Picking the perfect engagement ring while sticking to your budget can be difficult. If you don’t have a ton of savings, you may be considering financing. There are several different financing options including personal loans, in-store financing, credit cards and even borrowing money from friends or family. Our guide covers what your financing options are, as well as features to consider when choosing the right type of financing for your needs.
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You can take out a personal loan to finance an engagement ring. Loans through banks, credit unions or peer-to-peer lenders will typically be unsecured and your rate will largely depend on your credit score and your ability to repay your loan.
Other less traditional lenders may offer secured loans, which means you will need to use collateral in order to secure the loan.
The application time depends on the lender, but can take from as little as one business day to ten or more days. You’ll need to make weekly, bi-weekly or monthly repayments over the loan term, which will be set out in your loan contract. Usually, loan terms range from one to seven years.
Engagement ring finance options
If you don’t have cash on hand to pay for the ring of your partner’s dreams, options for smart borrowing include:
Jewellery store financing. Many big-name retailers offer in-house financing, with some retailers offering no-interest financing for a certain time period. Just be wary of high interest once those promos end, as well as stiff penalties if you miss a repayment.
Personal loan. A personal loan usually comes with a term of one to seven years. You won’t find 0% annual percentage interest rate (APR), but with good credit, you could see interest rates of 12% or less.
Credit card. If you can qualify for a card with a low-interest or no fee period, you might find that you’re able to pay off your purchase before any revert interest rate or annual fee kicks in.
Friends and family. Deep down, we’re all romantics. Your loved ones may jump at the chance to bring more family into the fold. By asking for the most personal of loans, you could land flexible terms and rates as low as… well, zero percent. Remember that money can tear families apart, so set repayment rules just as you would with a lender.
6 things to consider when comparing engagement ring loans
You should compare the following features when trying to find the right loan for your needs:
Interest rate. The interest rate you pay will significantly impact the total cost of the loan, so it’s important to compare your options and choose a competitive, low interest loan. Factors that affect the interest rate you’re offered include your credit score, your ability to make your repayments, the amount you wish to borrow and the desired loan term, as well as the lender you select.
Fees. Fees add to the cost of a loan. Go through the loan contract to find out how much you might have to pay in application and/or administration fees, loan disbursement fees, late repayment fees and early repayment penalties.
Loan amount. The amount you can borrow differs between lenders. Generally, maximum loan amounts are between $25,000 and $35,000, but some lenders offer unsecured loans up to $100,000.
Loan term. Getting a longer loan term can be tempting, as the monthly payments will be lower. However, the longer you take to repay your engagement ring loan, the more you’ll pay in interest, which ultimately increases the cost of your loan. Ideally, you should repay the loan as soon as you can.
Eligibility criteria. Some providers of engagement ring loans require applicants to have good credit scores. Others provide loans to people with fair or bad credit, provided they have a steady source of income.
Unsecured or secured. Personal loans are usually either secured or unsecured. Taking out a secured loan means you will need to put up collateral, which ultimately could be the ring itself. However, this means you could lose the ring should you become unable to make your loan repayments. An unsecured loan, on the other hand, doesn’t require you to put up any collateral, however you’ll usually be offered a less competitive interest rate.
Representative example: Tim proposes to Lucy
Tim needs to buy an engagement ring as he is planning on proposing to his girlfriend Lucy. He has picked out the perfect ring – but it costs a whopping $4,500.00. He has $2,000.00 available to spend on a ring, so he’ll need to find a loan to cover the remaining $2,500.00. He heads online to compare personal loan lenders, and also contacts his local bank to see what they can offer him. But unfortunately, due to his poor credit, his bank won’t offer him a personal loan at all. He settles for an online lender that caters to those with bad credit – and has the $2,500.00 funds in his account by the next business day. Although his interest rate is higher than he would have liked, he realizes he can use this opportunity to make timely payments and improve his credit score.
