Personal Finance

How to Finance an Engagement Ring

Average cost of an engagement ring (Source)

So, you’ve fallen hard and are willing to go into debt for love. If you’re anxious to pop the question but haven’t saved up enough cash to buy an engagement ring, you might be tempted to borrow the money.

One of the first things you’ll likely experience when you shop for engagement rings is sticker shock. Diamonds aren’t cheap. Fortunately, you have several options to finance an engagement ring.

Getting the best deal on an engagement ring

When you shop for an engagement ring, be realistic. Just because you’ve decided to finance your purchase, doesn’t mean you need to go overboard. A recent engagement ring survey found that the average engagement ring costs $5,200, and about 12% of couples spend over $8,000 on a ring.

If this sounds like a lot, it is. Don’t feel pressured to go into extreme debt before you even begin to think about the upcoming wedding, honeymoon, and cohabitation. Better yet, look for ways to save some cash.

For the best prices, time your engagement ring shopping to Christmas and just before Valentine’s Day. Also, do some research about ring choices and diamond quality so that you’re an informed ring shopper.

Your options for engagement ring financing

We don’t all plan to fall in love and settle down, so your quest to buy a ring may be as much of a surprise to you as it is to everyone else. Whether you’ve saved for this or not, when it comes to paying for an engagement ring, you have options:

Benefits of paying cash for an engagement ring

If you can afford it, paying cash is a great option. Many jewelry stores will give discounts to buyers who wire money directly from their bank as payment. For example, Blue Nile gives a 1.5% discount, which is a $75 savings on that $5,000 ring. If you have a savings account that you can tap into, consider using some of those funds. But don’t worry: even if cash isn’t available, there are other ways to buy that ring.

Jewelry store financing to buy an engagement ring

When you step into a jewelry store to begin shopping for engagement rings, you’ll notice that most major stores are all too willing to help you finance your purchase. In some cases, such as with major chains, this might be a good deal. However, pay careful attention to the terms.

Jewelry store financing could offer you a 0% annual percentage rate (APR) or even 0% and no payments for a certain number of months. The catch is that, once the promotional period expires, the interest rate jumps to double-digits.

Before you agree to jewelry store financing, ask for a clear explanation of the terms of the offer. How long does the promotion last and what is the APR after the promotion?

One of the most important questions you can ask relates to retroactive interest. In many cases, if you don’t pay off the balance during the 0% introductory period, the company will charge interest on the balance retroactively – from the date of purchase.

An example is Zales, who has its own branded credit card. A recent offer tells customers that interest is waived for 12 months if they spend at least $1,000 and put a minimum of 15% down on the purchase. However, note that once the 12 months are up, the APR jumps to 23.73%-28.99%. If you make a late payment or don’t pay off your balance in the first 12 months, interest is retroactively charged from the date of purchase.

In most cases, you’ll get a better deal and a more favorable APR financing an engagement ring with a standard credit card. Check out the best 0% APR balance transfer cards available.

Using a credit card to buy an engagement ring

The average consumer credit card APR is well under 20%, which makes these a better choice to pay for an engagement ring than most store-branded options.

While paying for large purchases with a credit card is common, it can also get you into a dangerous debt trap. If you’re only making minimum monthly payments on your balance, your interest will pile up as will the total cost of the purchase.

One of the best strategies for using credit cards on a large purchase, like a ring, is to open a new credit card just before you decide to go shopping. This is because many cards have enticing sign-up bonuses as well as a 0% APR introductory period.

We’ve compiled credit card reviews to make it easy to find a good deal.

One of the best examples is the Chase Freedom Unlimited Card. The card has a 0% APR on all purchases and balance transfers for the first 15 months. After that period, the APR goes up to 14.24% to 23.24%, depending on your credit. There is also a sign-up bonus of $100 cash back if you spend $500 within the first three months. This is a cash back card that offers 1.5% cash back on all purchases.

Personal loans for engagement ring financing

The issue that many buyers have with jewelry store financing or other promotional offers is that the balance needs to be paid off quickly to take advantage of the 0% APR. If you want to stretch out your payments over several years, a personal loan might be a better option. Keep in mind, not all lenders are equal. You can save a lot of money if you take the time to compare lenders.

A personal loan from a bank, credit union, or online lender can give you access to the cash you need to buy an engagement ring and set you up with longer fixed payments that are more affordable.

Borrowers with good (+700) to excellent (+750) credit, you can get a personal loan at competitive rates. If you’re not sure what your credit score is, you can find out for free here.

LightStream is an online personal loan provider that target borrowers with good to excellent credit. Its rates range from 2.99% to 14.99%.

Loans can be between $5,000 and $100,000, with up to 5 years to pay. LightStream has no loan origination fees and no prepayment penalties.

Another online lender to consider is LendingClub, which is the world’s largest online personal loan marketplace. LendingClub matches up borrowers with lenders, and only requires a credit score of 600 or better to apply. Loans start at $1,000 and APRs start as low as 5.99%.

LendingClub does have a loan origination fee, which can range from 1% to 6% of the total loan. There aren’t any prepayment penalties. So you can pay off your loan as quickly as you want.

Engagement ring financing with bad credit

Even if you have bad credit, there are still a few options to finance an engagement ring. However, they won’t be quite as affordable.

Avant is one of the better online lending platforms for borrowers with less than perfect credit. With a credit score of 580 or better, you can apply for a personal loan. There is an origination fee to consider but there are no prepayment fees. See Avant‘s profile for the latest rates and terms.

Comparing lenders and options

If you can’t pay cash, a 0% APR promotion from a credit card is usually your next best option. If you decide to use jewelry store financing because of an enticing offer, such as a 0% introductory rate, make sure that you can pay off the card within that period. If this isn’t possible, consider a balance transfer to a new credit card with a 0% introductory offer that will give you more time to pay.

If you can’t get 0% APR or won’t be able to pay off the card within the introductory period, look into an unsecured personal with fixed and affordable payments. When comparing lenders, look at APRs, terms, fees, and penalties. Why not get started now? You can search and compare online personal loans here.