Wedding

But that credit-utilization-ratio rule doesn't apply to personal loans. Because credit scoring technologies recognize these as a completely different sort of borrowing. And, providing you make payments promptly, one of these loans poses no threat to your score.

But there's an even bigger advantage that a personal loan has over plastic. Its interest rates are typically way lower (unless you have one of those 0% APR cards). How much lower? You'll only know for sure when you get a quote for one. But it's common for it to be 7% lower (10% as opposed to 17%, for example). And some creditworthy borrowers may be offered half their card rate or better.

Other Advantages of Personal Loans

Some of us are better money managers than others. And a personal loan can be especially valuable for those of us who aren't so good.

There are three reasons for that:

  1. You set what's affordable -- If you can afford to, you can pay down your loan quickly. But if you need longer, you can spread smaller payments over several years. You decide from the start
  2. No cheating -- You tell yourself you're going to pay down your credit card quickly. But every month there's some new excuse to make only the minimum payment. And that adds up to a small fortune in extra interest. With a personal loan, your payments are fixed -- no excuses
  3. Easy budgeting -- If you opt for a fixed-rate personal loan, you know precisely how much each payment is going to be. They're all the same. And, even if you choose a variable-rate one, you're likely to face higher payments only if the whole economy suddenly goes haywire

Those characteristics can make a big difference if either you or your fiance aren't great at managing money. And they're among the reasons we recommend personal loans to most engaged couples, not only as an ideal wedding dress loan but also as the best way to pay for a wedding.

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