It’s an uncomfortable conversation, but one everyone should have ahead of time: How will you plan for a funeral when it’s needed? Funeral loans offer a solution, but is the cost worth it?
Funerals with viewings and burials cost, on average, more than $7,000, according to the National Funeral Directors Association. If there are other items involved, such as a monument or vault, the costs can quickly tally up.
If a family member does not leave an inheritance or life insurance, it’s up to the rest of the family to take on the costs of the funeral.
Since people are in emotional distress when they take out funeral loans, it can open the door for unfavorable terms to even predatory lenders
Fortunately, there are loans you can take out to help cover the costs. Let’s take a look.
Funeral loans – What costs should you prepare for?
Unless you’ve planned and paid for a funeral in the past, it’s normal to not know what the preparation entails. According to the Federal Trade Commission, a basic services fee is common to all funerals.
This includes planning, getting permits and copies of death certificates, preparing notices, sheltering the remains, and coordinating the arrangements with the cemetery or crematory.
The Funeral Rule, enforced by the Federal Trade Commission, “makes it possible for you to choose only those goods and services you want or need and to pay only for those you select, whether you are making arrangements when a death occurs or in advance.” (Source)
On top of that, there are additional charges for other requirements. Those may include transporting the remains, embalming, using the funeral home for the viewing, ceremony or memorial service, using equipment and staff for a graveside service, using a hearse, a casket, outer burial container or alternate container, or cremation.
A funeral home may also charge for any outside services such as flowers or food involved in the ceremony. The FTC has a list of potential charges. Its advice is to get as clear an estimate of the final charge as possible before you pay.
Funeral loans – Apply for a personal loan
The most general loan for such an expense is probably the personal loan.
Personal loans are usually unsecured and are used to make big purchases. They are offered through banks or third-party, even online lenders. A better credit score will help you get approved for a loan with more favorable terms.
Personal loans can come with fixed or variable interest rates. If you believe you can pay a loan off quickly (say, in one to three years), it’s better to go with a variable-rate loan (also known as an adjustable-rate loan).
These usually have lower initial interest rates that may rise to meet the economic interest rate. Fixed-rate loans are generally a good idea if the current interest rate environment is low, and you plan to take a longer time to pay it off.
Trusts, insurance, and other options
For those who are interested in pre-planning for a funeral, there are several good options for financing. The National Funerals Directors Association recommends trusts, insurance, and accounts, so that family members aren’t scrambling to fund a funeral.
Funeral trusts may be managed by funeral homes, cemeteries, or banks. They may or may not keep up with fluctuating interest rates over time. Usually, there is no balance due at the time of death, although the specifics of trusts vary by state.
Insurance may be cashed out to pay for funeral services. The purchaser buys the insurance policy, which grows in value over time to pay for specific funeral costs. They may involve future premiums or just a one-time cash payment. They also vary by state and plan.
Payable-on-death accounts can be established for the sole purpose of paying for funerals. This is usually held by family members and the funeral home. When it comes time to pay, the amount goes directly to the funeral home. It’s almost like a checking account held at a funeral home. Certificates of deposits work similarly to a payable-on-death account.
However, don’t rush into applying for financing with a funeral home. It is easy to get caught up in emotions and spend more than you can afford.
Should you get a loan?
If you are faced with imminent costs for a funeral and have not set aside money for it, a loan is likely the best way to come up with the money.
“But communicating your funeral wishes in writing is one of the best gifts you can give your survivors,” wrote Lauren Lindsay, director of financial planning for Personal Financial Advisors LLC.
Start by getting pre-approved loan offers from several lenders without hurting your credit score. Then, compare those offers — plus many other top lenders — to find the best option for your situation.
Funerals are highly emotional, stressful events. Having some financial help in a time of difficulty may help alleviate the inevitably painful situation.