Demand for wedding loans spikes; should you go for it?

A wedding is a really big deal for most people! Being a grand event people want to spend in a way that feels right. If that means borrowing money to make it all happen, what you should do? Just make sure you go into the wedding loan with your eyes open and knowing what you’re getting into. Let’s take a look:

According to a recent survey conducted by IndiaLends – one of the leading digital lending platforms revealed that when it comes to India’s youth (aged 20-35), wedding loans accounted for 33% of all loans during the second wave of the pandemic, compared to 22% during the first wave. Similarly, corporate loans increased from 16% to 23% during the second pandemic wave. Interestingly, household loans fell from 40% to 24% throughout the same period.

The study surveyed salaried and self-employed young Indians in nine major cities – Mumbai, New Delhi, Bengaluru, Hyderabad, Chennai, Kolkata, Jaipur, Ahmedabad, and Pune – between August 2020 and March 2021 and April 2021 to July 2021. In total, 11,000 respondents were assessed for their loan requirements across nine broad categories, including wedding, business, education, travel, home, medical, two-wheeler, and debt consolidation.

This rise in wedding loan applications was prompted by a year-long delay in their wedding plans caused by the pandemic. Fearful of employment uncertainty, the second wave of Covid sparked new entrepreneurship among youngsters, increasing loan applications for small business start-ups. It is important to note that 10% of applications for weddings and commercial purposes were from female borrowers.

The average ticket size of loans for the wedding was Rs 4.13 lakh, followed by medical expenses at Rs 4 lakh, home expenses at Rs 3.43 lakhs, and business loans at Rs 2.62 lakhs.

Should one opt for wedding loans?

Any type of personal loan is costly and should be used only when there is no other way to obtain the funds. It is preferable to avoid loans as much as possible because the cost of a loan is relatively high in terms of interest repayment.

“If existing funds are insufficient, they have to rely on a loan. However, if required, one can look at the shorter duration loans where the overall interest payment is lesser than the long-duration loans. The fact that weddings are more planned events, one can start saving and investing for it beforehand to avoid taking a loan in future,” said Harshad Chetanwala co-founder MyWealthGrowth.com.

The wedding is a significant event for many families, and they cannot afford to make any compromises. If their existing funds are insufficient, they must take out a loan. However, most financial experts would advise against such action.

“At NIRA, we saw a higher proportion of loans for weddings in the second wave than the first. Restrictions were not as tight this year as compared to last, so that’s not surprising. While it’s easy to say that one should live within their means, with weddings in India, there is often some form of societal pressure to put on a good show,” said Rohit Sen, Co-founder & CEO, NIRA, which provides small credit to consumers with limited access to traditional avenues of finance.

What are the other alternatives for wedding loans?

Any financial advisor will tell you that the first thing to ensure before getting married is starting with a clean debt slate, i.e., ensure all your borrowings are at zero, and you are not transferring your burden onto your partner at the very outset of your relationship.

“The best planning is early planning, so if you can get into MFs or even SIPs from the very start, you will be very well placed financially by the time you decide to tie the knot,” explained Raghuvir Gakhar, CEO, CashBean.

How can one save for a wedding if not opting for loans?

While most families begin saving for their children’s weddings years in advance, once the big day approaches, they find themselves short of finances and rush towards taking a loan to cover the shortfall.

Financial experts suggest that the best way to create an alternative for wedding loans is to build a corpus on your own by saving and investing regularly. The accumulated savings that are not required in the near term can also be used instead of wedding loans.

“If the wedding is expected to be in a year or so, then one can do a recurring deposit or SIP in low duration debt funds. If the wedding amount is huge, then they can pause their investments for long-term goals for a while and accumulate as much amount as possible for this objective,” explained Chetanwala.

“Loan against gold, property or fixed deposit, assuming that the borrower has these assets perhaps through the hereditary transfer of wealth, are also avenues to explore,” added Gakhar.

Endnote

Today, no matter how attractive banks and financial institutions advertise or urge you to buy, there is always a better way. Typically, a personal loan for a wedding can get between Rs 50,000 to Rs 50 lakh with flexible tenure of 12-60 months. Think twice because the interest rates on wedding loans range from 11% to a whopping 24%.

“There are likely better ways to save for a wedding, e.g., using financial instruments that will benefit from compounding over time, but unless there is a change in societal attitudes towards what constitutes an “acceptable” wedding, demand for wedding loans will likely persist unabated,” said Sen.