Ways to finance an engagement ring
Proposing with an engagement ring is a generations-old practice, but the cost of an engagement ring can be high. While it’s financially smart to save up for that hefty purchase upfront, it may not be feasible in your situation.
Instead, you can borrow money to buy an engagement ring. There are a handful of ways to do this, such as jeweler financing or taking out an engagement ring loan.
Cost of an engagement ring
There is no rule that obliges you to get an engagement ring in a specific size, shape or setting. However, you may have heard the outdated rule of thumb that an engagement ring should be worth roughly three monthly salaries. Diamond jeweler De Beers popularized the antiquated idea of tying the price of a ring to your monthly income in its marketing campaign in the 1930s. Nevertheless, couples still spend a lot of money on an engagement ring.
The knot 2021 Jewelry and Engagement Study found that the average price paid by consumers for engagement rings increased to $6,000, compared to $5,900 in 2019. Nearly 30% of respondents said they had exceeded their engagement ring budget.
There are several factors that go into the price of an engagement ring. The same study found that the gemstone used in a ring’s design is a notable factor in price:
- Clear diamond ring: $6,800
- Gem: $2,500
Other price factors include ring setting, metal type, diamond or gemstone details such as rating and size, and the region you live in.
Once you’ve set your ring budget and found the perfect ring to pop the question with, you’ll need to decide how you’re going to pay for it if you don’t have cash on hand.
Finance jewelry business
Many large jewelry retailers offer internal financing to help their customers pay for an engagement ring. This financing option is conveniently done in-store or through the jeweller’s online platform. It’s an installment loan where you can walk out of the store ring in hand and make monthly installments on the loan balance plus interest.
In general, jewelry financing offers more flexible borrowing requirements compared to borrowing from a traditional bank. Some retailers may have funding requirements such as B. a minimum purchase amount, and offer different repayment terms.
Best for: Buyers looking for a convenient source of financing and those who may not have strong credit.
Funding an engagement ring with a credit card can be a strategic option for responsible borrowers.
Let’s say you have strong credit and you qualify for an 18-month 0% APR reward credit card. In this scenario, you are assured of being able to repay the full cost of the ring within the short-term promotional period. If you elect to use an interest-free rewards credit card to pay off your engagement ring, you can pay no interest while paying back and earn rewards points or miles at the same time.
If your balance doesn’t qualify for a special offer, be aware that credit card interest rates can be high. If you’re using a credit card without an interest-free offer, calculate whether you have the budget to pay off the ring within the next billing cycle.
Best for: People who have a strong credit rating or who can pay back the ring purchase in full by the time of the next billing.
Another classic option is to take out an engagement ring loan. Some lenders specifically market this loan product as an engagement ring or wedding loan. Similarly, some lenders simply refer to it as a personal loan, where you can use the loan funds to make any purchase, including an engagement ring.
Like jeweler financing, a personal loan is another form of installment loan. You pay back the loan in smaller monthly installments over a set period of time, plus interest and fees. Unlike jeweler financing, however, since the lender is a third party, you must obtain credit approval before purchasing your ideal ring.
Eligibility for an unsecured personal loan varies between lenders, including credit requirements for approval. However, the benefit of using third-party loans for buying engagement rings is that you can compare interest rates from multiple lenders to find the cheapest option.
Best for: Good credit buyers looking to shop at a competitive interest rate.
Buy now, pay later credit
Buy Now, Pay Later (BNPL) loans, also known as point-of-sale financing, have grown in popularity in recent years. BNPL services like Affirm, Klarna and Afterpay are integrated into the online purchase process when buying an engagement ring online.
In general, you must pay a percentage (e.g. 25%) of the total purchase price upfront. Then you have to make equal payments over a short period of time to repay the balance. Depending on the repayment term you choose or your credit, you may be offered an interest-free BNPL loan.
Best for: Online ring buyers who want a hassle-free financing experience and the ability to pay no interest for a short repayment period.
A home equity loan, also called a “second mortgage,” is the only type of engagement ring loan on the list that is a secured loan. It allows you to take out a loan for a fixed amount, which is borrowed against the equity you have accumulated on your home. Lenders have their own equity loan limits on how much you can borrow. Generally, it is limited to 85 percent of your home equity.
It usually offers low fixed interest rates, and like a personal loan, you pay it back in equal installments each month. Because your home serves as collateral, a home equity loan is considered low-risk financing for lenders. Therefore, it may be easier to secure this type of engagement ring financing than a personal loan from a third party.
The biggest caveat, however, is that the bank can foreclose on your home if you can’t make your loan payments and default on the loan.
Best for: Those who have built equity in their home and are looking for competitive interest rates.
Whenever possible, it’s best not to borrow money to fund an engagement ring and instead plan ahead for that milestone purchase. Overall, engagements and weddings can be expensive, so it helps to have a strong plan of how you’re going to pay for them.
However, if you need to fund your engagement ring gradually, consider your personal situation to find the best way forward. This includes setting a realistic ring budget, having access to your finances and being able to pay off the engagement ring loan properly while still finding a ring your partner will love.