INDIAN weddings are grand events where families spend a lot of money. While most banks offer wedding loans, one must look at various other options to fund the wedding.
Issues with long-term debt
Long-term debt is bad for short-term expenditures. Borrowing for assets like cars and houses makes sense because the useful life of the asset outlasts the repayment period. However, borrowing for short-term events like vacations or a wedding means taking on debt without creating an offset asset.
Strain on cash flow
Availing multiple loans can be a strain on your cash flow. Once you are married, you would most probably want to buy a house, for which you will possibly need a mortgage loan. Availing a wedding loan creates an additional layer of debt which could probably strain your cash flow.
Alternatives to wedding loans
As wedding loans carry 13-20% interest rate, depending upon your eligibility, tenure and amount of loan involved, let us see some other alternatives to wedding loans.
Loan against insurance policies
One alternative is that you can avail a loan by mortgaging your insurance policy. If you have an insurance policy, then you can get a loan of up to 90% of the current surrender value of the policy. The interest rates in this kind of policy are relatively lower than that of wedding loans. However, you should have paid at least annual premiums to be able to pledge your policy for a loan.
Loan against shares, mutual funds
You can avail a loan from leading financial institutions and banks by pledging your investments in mutual funds, shares, etc. The interest rate may vary, but is still lower than the ones charged in case of wedding loans. However, keep in mind that these institutions or banks have a list of approved mutual funds or companies whose shares can be used as collateral to get loans. The amount of loan sanctioned will be lower than the total value of your securities to guard against market fluctuations.
Look out for some old-fashioned jewellery or gold coins lying idle in your locker. This gold can be used to get you money to meet your needs at much lower rates than wedding and or personal loans. Gold loans are offered by banks and financial institutions and they are sanctioned very fast too. Usually it takes a day to get the gold loan sanctioned and this can be availed up to a value of 90% of the gold you pledge against the loan.
Loan from employer/friends
Check with your company if there is a provision for availing a loan. The loan amount will be deducted from your salary over a period of time and you can get an advance against your salary or a lump sum upfront. You can also ask your friends and relatives if they can help with a loan. However, remember money matters can be a bit awkward to handle among friends and relations.
The writer is associate professor of finance & accounting, IIM Shillong