For something like a diamond, it’s obviously best to pay cash. But, we get it: You’re head-over-heels and you’re considering financing the ring so you can pop the question sooner. Here are the best ways to finance an engagement ring.
Aside from houses and cars, a diamond engagement ring is one of the largest purchases most people make in their lifetimes.
As with anything, it’s always best to save money ahead of time and pay cash for a modest engagement ring. This helps you avoid buying a ring you can’t afford and saves you from wasting money on interest.
Yes, an engagement ring is a meaningful symbol of your love that will hopefully last a lifetime, but don’t get caught up in marketing suggesting you need to buy a ring you can’t afford. The old rule that a ring should cost two months’ salary doesn’t make sense anymore. Even though the median age of marriage is getting older, many of us are still paying off student loans when we get around to popping the question!
In reality, people fall in love and choose to get married at all different stages of life. I realize that you may be considering financing an engagement ring to be able to pop the question, ring in hand, sooner. If you’re going to finance an engagement ring, here’s how to be smart about it.
The advantage of one of these loans is that they can carry an interest rate as low as 0 percent, and can be very flexible. They don’t appear on credit reports, which can be a plus (or minus — if you need the credit reference to build credit).
The downside? If you can’t make payments there’s likely to be a rift between you and the lender that could strain the relationship with someone you love.
Most major jewelers offer financing plans, some of which feature 0% interest for a limited period of time. All of these offers require opening a new retail credit card. This new account could affect your credit scores, especially if the line of credit they give you is not significantly more than the amount you charge. That’s because credit scoring models compare your available credit to your balances to get your “debt usage ratio.” If your balances total more than 20 to 25 percent of your available credit on any individual credit card (or on all of them together), your credit scores may suffer. In other words, if they approve you for a $5,000 line of credit and you spend that much on a ring, your account will be maxed out from the beginning — and that can hurt your scores.
The other big “gotcha” to watch out for is that under some of these plans you may lose the interest-free financing and be charged interest from the date of purchase (often at a high interest rate) if you fail to pay the balance in full by the time the promotional period ends.
A personal loan can be an alternative to opening a new credit card. While you won’t get interest-free financing that way, you may qualify for a loan with a low fixed rate lasting for anywhere from 12 to 48 months. The advantage to this type of financing is that you’ll have a fixed monthly payment, and know exactly how much you need to pay each month until the loan is paid off. In other words, there is no risk that you will see your rate skyrocket if you fail to pay off the balance when the promotional rate expires.
As with all types of engagement ring financing, there are a few things to watch out for, though. Your interest rate will depend in large part on your credit scores; the better your credit, the lower your interest rate. If your credit isn’t strong, you may wind up with a higher rate. (Think of interest as the opposite of a discount on the ring. Instead of paying less, you pay more.)
Here are a couple of examples of how much interest can cost you over the term of the loan:
$5,000 loan at 10 percent for 3 years
- Total cost: $5,808.24
- Payment: $161.34
$5,000 loan at 12 percent for 5 years
- Total cost: $6,673.20
- Payment: $111.22
Whichever method you choose to finance an engagement ring, review your credit reports and scores before you apply for the loan. And be sure to read the fine print so you understand the terms of the loan. Paying more than you expected is stressful, and you’ll have enough stress planning — and paying for — your wedding!
If you are worried about the interest is too much, why not buy a stand in from Jetoiles.com or something and save up for a new ring.