Life is expensive. And unfortunately, with a wide array of funeral-related costs, so is death. So much so, in fact, that some people turn to funeral loans to pay for it.
While you may be able to use a loan to pay for the casket, headstone, flowers, and other expenses, there are other ways to make this challenging part of life more affordable.
Read on to learn more about funeral loans and alternatives worth considering.
What Are Funeral Loans?
Funeral loans are basically personal loans marketed towards people who are facing funeral costs. That is to say, they’re a form of unsecured debt. This means they may be harder to qualify for — and come with higher interest rates — than debt that carries collateral, like a mortgage or an auto loan.
Although it may be marketed as a funeral loan, chances are you’re just getting a personal loan, which means you will probably be able to use the funds for just about anything you want. That said, it’s always worth checking with the bank or lender to ensure there aren’t any stipulations as to how the money gets spent.
How Does a Funeral Loan Work?
A funeral loan works much like other types of unsecured debt: You simply apply for the loan amount you need and, if you qualify, the lender will deposit the amount in your bank account (or cut you a check).
You then pay back the balance, plus interest, over the course of a set term, or loan lifespan, usually somewhere between two and 12 years.
You’ll pay the loan in monthly installments, like most other bills. Depending on your lender’s policies, you may be able to pay off the loan in full earlier. But always check to ensure you won’t get penalized for doing so.
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Average Funeral Cost
So why are people going into debt just to send off their dearly departed? Funerals are expensive, that’s why.
According to data from the National Funeral Directors Association (NFDA), the median cost of a funeral burial in 2021, the last data available, was $7,848 — and only about $1,000 less for funerals with cremations.
Caskets alone can cost thousands of dollars. What’s more, most funeral homes still require them to be placed in a concrete burial vault to make landscaping easier — to the tune of another $1,500 or so.
That might explain why people are becoming more interested in green, or natural, burials, which can cost significantly less. Depending on the specific services and location, the total bill could be as little as $500.
Still, it makes sense that some bereaved people end up turning to funeral loans to get through this time, which is tough both emotionally and financially.
Pros and Cons of Funeral Loans
Like any other financial product or decision, funeral loans have both drawbacks and benefits to consider. Let’s take a quick look with a chart, and then dive deeper into the specifics.
| Pros of Funeral Loans | Cons of Funeral Loans |
|---|---|
| Convenience — you can get the money fast so you can worry about everything else | Interest can add up substantially over time, and rates can be high for unsecured loans |
| May make it easier to afford higher-quality funeral services or enact a loved one’s last wishes | Taking out a loan may impact your credit score or credit history |
| Depending on your creditworthiness, a funeral loan may carry a lower interest rate than credit cards | You’ll be committed to repaying the loan for a relatively long period of time — likely at least a year or two, and up to 10 — which means less money available monthly to make ends meet. |
Pros of Using a Loan to Pay for a Funeral
Here’s a closer look at some of the benefits of using a funeral loan.
Convenience and Payment Time Frame
When you apply for a funeral loan, there’s a good chance you’ll have the money in your hands quickly. In some cases, you could get the money on the same day, though the vast majority of lenders will have the funds to you within five business days or so.
Afford Quality Funeral Services
As discussed, funerals are expensive, and for some families, skimping on a casket or service simply isn’t an option. If funds are tight, a funeral loan may be able to help you pay for a more robust celebration of a loved one’s life.
May Be Better Than Credit
Although personal loans tend not to have the cheapest interest rates, they often have lower interest rates than credit cards do. If you’ll need time to pay off the debt, a funeral loan may be a better option than a credit card from a financial perspective.
Cons of a Funeral Loan
As discussed, there are drawbacks to funeral loans, too. Here are some of those to keep in mind.
Interest Rate
Borrowing money isn’t free, and since funeral loans are a form of unsecured debt, they tend to have higher interest rates than, say, a mortgage.
