Personal loan for wedding: How prudent is it to opt for one?

Kolkata: For most weddings are times for emotional decisions. The other side of the coin, it is also the time for financial indiscretion, the impact of which can last for years and can even tell upon one's marital bliss. There are thousands of items for which one has to incur expenditures during a wedding. And it is quite natural that one does not have enough disposable cash in hand to meet those expenditures comfortably.

Moreover, in this age of social media frenzy, there is a growing pressure on a lot of young people to emulate what they see on social media. The lavish weddings of celebrities, friends and colleagues are constantly staring at them from their social media screens. The desire to replicate those in one's own wedding often creates unnecessary financial stress. Add to this the constant allurement from banks and NBFCs offering personal loans. Significantly, personal loans are offered without any strings attached vis-a-vis their end use. Therefore, it is tempting to easily access personal loans to finance expenditure related to wedding and even honeymoon.

To be sure, there are both pros and cons related to a personal loan taken in connection with wedding expenses. Market analysts point out that the cost of a middle class wedding can be anywhere between Rs 5-50 lakh and far beyond if one takes destination wedding into account. Let's have a look at what can be the positives and negatives of taking a personal loan for such an event.

The pros of a personal loan is that it offers prompt access to funds. Moreover, there are no conditionalities on the end-use of the money. Second, one does not need any collateral to secure a personal loan. Third, one needs to produce only a few documents such as salary slip, PAN, bank account details and a sound credit score to get a loan. However, the amount of loan that one can get through this route is dependent on the salary one gets, his/her credit score and whether one has been servicing a debt already. Incidentally, if one has a CIBIL score between 700 and 749 it is considered good for an applicant for personal loans. If the score is above 750, it is considered excellent.

However, despite the positives there are a few negatives on a personal loan -- especially a sizeable personal loan (in relation to your monthly income). Though the wedding will be over in a flash, the borrower has to keep repaying instalments for years. This could easily put finances under stress, which can actually add to the stress of a higher monthly budget after marriage. Moreover, personal loans carry the highest interest rates among all retail loans (such as home loans or car loans or education loans). Therefore, the payout is higher in comparison to all other loans. In fact, the interest rate on personal loans could easily be in the region of 12% and above stretching up to 20% and more. Therefore, one might bleed for a long time.

Moreover, a single default in paying EMIs and the borrower's credit score can be seriously impacted, which, in turn, can affect his/her ability to take loans even during an emergency situation or when he/she might need to take loans to buy a flat or a car.

Experts indicate that only if you have a compulsion of preserving your investments and want to take a loan just to tide over liquidity constraints, can you take a personal loan in such a situation. Another possible situation you can comfortably meet your EMIs with your monthly income and have no other loans to service. A long debt servicing obligation is not the ideal way to step into a dream life with a partner.