Typical, huh? There you are, digging deep to get in touch with your inner romantic. Finally ready to join your beloved in holy matrimony. And along comes someone wanting to talk about how to pay for an engagement ring. Ugh.
But stick with it. Because entering your marriage with easily manageable debt is better than going crazy to pull off a perfect proposal.
Best Ways to Finance an Engagement Ring
There’s one outstanding form of engagement ring financing. It comes with a 0% APR and no obligation to make even minimum monthly payments. But don’t get too excited. It’s called saving up.
Of course, if you had the cash, you would not be reading about how to pay for an engagement ring. So, what other smart choices could you make? You’ll probably choose one of three:
- Personal loan
- Credit card
- Jewelry store financing
Let’s look at those in more depth.
Personal loans for engagement ring financing
Personal loans are the sensible choice. Time was, that might have been enough to put you off. Sensible equals boring, you may have thought.
But you’re soon to be a married man or woman. That doesn’t mean you have to be boring about everything, but it does give you a good reason to be sensible about money.
What’s sensible about a personal loan? Well, they’re typically affordable and predictable. Average personal loan interest rates run about 7% lower than average credit card interest rates.
Shop around a bit and you may well end up paying roughly half the interest you’d be charged on your credit card.
And personal loans help you budget. There’s no juggling minimum payments: in most cases, you pay down the balance in equal installments over a fixed period. So you can know on day one how much you’ll have to pay and when you’ll be free of the debt.
Paying for an engagement ring with a credit card
Using a credit card for engagement ring financing can be the smartest or dumbest move. It can be smartest if you’re prepared to invest some time in hunting down your best deal — perhaps applying for new plastic — and then managing your account.
Mistakes to avoid
It could be silly and costly to just dump the engagement ring purchase on your existing, standard plastic. Do that, and you’ll almost certainly pay much more. Because average card rates are higher than most other forms of borrowing.
Worse, you risk harming your credit score. The more available credit that you use (this is called “utilization”), the lower your credit score. This is especially true if your utilization exceeds 30% of your available credit. And the higher above 30% it goes and the longer that situation lasts, the bigger the hit.
The exception to the rule is if you have a good rewards card and don’t carry a balance. You can use that card for the rewards and then pay it off right away (perhaps with a personal loan). Maybe you could get some travel rewards to help with your honeymoon costs.
Getting a new card with a 0% deal
This can be the smartest move, but only if you’re prepared to manage the process carefully.
You apply for a card offering a long introductory period (some go up to 18 months) during which it charges 0% APR. If that deal is available for purchases, you can buy the ring with it.
If it’s only on balance transfers, you can buy the ring on your existing card(s) and immediately transfer the balance(s) to it. Understand that balance transfers are not free — usually, card issuers tack on a charge that ranges from 1% to 5% and averages 3% of the balance.
To get the most out of this option, you must pay down the balance before the introductory offer expires. And you must make at least the minimum payment on time every month or the offer may be voided.
Be aware that the same risk to your credit score applies. Of course, your new credit limit lets you borrow more. But if you put a $1,500 ring on a card with a $3,000 limit, you’ll harm your score. To be safe, you want close to a $5,000 credit limit to finance an engagement ring of that price.
The store loan option
Some jewelry stores offer engagement ring loans. And some of these aren’t bad.
But don’t let a salesperson push you to sign for one on the spot. Many are incentivized to sell credit, and you can’t always rely on their advice.
Avoid deferred financing
If the deal on offer looks good, have the store hold the ring and take away the credit agreement. Have them reserve it for long enough for you to keep your options open: to get a personal loan or 0% credit card instead.
Then read the agreement carefully. Be especially wary of “deferred financing.” With this, you’ll typically be liable to pay an extortionate interest rate if anything goes even the tiniest bit wrong. And things do go wrong: your bank’s IT systems foul up or all those wedding costs momentarily disrupt your finances. There have been allegations of deferred-finance providers trying to confuse borrowers just so they can impose the penalty rate.
You won’t have to pay that high rate just on the balance outstanding at the time; it’ll be applied to the entire purchase. So you could see close to 30% added to the ticket price of your ring in one fell swoop.
If in doubt, you may prefer to take the safe and sensible option and finance your engagement ring with a personal loan.