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Credible Money Coach Dan Roccato (feature) (Credible)
Dear Credible Money Coach,
Is it possible to get a loan for a wedding? My credit score is low, at 550, because of lockdown. My sister’s wedding is coming up, but we don’t have enough money.
Darshan, you’re a good sibling to want to help your sister have her dream wedding. But before you take on debt, it’s important to understand all the ramifications — and your options for helping your sister pay for her wedding.
First, yes, it is possible to get a personal loan for a wedding with a low credit score. But a 550 credit score may limit your options, and it will almost certainly mean paying a higher interest rate than someone with a 700-plus credit score might pay. And you may not be able to borrow as much as you want.
What to know about credit scores and personal loans
Consumers have more than one credit score, but the one that many lenders commonly use is called your FICO score. Credit scores typically fall somewhere between 300 and 850. Here’s how FICO breaks down scores.
- 800+: Exceptional
- 740-799: Very good
- 670-739: Good
- 580-669: Fair
- 300-579: Poor
Most personal loan lenders set minimum credit score requirements. And lenders who only want to work with borrowers that have good credit will generally set their limits high. But some lenders have lower credit score requirements, and those are the ones you might turn to if you need a loan when your credit score isn’t great.
You can usually find those lenders online. In fact, Credible partners with some lenders whose minimum credit score requirements are 600 or lower.
But even though you probably can get a personal loan with a low credit score, be aware there are a couple of catches.
How a low credit score affects personal loans
Lenders may view a low credit score as a sign that a borrower is struggling financially and could have difficulty repaying a loan. And lenders are all about mitigating their risks, so they often give borrowers with lower credit scores higher interest rates. Some lenders also limit the amount they’ll loan to someone with a lower credit score.
So while it’s possible to get a personal loan with a low credit score, you might not be able to borrow the full amount you want. And you’ll almost certainly pay a high interest rate for the loan.
Don’t act in desperation
I also want to strongly caution you against turning to certain types of lenders that may make it easy to get money, no matter what your credit score. It’ll usually cost you far more in the long run than it’s worth.
Payday lenders and no-credit-check loans often come with very high interest rates. In fact, the effective interest rate on the average payday loan is nearly 400%, according to the Consumer Financial Protection Bureau. You may also be subject to high fees if you can’t pay off the loan on time — especially for payday loans, which can roll over into a new loan automatically and trap you in a cycle of debt.
Additional things to consider
The pandemic hurt a lot of people financially. But employment numbers are up, people are getting vaccinated, and we’re all hopeful that things are going to continue improving. You’re probably very eager to share in the joy of your sister’s wedding, but going into debt to fund it could have a lasting negative impact on your, and your sister’s, finances.
I urge you to consider alternatives to borrowing, even if that means trimming down her wedding budget or planning a bigger event after everyone’s finances have recovered from the pandemic. Debt is the last wedding gift any bride should want.
Need credible advice for a money-related question? Email our Credible Money Coaches at firstname.lastname@example.org. A Money Coach could answer your question in an upcoming column.
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About the author:
Dan Roccato is a clinical professor of finance at University of San Diego School of Business, Credible Money Coach personal finance expert, a published author, and entrepreneur. He held leadership roles with Merrill Lynch and Morgan Stanley. He’s a noted expert in personal finance, global securities services, and corporate stock options. You can find him on LinkedIn