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 sooner. If you’re going to finance an engagement ring, here’s how to be smart about it.
Jewelry store financing is okay—but be wary
If you can snag 0% financing from the jewelry store, great! Just watch out for horrendous terms if you miss a payment or do not pay off the ring before the promotional APR expires.
Many jewelry stores offer store credit cards or other financing options. What’s more, store salespeople may be incentivized to push you towards these options. Sometimes, these offers may be competitive (for example, offering 0% or even 0% and no payments for many months). But after these promotions expire, most of these cards have very high interest rates.
Before you sign on the dotted line, read the terms of the offer carefully.
- What’s the promotion? How long does it last? Under what conditions might the promotional rate be revoked? (For example, if you miss a payment.)
- What’s the regular interest rate after that?
- Can I afford to pay off the purchase before the promotional rate expires?
Even if you can afford to pay off the ring prior to the promotional APR expiring, consider whether opening a jewelry store credit account is the right move. In the best case scenario, you’ll pay the ring off and may never use the account again. Or you might be tempted to finance future purchases from the store that you don’t really need.
Finally, consider that you can save up to 50% by buying engagement rings online from reputable online jewelers. Maybe that jewelry store isn’t the way to go, anyway.
Use our Loan Payoff Calculator to see how different payments and interest rates affect your loan.
How to use a credit card to buy an engagement ring – the smart way
Although financing an engagement ring with a credit card may be the worst way to go, I suspect it may also be the most common method of doing so. (After all, it’s what I did).
Credit cards are the most convenient way to make large purchases and pay them off over time, but they’re expensive. Not only do credit cards have high interest rates, but they also let borrowers make small minimum payments that increase the length of time it takes to pay off the debt (and increases the interest you’ll pay).
This is why the way to use credit cards responsibly is to pay the entire balance each and every month.
Sometimes, however, credit cards offer promotions in which new customers can get an introductory 0% interest rate on new purchases for 12 months or longer.
This could work even better if you sign up for the new credit card right before you make a big purchase like a ring, because cards will often give you a sign-up bonus if you spend a certain amount within the first three months.
So if you can pay off the ring before the promotional APR expires, a credit card might be your best option.
One might even argue that you could buy your ring with a 0% credit card, even if you had the cash to do it. You can leave the cash in a savings account earning interest and earn rewards from the credit card when you make the purchase.
An example of the perfect credit card in this situation would be the Chase Freedom Unlimited®. It offers 0% Intro APR on Purchases for 15 months and 0% Intro APR on Balance Transfers for 15 months from account opening, then an APR of 20.49% - 29.24% Variable. Also, there’s a nice first-year bonus: an additional 1.5% cash back on everything you buy (on up to $20,000 spent in the first year) - worth up to $300 cash back! Regular cash back rates are 5% back on travel purchases made through Chase Ultimate Rewards®, 3% back on dining and drugstores, and 1.5% on all other purchases.
Not only is that money you can put towards the ring of your partner’s dreams, but as long as you pay it off during the promotional period, you have an easy-to-manage repayment plan.
There are, of course, a few caveats when it comes to 0% APR credit cards:
- You’ll need to have good credit to qualify for these promotions.
- You’ll need to be willing to open a new credit card.
- Finally, a bit of patience is required. You’ll have to wait a week or two for the card to come in the mail.
Read more: The best credit cards offering a 0% intro APR on purchases
Save more by shopping online
Did you know you can save as much as 50% by purchasing engagement rings online from reputable online jewelers? If you can find a respected online jewelry store, you can actually save significantly.
I know what you’re thinking. There’s just no credibility when you buy online. In fact, when you buy from a reputable online store, you know you are working with quality products because these businesses care about their reputation and take measures to ensure that their products and services are exemplary=
Make sure the online jeweler you work with offers:
No engagement ring should be sent via standard mail. Get a tracking number, insurance, and signature requirement to ensure the delivery of your jewelry. James Allen goes even further, offering a lifetime warranty on the ring itself.
A reputable jeweler like Blue Nile will not ask questions when you want to return. Many will even offer you free return shipping.
Chances are you haven’t bought an engagement ring before, so you don’t have much experience or information about the process.
How do you pick a diamond? A setting? What is a carat?
An excellent online retailer will educate you thoroughly on their products. And with this kind of money at stake, you won’t regret learning all there is to know before making your purchase.
A personal loan can be costlier but has its benefits
A costlier option than 0% financing is to take out a personal loan for the purchase price of the ring and repay the loan over three or five years.
If you can qualify for promotional jewelry store financing or a 0% APR credit card and repay the cost of the ring within the promotional period, this is the best way to finance your engagement ring and avoid paying interest.
Obviously, using a personal loan to finance an engagement ring will tack on a considerable amount of interest to the total cost of your ring. But if a 0% financing offer isn’t available to you, a personal loan could be a better option for financing an engagement ring than putting the ring on a credit card at the double-digit regular APR.
Three- or five-year personal loans are available to most applicants with at least some credit history. Interest rates vary widely based on your creditworthiness. Applicants with poor credit should stay away, as some subprime credit personal loan APRs can exceed 20%.
For borrowers with good credit however, APRs can be competitive (under 10%) and often beat out the best low interest credit cards.
When you go to buy an engagement ring, don’t get carried away. First, and foremost, buy a ring you can afford.
Pay cash if possible. Do you really want to go into more debt right before you get married?
Otherwise, this is the perfect situation to use a 0% APR promotion. You might even luck out and be able to open a credit card that gives you both a 0% APR and a cash sign-up bonus for making the big purchase right out of the gate.
Do your best to pay the ring off in full before the promotional APR expires.
If you can’t get 0% financing, consider a personal loan. An unsecured personal loan will allow you to pay the ring off with fixed monthly payments over three to five years.