Financing an Engagement Ring: Options and Considerations

If you’re considering a proposal, you might also be contemplating engagement ring financing. Engagement rings are an investment and a meaningful piece of jewelry your partner will wear every day and cherish forever. However, engagement rings are also expensive. Therefore, you may be tempted to seek financing in the form of loans to help pay for it.

But before you do, ensure you understand that financing a ring requires the same consideration as a personal or auto loan. Read more to learn how best to finance an engagement ring purchase so that you minimize your debt and impact to your credit score.

Your Options for Financing an Engagement Ring

Many people finance an engagement ring purchase to spread out the payments and still afford to get the very best for the person they want to spend their life with. In 2021, the average engagement ring cost $6,000; if you do not have this cash on hand for a ring, consider the most common financing options:

• Jewelry Store Financing: It’s very to finance the ring from the store where you’re making the purchase, but there can be some notable stipulations in the fine print. Ensure you understand all the terms, especially the interest rate, after the promotional period ends.
• Personal Loans: Like any other loan, you can go to the bank and see if they’d be willing to lend you the money. Take the time to understand the associated fees with initiating a personal loan.
• Buy-now, Pay-later: Buy now, pay later financing splits your loan into several lump-sum installments due at varying times. This option is a good choice if you can make the relatively larger payments on time.
• Credit Card: If you have a credit card with a high enough limit, you can charge an engagement ring just like any other purchase. Use your lowest-interest card if this is the route you want to go.

Factors to Consider Before Looking For Financing

Choosing an engagement ring for your partner is a deeply personal act, and that applies to financing as well. Choosing the right loan is highly dependent on your financial situation; therefore, there is no one-size-fits-all approach. Pay attention to the following information, as it will allow you to make a better-informed decision on where to shop for financing.

Credit Score

Your Credit Score is a three-digit number that ranges between 300-850. Higher Credit Scores are considered better, with “Poor” and “Fair” scores ranging from 300-669, and “Good,” “Very Good,” and “Exceptional Scores” ranging from 670-850. The higher your credit score, the better loan terms you are likely to receive.

Debt-to-Income Ratio (DTI)

Your DTI is calculated by dividing your monthly debt payments by your income. DTI is presented as a percentage, with 40% or lower considered optimal.

Interest Rate

An interest rate is an additional charge on top of the principal (the amount of money you are borrowing). For example, if you borrow $1000 at $15% interest, you will ultimately be responsible for paying back $1115.

Annual Percentage Rate (APR)

APR is a near-ubiquitous metric that essentially summarizes the rate of interest you will pay on an annual basis, including additional fees. In addition to the interest, lenders may require additional payment, such as an origination fee, application fee, or payment processing fee. Each loan has a unique set of fees, so pay close attention to those when shopping around.

Collateral

Collateral is a valuable piece of property that lenders may require of someone as a security measure. Lenders may require you to offer them collateral because the lender can legally repossess the item in question if you fail to make the payments on your loan. The value of the collateral often correlates to the value of a loan. For example, you may offer your car title as collateral if you borrow somewhere in the neighborhood for $10,000.

Down Payment

A down payment is a lump sum of money you provide up-front for a large purchase. For example, if you are financing a $1000 purchase that requires a 10% down payment, you will pay $100 at the outset. Occasionally, down payments are flexible, offering lower interest rates to those who pay more initially.

Jewelry Store Financing

Financing a ring through the jeweler offers significant convenience to the borrower. Accepting financing through the retailer theoretically saves time shopping around for financing, allowing for a “one-stop shop” experience. Jewelry Store Financiers may also offer deals not offered by other borrowers. For example, it’s quite common to find promotional, interest-deferred loans, such as those with 0% APR for the first 12 months.

Jewelry Store financing may contain hidden fees and strict terms that could cost you money in the long run, especially if you miss a payment. For example, consider a jeweler that offers 0% APR financing through the first 12 months. Should you miss any payments during that time, the terms of the loan could dictate that you pay all of the deferred interest up until that point at one time, making it even harder to keep up with the payments.

