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.
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.
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 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.
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.
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.
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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What Happens to My Bank Account When I Die?
What happens to your bank account when you die will depend on what type of bank account it is, how you set up the account, and whether you have a will.
When the owner of a bank account dies, the transfer process is fairly straightforward if the account has a joint owner or named beneficiary. Otherwise, the account becomes part of the deceased owner’s estate and is settled during probate.
Understanding what happens to your money after you die can help you manage a bank account after losing a loved one, and also prompt you to set up your accounts in a way that minimizes complications for your survivors down the line.
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There are two main ways a bank discovers when an account holder has died:
- Family member or beneficiary Commonly, a family member will let the bank know when one of their bank account holders has died. To inform a bank about the death of a loved one, you’ll need to present a copy of the death certificate, the deceased person’s Social Security number, and proof that you can act on behalf of the estate (such as ID showing you are the account’s joint owner or beneficiary or Letter of Testamentary to show your executor status).
- Social Security Administration Funeral directors usually report the death of a person to the Social Security Administration to ensure no more Social Security checks are issued to that individual. If any checks were sent after the person’s death, Social Security will contact the bank to get the payment returned. This is another way a bank may learn about the death of an account holder.
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What happens to a deceased person’s bank account if they were the sole owner of the account will depend on whether or not the account has a payable on death (POD) beneficiary.
If there is a beneficiary named, the money in the account goes to the beneficiary after the sole account owner dies. Regardless of whether there’s a will and what’s in the will, the beneficiary automatically inherits the designated account’s funds upon the account owner’s death.
A beneficiary can claim bank account funds by contacting the bank and providing valid ID and a death certificate. The bank will typically then release the funds to that person and close the account. If the beneficiary is a minor when the account owner dies, someone must be appointed to manage the money on the minor’s behalf.
What happens if no beneficiary is named on a bank account? If the sole owner of a bank account dies and no beneficiary was named, the account becomes part of the deceased person’s estate (which is the sum total of the assets the person left behind). The money is then settled during probate.
Probate is the legal process for distributing a dead person’s assets, often as outlined in their will, as well as settling their remaining debts.
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In most cases, the surviving joint owner of a joint bank account will have automatic rights of survivorship, which grants them ownership of the entire account balance. That person can typically continue to use the checking or savings account without any interruptions.
However, the surviving account holder will still need to contact the bank and provide a death certificate or other documentation to confirm the death and update account records. Banks generally have a process you need to follow upon an account owner’s death. The surviving joint account holder may be able to remove the deceased from the account or open a new individual account.
What Happens if No Beneficiary Is Named on a Bank Account?
If the deceased person is the sole owner of the bank account and did not name a beneficiary, the executor of the deceased’s will is typically responsible for handling any assets in their estate (including money in bank accounts).
The executor will typically transfer funds contained in the bank account into an account in the name of the decedent’s estate, and they may be able to access those funds to satisfy the decedent’s debts and pay probate costs. They will then distribute any remaining funds to those named in the will.
If there is no will to name an executor, the state appoints one based on local law. After paying off any debts, the named executor will distribute the money according to local inheritance laws.
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There are some simple steps you can take now to make it easier for your loved ones to sort out your affairs and access your bank accounts after you die. Here are some to consider.
- Add a joint owner. Naming a spouse or other family member as a joint account holder is a simple way to ensure someone has access to the money when you die. In most cases, the joint account holder can simply take over the funds.
- Set up beneficiary designations. Most financial institutions make it easy to name a POD beneficiary on your bank accounts. Taking a few minutes to name one can mean less headaches for your loved ones down the road. Unlike a joint owner, a beneficiary cannot access the account while you’re alive.
- Write a will. Having a will still means your assets will need to go through the probate process before they can be distributed to your loved ones. But at least it ensures that the money will go to the intended person.
- Set up a living trust. A well-set-up trust can mean that your assets don’t have to go through probate. Instead, the money can go to your heirs in a more timely manner. However, trusts can be costly to set up and maintain, and may not be worth it if you have a simple estate with few assets and potential heirs.
- Consolidate bank accounts. To make it easier for your loved ones to sort through your finances, consider streamlining your accounts. Too many checking and savings accounts, especially if the accounts are held at different banks, can make settling your affairs complicated and time consuming. Consolidating your accounts also helps ensure that no account gets forgotten.
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The easiest way to pass the money in your bank account to your loved ones is to name them as joint account holders or POD beneficiaries. Setting up a will is also an essential step in estate planning, but it may not guarantee that your loved ones will be able to access your bank accounts quickly.
Regardless of your choice, it’s a good idea to make some smart money moves now to make life easier for your loved ones while they are grieving.
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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