Personal Loan vs. Credit Card: The Best Way to Finance Your Dream Wedding

Don’t have enough savings to pay for your dream wedding? Personal loans and credit cards can both be viable options. Here’s what to consider when choosing between them.

Weddings don’t come cheap, and the “once-in-a-lifetime” nature of the event further makes it more permissible to splurge. While going all out for your big day is seen as romantic, starting your married life mired in debt is anything but. That’s why it’s important that you make the best choice when it comes to financing your wedding. 

Ideally, you should already have saved up enough cash to pay for the wedding you want (or perhaps banked up enough goodwill among relatives and friends who’d come forward with sponsorships). 

But that’s easier said than done, especially considering the eye-watering prices of wedding banquets nowadays. Which means you may have to use your credit cards or apply for a personal loan to fund your wedding. So which one should you choose?

Personal loan or credit card for wedding: 3 things to consider

When deciding whether you should use a personal loan or a credit card to fund your wedding, it helps to consider the following.

How much can you borrow?

When it comes to personal loans, how much you can borrow depends on your income level. 

For the average person, banks in Singapore let you borrow up to 4x your monthly salary. Both you and your betrothed can take out a personal loan each, based on each of your income levels.

Meanwhile, high income earners (S$120,000 per year or more) can borrow significantly more, up to 8x or 10x their monthly salary. 

As for credit cards, you can only borrow up to your credit limit, which is determined by the issuing bank. You can request a temporary credit limit to help pay for your wedding, or split the cost over several different credit cards. 

Be aware that personal loans and credit cards count as unsecured debt – of which you will not be able to take on more than 12x your monthly income. 

What is the repayment period?

• Personal loan: fixed monthly payments over 1 to 7 years
• Credit card: by the next billing cycle, unless using Instalment Payment Plan 

For personal loans in Singapore, you can typically choose between 1 to 5 years to repay your loan. Some banks, however, offer loan tenures up to 7 years, which may be helpful for larger sums, or if you prefer paying a smaller amount each month. 

As for credit cards, well it’s a little more complicated. Technically, when your credit card charges are due by the date stated on your statement. 

This, of course, can be a problem for particularly large expenses, such as the bill for your wedding banquet. Afterall, most of us don’t have tens of thousands of dollars lying around, waiting to be spent. 

And if you don’t, your only option is to convert your balance into an Instalment Payment Plan (IPP), which typically ranges from 3 to 36 months. 

Once you’ve chosen your IPP duration, you will be able to pay off your wedding expenses in monthly installments – these will be charged to your credit card each month. Note that failing to pay up IPP payments will subject you to prevailing finance charges. 

How much is the interest rate?

• Personal loan: from 1.90% p.a. (EIR 3.63% p.a.)
• Credit card:
  • from 25% to 28% p.a. 
  • from 0% with Instalment Payment Plan, but admin fees apply 

Lastly, but perhaps more importantly, is how much interest you will need to pay to fund your wedding. 

Here are some key things to remember about interest:

• The less interest you pay overall, the better 
• Interest charges are just part of it, don’t forget to add admin or service fees
• Always check the EIR (and not the annual rate) when comparing different loans 

Now, when comparing personal loans, you will see both the advertised annual rate and the effective interest rate (EIR) shown. You should refer to the EIR to properly gauge how much your cost of borrowing really is. 

For personal loans, interest rates are quite low now, starting from 1.90% p..a. (EIR 3.63% p.a.), and ranging up to 3.45% p.a. (EIR  6.5% p.a.), Note that these are tentative rates, and the actual interest rate you will be offered will depend on factors such as your income level, amount borrowed and credit score.

As for credit cards, well, the prevailing interest rate ranges from 25% p.a. to 28% p.a. This rate applies to any remaining balance on your credit card that has come due, which is why credit cards aren’t particularly suitable as a source of borrowing. 

However, when you put your balance on an IPP, you will be offered a lower interest rate, although its unlikely you'll be able to match those of a personal loan.

You can make use of your mobile banking app to estimate how much is the EIR charged by your bank on IPPs. 

Which should you use to pay for your wedding – personal loan or credit card?

Consider a personal loan if

• You want to keep your interest rate low
• You prefer a longer loan tenure, up to 7 years
• You prefer to leave your credit limit free for other uses

Consider a credit card if

• You have several on hand, and prefer not to trigger credit checks by applying for personal loans
• You have sufficient cashflow to meet the monthly repayments for IPP, which are typically capped at 24 or 36 months

What if you have the cash to fund your wedding?

In that case, we’d recommend paying for your wedding using your credit cards, and then using your cash to pay off your balance once you receive your statement. 

This way, not only will you avoid paying any interest charges, you can also generate vast amounts of credit card reward points, air miles or cashback (be wary of your monthly cashback limit, or use an unlimited cashback card) to help pay for your honeymoon. 

With the right credit cards, you may be able to generate, say, sufficient air miles to cover the cost of your flights, or earn a chunk of cashback large enough to pay for a luxury stay.

Now that’s the ideal way to start your married life.