Here are several examples of financing offered by popular chain jewelers in the US:

Jeweler #1: This jewelry offers 12 months of deferred interest on engagement rings. However, to secure this promotion, you will need to provide a 20% down payment.

Jeweler #2: Jeweler #2 offers a promotion where purchases paid off within six months do not necessitate any interest. For those that cannot pay off their ring in half a year, APR between 9.99% and 12% is available, depending on the length of the loan.

Jeweler #3: Our final jeweler offers no-down-payment financing if you have their company credit. Like Jeweler #2, no interest is charged if the principal is paid within the first six months.

Personal loans

Personal loans are available from banks and other financial institutions and usually have lower interest rates than in-store financing and credit cards.

Personal loans are generally lumped into two categories, secured and unsecured:

• Secured Personal Loans require someone to offer collateral to the lender, which can be repossessed if the loan payments are not satisfied. Secured loans are often necessary for those with less-than-perfect credit (typically below 690) and a high debt-to-income ratio (DTI), as that may indicate to the lender that the borrower may not otherwise pay back their loan.
• Unsecured Personal Loans do not require the borrower to offer collateral to the lender. Those with unsecured loans often have higher credit scores (typically above 690), rendering them a safer bet to pay back the borrowed some in the eyes of lenders.

While taking out a personal loan may have favorable terms and lower fees, there may be some drawbacks. Personal loans generally do not offer any promotional discounts, like the kind you may get if you utilize a financing plan directly with the jeweler.

Personal Loans also tend to come with fees, like origination fees from the lender to take out your new loan, possibly as much as 1-5% of your total loan amount, and late fees if you miss a payment. Be sure to look over all potential fees and penalties before committing to a personal loan, as each quote will offer different terms.

Buy-now, Pay-later Lenders

Buy-now, pay-later (BNPL) financing is a short-term borrowing option that lets you make the purchase and take the engagement ring with a down payment and a promise to make future payments. They’ve become very popular lately, especially for online purchases. BNPL can be a great option if the terms are right. Look for a BNPL deal with a 0% annual percentage rate, and you will not be charged interest.

Given that BNPL financing is a somewhat new form of lending, lenders utilizing this payment format are turning to new technology to make money more accessible. Often, those shopping around can apply for and receive money directly from a smartphone application. Some of the most popular BNPL lenders include Affirm, Sezzle, After Pay, Zip, and Klarna. Even established digital payment platforms like PayPal are getting in on the action with their “Pay 4” service.

However, like with all financing options, it is critical to stay on top of your payments. Buy-now, pay-later programs tend to have steep penalty fees if you miss payments, such as having an interest charge tacked onto all future payments due. Missing payments with a BNPL option will also negatively impact your credit score. Before you opt for this method of financing, be sure that you can easily fit the payments into your budget.

Credit Cards

Buying an engagement ring with a credit card operates the same as any other purchase you make on your credit card. You may opt to use an existing card, or you could open a new credit card that offers an introductory 0% purchase APR, which could help you save money.

Some of the larger Jewelers offer financing through their own company credit card. While receiving a Credit Card from these sources includes a further layer of convenience and could allow for deeper promotional discounts, they too can contain high-interest interest rates if the credit terms are violated. For example, one popular jeweler offers 16.5% APR on their credit card. Should you miss a payment on that card, the APR jumps to 29.9% for the duration of the loan. This feature can be hazardous if you begin to purchase other items with the card and neglect the monthly payments.

Keep in mind that opening a new credit card occasionally lowers your credit score in the short term. The reason is that applying for new credit sometimes requires a hard pull of your credit information, which for those with short credit histories or lower scores could drop their credit score by 3-10 points. This is generally because those with short credit histories and low scores are already seen as risky, and opening new lines of credit could make them riskier still.

To compound matters, opening a new credit card also reduces the average age of all your lines of credit, which is a factor in determining your overall credit score. The older your credit history, the better it reflects on your score. Consider your credit history and usage before paying for a ring using an existing or new credit card.