When considering a funeral loan, ask the company to provide documentation that shows how much you’ll pay in total, including interest and fees, over the entire lifetime of the loan. Even at a relatively low interest rate, it can add up faster than you think.
For example, if you took out a $10,000 funeral loan at a 10% interest rate, with a five-year term, you’d end up paying more than $2,700 in interest. That much might pay for the entire cost of the casket today.
Potential Impact on Credit Score
LIke any other type of loan or line of credit, taking out a funeral loan will show up on your credit report. Depending on your other factors, it may decrease your score. (That said, in some cases, it might also help, since having a mix of different credit types is considered a benefit.)
Financial Commitment
A funeral loan is a financial commitment that you’ll likely be repaying over a long period of time — between two and up to 10 years or even more in some cases. As important as properly memorializing passed loved ones is, it’s also critical to ensure that paying off a funeral loan won’t substantially impact your financial life in the long run.
Who Is Eligible for an Emergency Loan for a Funeral?
While anyone can apply for a funeral loan, your credit history will determine whether or not you’re eligible. Again, since unsecured debt is riskier for banks, they may carry higher minimum credit scores for funeral loans than other types of products.
However, depending on the lender you choose and the rest of your credit profile, you may be able to qualify with a score as low as 620.
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Can You Get Funeral Loans With Bad Credit?
Again, a bad credit score can make it more challenging to qualify for a funeral loan, but you may still be eligible depending on the rest of your financial profile.
How Much Can You Borrow for a Funeral Loan?
Many personal loan companies offer large amounts of up to $50,000 or $100,000. But it’s usually a good idea not to borrow more than you actually need to pay for funeral expenses. After all, whatever money you borrow will need to be repaid, along with interest.
Alternatives to Help Pay for Funeral Costs
While a funeral loan is one option for funding funeral costs, there are alternatives that may be less expensive and more accessible for you and your loved ones. Here are a few to consider:
• Ask for what you need. If you speak to the funeral director at the funeral home you’re working with, you may be able to work out a payment plan or use multiple different types of payment—such as cash, checks, and credit cards—in order to avoid taking out a funeral loan.
• Use the loved one’s life insurance. If the person who’s passed away has life insurance, the death benefit might be used to help pay for their funeral costs.
• Consider different types of services. As discussed above, a green or natural burial is often less costly than traditional burials. Cremation can also be more affordable than traditional burial.
• Consider using a home equity loan. Borrowing against the value of your home still entails going into debt. However, because it’s a secured loan (your home is used as collateral), you may score a lower interest rate than you would on a funeral loan.
💡 Quick Tip: In a climate where interest rates are rising, you’re likely better off with a fixed interest rate than a variable rate, even though the variable rate is initially lower. On the flip side, if rates are falling, you may be better off with a variable interest rate.
The Takeaway
Funeral loans are essentially personal loans used to pay for funeral costs. While they are one way to pay for the goods and services associated with death, other alternatives, like setting up a payment plan with the funeral director, may be more beneficial for the living in the long run.
Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.
FAQ
How can I get money for an unexpected funeral?
While using a funeral loan is one way to access funds for an unexpected funeral, there are other options to consider. Examples include the deceased’s life insurance, prepaid funeral plans, funeral assistance programs, and even crowdfunding.
How much is a home equity loan for a funeral?
A home equity loan allows you to borrow against the value of your home that you already own — that is, its equity — to pay for expenses, including funeral expenses, in cash. However, this type of arrangement will only work if you own substantial equity in your home, and it does come with its own costs from the lender.
What credit card will pay for a funeral?
While you could technically use just about any credit card to pay for a funeral, if you’re looking to avoid paying interest, it might be a smart move to take out a new card with a promotional 0% interest period. That way, you’d have that time period — likely a year — to pay back the funeral expenses without being subject to high interest. Beware, though: When the promotional period runs out, you’ll still be on the hook for interest if any of the balance is left over.
Photo credit: iStock/shapecharge
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