Home > Managing Debt > 3 Ways to Finance an Engagement Ring

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The average engagement ring ran $5,598 in 2013, according to the TheKnot.com. That’s no small chunk of change. While it’s ideal to save enough to pay cash for a ring, there may be times you just can’t — or won’t — wait.

What are the best ways to finance an engagement ring? Here are three, along with the pros and cons of each.

1. Loans From Friends & Family

Grayson Bell was a college student when he decided to propose to his girlfriend (now wife). But with a part-time job as his only source of income, paying cash for a nice ring was out of the question. While discussing the dilemma with his mother, she offered to loan him the money. It turned out to be a smart move. “She had contacts at a prestigious jewelry market in another state,” he recalls. “She was able to get a ring at 60% off the appraised value. It was a great deal and a custom ring specifically designed for my wife.”

Bell and his mother set up a formal arrangement from the beginning, “We created a contract with payment terms, due dates, and when the loan needed to be paid off. I had to pay her back monthly and at least the minimum payment we agreed to. If I missed a payment or it was late, there was interest applied. It was much like a bank loan.”

Bell is a personal finance blogger now, and shares how he dug out of $50,000 in credit debt on his website. But at the time he was just a student who needed to find a way to finance his engagement ring. “All in all, the experience was a good one,” he says. “Looking back now, I realize I should have waited to just save up for the ring, but in my college years, I wasn’t thinking about that or my financial future. I paid off my loan on time and thanked my mother for what she did.”

The advantage of one of these loans is that they can carry an interest rate as low as 0%, 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.

2. In-Store Financing

Most major jewelers offer financing plans, some of which feature 0% interest for a limited period of time. For example, Jared offers interest-free financing for 12 months, or 12 months at 0% followed by low-rate financing for six months. Kay Jewelers offers 12 months interest-free. Blue Nile offers no-interest financing for six and 12 months, or equal payments for 24, 36 or 48 months at 9.9% (the time period depends on the amount financed). Zales offers 0% interest for six, 12 or 18 months, again, depending on the amount charged.

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% 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.

3. Personal Loans

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.) You can check your credit scores for free on Credit.com to see where you stand.

Here are a couple of examples of how much interest can cost you over the term of the loan:

$5,000 loan at 10% for 3 years  

  • Total cost: $5,808.24
  • Payment: $161.34

$5,000 loan at 12% for 5 years

  • Total cost: $6,673.20
  • Payment: $111.22

(Curious how your debt stacks up? You can see how much it will cost to pay off your credit card debt using the free credit card calculator at Credit.com.)

Borrow Smart

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!

More Money-Saving Reads:

Image: Creatas

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  • bob

    Thank you!

  • devB.

    What if my fico score is a 718 and all three scores are 660 , 660 , and 718 what can i be good usage for as far as loans and cards with 6% debt usage?

    • http://www.Credit.com/ Gerri Detweiler

      I am sorry but I don’t understand your question…can you try restating it?

  • Possible customer

    my transUnion score is 551 and my equifax is 612, could i get approved for a $4000 loan?

    gross annual income is $74880

    • Jeanine Skowronski

      All lenders use different underwriting criteria. It’s possible you could get approved for a loan, but the interest rate associated with the loan may be high due to your credit score. Also, as a side note, just in case there was some confusion, we are not a lender.

      Thank you,

      Jeanine

  • Ben Jackson

    my credit score is 800.. I have about 5k in savings. Any suggestions as far as going about taking a loan out?

    • Jeanine Skowronski

      Your credit score is competitive so you should be able to qualify for a loan or credit card with competitive rates. You should do some comparison shopping regarding personal loans or deferred interest credit cards to find the offer that is right for you.

      Thanks,

      Jeanine

  • Eric Johnson

    I have a solid job but no real savings and would like to spend 3-4k on a ring. My credit score is 695 or so, any suggestions on what option i should choose?

  • Crystal Calica

    You can call your bank and ask them to temporarily raise the spending limit on your card

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