Credit Score Considerations

As was previously mentioned, your Credit Score plays a large part in the ability to receive optimal financing terms. In general, those with better credit scores generally will pay lower interest rates, fewer fees, and smaller penalties than those who do not. The five categories of Credit Scores are:

Poor: 300-579

Fair: 580-669

Good: 670-739

Very Good: 740-799

Excellent: 800-850

Also, remember that any loan/financing option will affect your credit. For example, borrowing significant amounts of money will hurt your Credit Score as it increases your DTI. However, a consistent history of making your payments on time will ultimately bring your score down again.

Be sure you understand all potential impacts to safeguard your credit best and reduce the risk of receiving poor financing terms in the future.

What Credit Score Do You Need to Finance Jewelry?

No baseline credit score is necessary for financing jewelry, but your credit score will determine the type of financing you can get and your percentage rate. For example, those with high credit scores may be eligible for lower interest rates, unsecured loans, and jeweler-run financing options that may include promotional discounts.

The financing deals from jewelry stores are typically only available for people with good credit. You’ll still get financing if you have a low credit score, but you’ll pay a higher interest rate.

Does Financing a Ring Affect Credit?

Financing an engagement ring can negatively impact your credit rating in a couple of ways. When you apply for a loan or a new line of credit, the lending company will take a “hard look” at your credit. Every time there is a hard look, it lowers your credit score by a few points.

Additionally, accepting financing entails adding debt to your credit history. The amount of debt you have weighted against your income largely determines your credit score. An increase in debt will lower your score.

However, sometimes you can boost your credit score by financing an engagement ring. Lenders look kindly at a variety of factors when producing your credit score. Given the significance payment history has on your credit score, seeing that you borrowed a large sum of money and ultimately paid it back shows that you are a responsible borrower, eventually rewarding you with a higher score.

Should You Finance an Engagement Ring?

There are both advantages and disadvantages to financing an engagement ring purchase. We recommend weighing the following factors against your situation to devise your best solution.

Pros

• You can buy a larger or nicer ring than you can currently afford.
• You do not have to wait until you can afford to buy the ring your partner wants.
• You can keep your savings intact and not tap into those funds.
• Financing and making payments promptly can boost your credit score.
• The ring will be a symbol of your love and become a family heirloom.

Cons

• Most financing options negatively affect your credit score, at least initially.
• Buying an engagement ring out of your price range takes away money that could have gone toward your future life goals.
• A financed engagement ring costs much more than the sticker price after interest rates and fees.
• You’re adding to your debt and negatively impact your debt-to-income ratio.
• Incentive financing is temporary, leaving you with high-interest rates in the end.
• Engagement rings lose value as soon as they’re purchased.
• You’re starting your future life together with debt.

What Kind of Financing Plan Should You Pick?

The ability to determine the optimal financing plan for your situation comes down to a variety of factors, including:

• The price of the ring
• Your financial status and employment prospects
• The amount of time you have available
• The quality of financing plans available to you
• The availability and value of your collateral

For example, suppose you are looking to get a ring quickly, know you will be solidly employed in a year, have cash on hand for a down payment, and are cognizant of paying your bills regularly. In that case, you should consider financing your ring directly through a jeweler.

If you have time to shop around and have a low credit score but do have collateral available, you may want to consider getting a personal loan from a bank or other financial institution. Further, personal loans offer the lowest interest rates on average. Therefore, even if your interest rate is higher than the average, it may still be lower than those offered by other lenders.

Those that may receive bonuses from their job may opt for BNPL financing. Because BNPL borrowing allows people to pay semi-regularly (perhaps every quarter), it is possible to time your loan payments to the times of the year you receive your bonuses.

Further, if you have recently made strides to improve your credit score, are teetering between different tiers, and are cognizant about reducing it, you should consider financing with a credit card. If you find yourself in this situation, ensure the card you apply for will not require a hard credit pull, as that will lower your score slightly.

