What is a funeral loan?
Everything you need to know about funeral loans
Just as the cost of living is increasing all too quickly, the expenses associated with funerals have risen sharply in the last decade. Due to rising costs and increases in the fees associated with their highly specialist trade, the funeral sector has been forced to charge more.
This can leave the bereaved facing bills of £3,311 on average when a cremation is involved (Royal London National Funeral Cost Index Report 2017). The cost is more for burials or for funerals involving complex circumstances.
This calculation is based on the fees paid to funeral directors, but also local authority charges. Other outlay includes gravesites, transport, flowers and venue bookings.
Added to this is the growing interest in making funerals far more personal to the deceased. These days, it's not unusual to add additional services, such as horse-drawn hearses, dixie bands for lively funeral processions and personalised caskets, to funerals.
So, how can families and friends meet the cost of funerals, particularly if they want to provide the best possible send-off for a loved one?
For many people in the UK, the answer lies with funeral loans.
Financial help for an unexpected funeral
Although some people save ahead – and even plan how they want their funeral to be organised – most funerals are an unexpected financial burden for families. Funeral loans ensure that the bereaved avoid the added distress of financial hardship, or worst long-term, unmanageable debts.
Funeral loans can usually be acquired up to a total of £5,000. This is classed as an unsecured personal loan, which means it is not based on any property or other “collateral” you have.
It's agreed on the basis of your ability to pay it back. This means you will need to have a reasonable credit rating. Funeral loans are offered by a number of different providers, including banks, building societies and credit unions.
Step by step guide to funeral loans
Having chosen an empathetic and supportive funeral service, the staff there can talk you through the costs involved and together you can plan the best way to proceed. This should be a combination of fulfilling your loved one's wishes, and also creating a ceremony befitting of your own situation and budget.
You would then approach the lender of your choice, to discuss taking out a personal loan specifically to meet the costs of the funeral. In some cases, people approach the lender first, and they offer suggestions for local funeral services.
How can I borrow money for an overseas funeral?
Funeral loans are not only an effective way of meeting the costs of organising a UK funeral. They are also a way of covering travel expenses if you want to arrange a funeral in another country.
How to choose the right funeral loan
This is a challenging and emotional time, and there could be a time pressure to have the funeral arrangements finalised.
However, as with any form of borrowing, it's important to find the best provider of a funeral loan to suit your needs and preferences. Interest rates and repayment terms vary, so be sure check terms and conditions of loans carefully.
Under these circumstances, it's far too easy to get swept along and make commitments without thinking them through. As with any responsible lender, the provider will check your ability to pay the loan back. However, you too must take some time to consider whether the amount you are lending is manageable.
Balance the funeral “wish list” against whether you need to make cost savings to reduce the total loan figure.
There are funeral loans that offer you the option of deferring payments. For example, you pay nothing for 12 months and then start monthly repayments at an amount above the normal interest rate. You can also spread repayments out for up to five years in some cases.
Where to get help for funeral loans
Some lenders provide loan calculation systems on their websites, to help you to work out the repayment terms of your funeral loan.
However, it is highly recommended that you talk the loan arrangements through with an advisor (either associated with the lender or an Independent Financial Advisor). Look carefully at the terms and conditions. This includes interest rates, timescales and any penalties involved. You may want to look for a funeral loan that doesn't charge an arrangement fee. You should certainly find one offering affordable credit to help you make repayments in a measured and manageable way.
Lastly, if you are on certain benefits, you may be entitled to a funeral expenses payment (also called funeral payment). You would have to pay this back if you received money or property as an inheritance.