Cost of ring
Origination fee of 3% ($75.00)
Total loan cost
*The information in this example, including rates, fees and terms, is provided as a representative transaction. The actual cost of the product may vary depending on the retailer, the product specs and other factors.
How much should I spend on an engagement ring?
In 2018, the average amount spent on an engagement ring in Canada is around $4,600. Old school wisdom says you should spend two or three month’s salary on an engagement ring, but that’s no longer a hard-and-fast rule.
There are two things you need to consider when figuring out your engagement ring budget:
Your partner’s ring preferences.
Your financial situation.
Once you know what ring style you’re looking for, then you’re ready to start thinking about financing. Get a sense of the price range of that style by shopping around. It might be more than you expect, keeping in mind the average amount Canadians spend on a ring.
Before you buy an expensive ring on credit, establish how long you’ll take to repay the debt. Account for other expenses that you’ll encounter going forward, including your eventual wedding plans. Review how a large purchase would affect your existing debts.
What happens if they say no?
No one goes into a marriage proposal thinking that their partner is going to say “no”, but unfortunately that doesn’t mean it doesn’t happen. So, what should you do if you took out a loan to pay for the ring?
First things first, you should try to return the engagement ring to the retailer you purchased it from. Most retailers with physical stores offer a specific amount of days, usually at least 30, for you to return an item for a complete refund. You’ll need to reach out to whatever store or online retailer you bought your engagement ring from to understand their specific return policy.
If you took out a loan to purchase the ring, things get a little trickier. While many loan providers allow you to get out of a loan if the funds have not yet been disbursed, it’s usually not easy to get out of a loan if you’ve already received and used the money. In this case, look to see if your lender has early repayment fees. You can pay off the loan early, but you’ll still have to pay off any interest that’s accrued or fees they charge.
Pros and cons of engagement ring loans
Get the ring you want. If you don’t have enough money saved up to pay for the engagement ring you wish to buy, you can think about getting a loan. This way, you pay for the ring in installments over a specified time period.
Quick and easy process. Getting a typical engagement ring loan is quick and easy. In some cases, you can get your hands on the approved funds by the following business day.
Interest-free offers. If you choose to go the in-store financing way, you can benefit from interest-free offers. In this case, you don’t have to pay any interest towards the purchase for a predetermined time period, which is usually anywhere from 3 to 24 months. If you repay the entire amount before the promotional period expires, you won’t pay any interest at all.
The burden of debt. If you borrow more than you can afford, repaying the loan can become a challenge and it’s possible you’ll be thrown into a cycle of debt.
Late repayments. Not making your repayments on time will likely have a negative effect on your credit score if the lender reports you to one of the credit bureaus. Furthermore, your loan will be more expensive since you’ll usually accrue late repayment fees and more interest.
Frequently asked questions about financing an engagement ring
Some lenders charge a fee if you wish to repay your loan earlier than scheduled. This is known as a prepayment or early repayment penalty. If you think you’ll be able to pay off your loan faster, make sure the lender you choose doesn’t charge any early repayment fees.
Some non-traditional lenders will let you use assets, such as engagement rings, as security for loans. Make sure you consider the APR of these loans as they tend to be more expensive than more traditional lenders, like banks and credit unions, since they are targeted at bad credit borrowers. On the other hand, secured loans from these lenders usually have lower APRs than unsecured loans since you’re offering up collateral.
In-store financing deals usually come with a requirement to apply for a retail credit card, or a high interest rate applies once the interest-free finance period comes to an end. Make sure you know the terms of the offer before you apply for in-store financing.
Generally, jewellery store owners will allow you to return the ring within a reasonable time. You should familiarize yourself with the store’s return policy, but you’ll usually find that you can return unused rings within a specified time period after purchase, which is usually 30 to 90 days, depending on the store.
Aliyyah Camp is a writer and personal finance blogger who helps readers compare personal, student, car and business loans. Aliyyah earned a BA in communication from the University of Pennsylvania and is based in New York, where she enjoys movies and running outdoors.
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