How to Lower Your Engagement Ring Cost

Be sure to look into the different ways you could potentially lower the cost of your engagement ring when shopping around for a token of your affection. For example, pay attention to the fine print in financial agreements when weighing your financing options. You could also consider a larger downpayment or opting for an alternative ring style altogether.

The terms of every loan you apply for will vary widely depending on the factors previously explained in this article. However, there are some benchmarks to pay attention to, including:

Interest Rates

The average interest for an engagement ring varies by source. Still, personal loans generally offer the lowest interest of the four options at about 10%, or even below for some qualified borrowers. Make sure you run the numbers over the length of the loan to determine if a personal loan will save you money compared to other sources that offer lower promotional interest rates upfront.

APR and Fees

Given that fees are included in APR (as opposed to simple interest rate), it may benefit you to find a loan with the least amount of fees possible. If you can, attempt to find a loan that does not charge annual fees, late fees, application fees, pre-penalty fees, returned payment fees, over-limit fees, or non-sufficient fund fees. It is unlikely you will find an affordable loan that has no fees; therefore, look for ones that have the least amount possible. Additionally, making on-time payments will negate the previously mentioned penalties.

Loan Length

Saving money by choosing the loan’s length depends on its interest and APR. Given that interest is charged on a monthly basis, if the rate is high, choosing a shorter payment term with larger monthly costs may save you money in the long run if you can afford it.

Cost After Re-Payment

Some financing options, such as credit cards (either through the jeweler or a third party), you can continue to use after the ring’s loan is paid off. Depending on the card’s terms, it may cost money to cancel the credit card once you no longer need it. Further, keeping a line of credit and not using it can also hurt your credit score. Therefore, it is in your best interest to avoid cards with cancellation penalties, as this could continue to cost you money for years into the future.

Make a Larger Downpayment

Making a larger, lump-sum payment up-front ultimately reduces the amount of money you will pay in interest and the size of your monthly payments. The reason is simple: the more money you initially pay, the less you ultimately borrow. In turn, the less you borrow, the less risk you will become delinquent on your payments.

Ask About Store Promotions or Discounts

Oftentimes, in-store financing comes with special promotional discounts, as previously mentioned. These are often worth taking advantage of so long as they don’t become prohibitively expensive once the promotional period ends. The same is true of credit cards. Many credit cards offer introductory interest rates for 12, 18, or 24 months. Pay special attention to the rate you will pay once the introductory period ends.

Consider Forgoing the Diamond

In the past, the rule of thumb for how much to spend on an engagement ring was three months’ salary. This “rule” was based on clever marketing by the De Beers diamond company beginning in the 1930s, insisting that a diamond is forever. Before that, most engagement rings did not include a diamond.

Today, the diamond plays a significant role in many engagement rings, but price points vary widely. The average cost of an engagement ring in 2021 was around $6,000, but that varies depending on where you are in the United States.

Another consideration is that the engagement ring is just part of the equation. Most people add a wedding band to the engagement ring, and then there is the cost of the wedding band for the other partner. If two wedding bands are purchased, wedding experts at The Knot suggest the price of two wedding bands could be in the $1,000 to $2,000 range.

Alternatives to Financing Your Engagement Ring

Like with all loans, financing an engagement ring does carry some risk. Unexpected situations occur: people lose their jobs, unexpected expenses occur, and life can sometimes get in the way of paying your bills on time. For those concerned with being saddled with expensive interest or fees should an unanticipated issue arise, you can still get an engagement ring without taking out a loan.

Consider the following:

• Save for the total cost of the ring over time before shopping: If you know you intend to propose, you could save up for the entire cost and forgo financing altogether by saving for it over time.
• Consider buying a vintage ring instead of a new ring: If your partner loves old-fashioned cuts and settings, you could save money by purchasing a vintage ring, which typically costs less than brand-new rings. Depending on the ring chosen and its cost, you could avoid financing and pay for it upfront. However, remember that you may need to restore or resize the ring.
• Ask your family or your partner’s family if there is a ring you could inherit or purchase from them: You could end up spending significantly less so that you do not need to finance it at all while also using a ring with more direct family ties and sentimental history for your proposal.