When someone close to you dies, it can be emotionally and financially devastating. You may be grieving and at the same time navigating funeral costs. According to the National Funeral Directors Association, the median cost of a funeral with a viewing is $6,280 for cremation and $8,300 for a burial. If there isn’t a life insurance policy in place, coming up with those funds might be difficult. One solution is a funeral loan.
What Are Funeral Loans?
Funeral loans are personal loans taken out for the purpose of paying funeral costs. While personal loans are most popular for credit card debt consolidation, they can cover many types of expenses.
Personal loans are installment loans, which means you receive a lump sum and repay it in regular (usually monthly) installments over a preset term.
The benefits of taking out a personal loan for a funeral include:
— Unsecured loan. In most cases, personal loans are unsecured. That means you don’t need to provide collateral to obtain the loan.
— Fixed rates. More often than not, personal loans have fixed interest rates. That makes budgeting easier.
— Flexible loan amounts. Funeral costs vary widely from small private ceremonies to enormous, public affairs. Loan amount minimums and maximums vary by lender and range from $1,000 or less to $100,000 or more.
— Diverse repayment terms. The most common personal loan terms run between two and 12 years. But you can find terms as short as 12 months with PenFed Credit Union and as long as 15 years with Navy Federal Credit Union. In addition, many personal loans have no prepayment penalties, so you can pay off the funeral loans ahead of schedule.
Funeral Loan Costs
Funeral loans generally offer lower interest rates than comparable credit cards. According to Federal Reserve data, the average APR for a 24-month personal loan was 11.92% in May 2024. During the same period, the average credit card APR for accounts charging interest was 21.51%.
Although personal loans can offer more favorable rates, be aware that lenders usually charge an origination fee. It’s a one-time charge based on your loan amount. Origination fees vary depending on the lender. They typically run between 1% and 8% but can be as high as 12%.
The origination fee is typically deducted from your loan proceeds, so include it when determining your loan amount. If you need $8,000 for a funeral, and the loan fee is 5%, just multiply the $8,000 by 1.05 to get your loan amount. In this case, it’s $8,400.
If you miss your payment due date, you could be hit with a late fee, which may be a percentage of your past-due payment or a flat amount.
[Read: Best Low-Interest Personal Loans]
Should You Take Out a Personal Loan for a Funeral?
The decision to borrow for funeral costs is personal. But if you decide to do so, it makes sense to choose the product that minimizes your costs and best meets your needs.
“If you do decide to take out a personal loan to cover the cost of your funeral home, you’ll want to ensure you’re getting the best interest rate, and the company that gives you the loan is highly regarded,” says Patrick Simasko, elder law attorney and financial advisor at Simasko Law in Mount Clemens, Michigan.
Compare several personal loan quotes and get prequalified. Look at interest rates, origination fees, repayment terms and lender ratings. Most importantly, consider affordability and how taking out a personal loan for a funeral might impact your budget and your financial future.
“You’ll want to ensure you’ll be able to pay back the loan. If you’re borrowing money to cover the cost of your funeral, you may not be in a good financial position to pay other bills like groceries, mortgage, insurance, etc.,” adds Simasko.
Pros and Cons of Funeral Loans
If you need financing to pay for final expenses, here are some pros and cons of funeral loans to consider.
Pros
— Lower APR than a credit card
— Fixed monthly payment
— Flexible loan amounts and repayment terms
Cons
— Origination fees
— Must meet underwriting criteria and credit requirements
— May impact ability to meet future expenses or cover emergencies
How to Qualify for a Funeral Loan
If you want to take out a personal loan for a funeral, you’ll complete an application and document your identity, income and assets. In general, to qualify for a funeral loan you need to:
— Meet minimum credit score requirements. With good credit, you’ll have decent approval odds and qualify for better rates. Some lenders require excellent credit while others like Avant require only a 580 credit score.
— Have stable and sufficient income. Lenders review your income and employment to make sure you can afford the loan. Discover sets its minimum household income requirement at $25,000.
— Meet debt-to-income guidelines. Lenders calculate your debt-to-income ratio when underwriting loan applications. Your DTI is the percentage of your gross monthly income needed for housing and debt payments. A DTI under 36% puts you in the best position for approval. However, lenders such as Upstart accept DTI as high as 45% or 50%.
Many personal loan lenders offer funeral loans, each with different criteria. And most let you prequalify and get a rate quote without a hard credit pull, so it’s not hard to shop for the best terms.
[Related:How to Get a Small Personal Loan]
How Long Does it Take to Get a Funeral Loan?
Because most personal loans are unsecured, there’s no collateral to appraise and loans can be processed quickly. Some personal loan providers can offer same-day approval and funding the following business day. SoFi advertises same-day funding for its personal loans. Others take up to a week, so be sure to check with your lender timing is an issue.
How Much Should You Borrow?
If you need to take out a personal loan for a funeral, the standard advice applies: Borrow the least amount you can get away with and for the shortest term you can afford. You can use a loan calculator to compare rates and terms.
Funeral Loan Alternatives
Personal loans aren’t the only way to cover final expenses, and other solutions work better for you.
Funeral Home Financing
The funeral home you’re working with may offer in-house financing. Compare rates and terms before you decide.
“Grieving families should avoid taking personal loans offered directly through funeral homes, just as families desperately wanting to have children should avoid loans offered at IVF clinics,” says Jamie Strayer, creator and executive producer of “Opportunity Knocks,” a PBS show that follows struggling families overcoming barriers to building better financial lives.
“Predatory lenders are like tigers waiting to prey on the vulnerabilities of the wounded. Desperation in highly charged environments leads consumers to make emotional decisions instead of evaluating sound financial choices. Their loved one would not want their pain extended through ongoing financial stress,” Strayer says.
Crowdfunding
Raising money from friends and family on crowdfunding sites like GoFundMe can help cover or offset funeral costs. You may be able to appeal to loved ones for help with expenses.
0% Credit Card
If you have good credit, you might be able to qualify for a 0% APR credit card. Understand that this is an introductory APR, and the rate will increase when the promotional period expires. To maximize your savings, do your best to pay off your debt before the regular rate kicks in.
Government Resources
Check to see if your state offers any resources for funeral expenses. For example, New York’s Office of Burial Services provides up to $1,700 for funeral costs to low-income New Yorkers.
Veterans may qualify for benefits through the Department of Veterans Affairs for funeral and burial costs. If your loved one died of COVID-19, FEMA may cover funeral costs up to $9,000 until September 30, 2025.
Keeping Funeral Costs Down
To help you track costs the Federal Trade Commission maintains a funeral pricing checklist.
“The best advice is to apply for a personal loan at a bank or credit union with a traditional rate before going to the funeral home. Set a budget. If the family does not qualify due to subprime credit, many community nonprofits offer grants to cover funeral expenses,” says Strayer.
Although most funeral homes offer packaged deals, the FTC’s Funeral Rule ensures you can purchase only the services you desire. Your rights under this rule include:
— Purchase only the funeral arrangements you choose.
— Obtain price information over the phone.
— Receive a written, itemized price list.
— Get a written statement detailing your choices and the costs before payment.
— Opt for an alternative container for cremation.
— Provide your own casket or urn.
— Arrange a funeral without embalming.
Funeral providers are legally required to give you an itemized statement of all chosen goods and services so you can compare costs and select affordable goods and services for your ceremony.
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Funeral Loans for Final Expenses originally appeared on usnews.com
