Choosing The Best Financing For Engagement Rings

You’ve found the love of your life and want to spend the rest of your life with them. You’re ready to make the leap and ask her to marry you. But in order to make your proposal a memorable one, you’ll want to give your special someone an engagement ring to symbolize your promise to marry one day. The thing is, engagement rings are incredibly expensive. You could realistically spend a couple of months’ worth – or more – of your income on this small piece of jewelry. Even though it’s likely the most precious gift you’ll ever buy for someone, the price tag is often too much to pay upfront.

Luckily, engagement ring financing can help make your purchase more affordable.

Engagement Ring Financing Options In Canada

Just because the ring you have your eye on is a lot more expensive than what your bank account can currently cover, that doesn’t mean you can’t get it. There are financing options available that will provide you with the funds needed to buy that precious ring, including the following: 

Personal Loans

One way that you can obtain the funds needed to cover the cost of this larger expense is with a personal loan. You can apply for a personal loan with a lender for the amount needed to pay for the ring, then make installment payments to the lender – plus interest – until the full loan amount is repaid. Depending on the loan amount and your finances, the loan term can be as short or as long as it needs to be.

Pros

  • Unsecured debt –  Among the advantages of choosing a personal loan is that, most often, the debt is unsecured. This enables you to access the funding without collateral. This can offer you peace of mind as there is no risk to existing assets. 
  • Lower interest rates When compared to credit cards, the interest rate on personal loans are generally lower. Moreover, if you have a decent credit score, you’ll have an even better chance of securing a competitive interest rate. The lower interest means that you end up paying less for the ring in the long term.
  • Fixed interest rates – Most personal loans come with fixed interest rates, which means your payments stay the same during the loan term. This makes it ideal for those who have a strict budget and want predictable payments. 
  • More flexible terms: Another major advantage of personal loans is the different terms available. You can usually negotiate the term of the loan, enabling you to make lower payments by choosing a long term. Conversely, you can opt to make more frequent, higher payments on a shorter-term loan.

Cons

  • Higher interest rates Lenders that offer you a personal loan without requiring some form of collateral, are generally of higher risk than a secured one. Because of this, it is likely that you will see a higher interest rate than ones that are secured. 
  • Credit profile restrictions While there are many lenders that accept bad credit borrowers, a low credit score showcases a history of default and is likely to make a personal loan more expensive. To qualify for the best rate, you need a high credit score, along with a decent income and low amount of debt.
  • Associated fees Relative to the cost of an engagement ring, the fees tacked on for opening the loan file are worth noting. Though some lenders don’t add these administrative and loan origination costs, they are prevalent in the industry. Be sure to inquire as to all costs associated with the personal loan in order to avoid costly administrative red tape.

Credit Cards

If you have a high credit card limit on your credit card, you may be able to use it to pay for your engagement ring. Just keep in mind, however, that the interest rates on credit cards are usually very high, so you will be paying a lot more in interest when repaying the credited amount. Further, racking up your credit card bill can be a dangerous thing if you’re not careful, as you could find yourself deep in a credit card debt cycle that can be difficult to climb out of.

Pros

  • Accessibility Unless the engagement ring is on the lower end of the price range, financing it with a credit card is far from ideal. The main advantage to using this approach is that credit cards are reasonably easy to access. If there is a situational urgency to purchasing the ring, credit cards make it possible. 
  • Incentives Many cards offer rewards or cash back incentive programs. Though one percent may not sound like a significant amount, it becomes more significant with larger purchases like engagement rings. 
  • Promotions Sometimes, credit cards offer a zero-percent APR for a limited time. If you purchase the ring and repay it during that promotional period, you pay no interest on it. These promotions are usually for new clients, and only last for a few months (usually 6). 

Cons

  • High interest rate Credit cards, even the best of them, have some of the highest interest rates on the market. The high interest rate on credit cards makes an already costly purchase much more expensive in the long run. Unless you have a set plan to pay for the debt, the expense can snowball and lead to issues down the road. 
  • Promotions time-out The zero-percent APR offering is one of the reasons using a credit card for the purchase is viable. If you don’t repay it, when the promo ends, then the interest kicks in on any balance remaining. This benefit is only effective if you are able to repay the debt before the promotion ends. Unless you are certain that you can pay the lion’s share of the debt within the 0% APR period, it is a risky approach.
  • Possibility of a down payment – If you’re financing your engagement ring through a credit card financing program from your jelweller, then you may be requested to put a down payment.
  • Potential held funds Another possibility when using in-store financing is that the jeweler may require a hold on your credit card. Similar to when you check into a hotel, they often place a hold for at least a part of the cost. It is to offer the lender security while still letting you access the asset, in this case, the engagement ring. While it does make sense as a practice, it is still inconvenient since you cannot access those funds on your credit card balance. 

If you’re going to use your credit card, make sure you don’t get stuck in the minimum payment trap. 

In-Store Financing

When the jeweller themselves offer to finance, it usually comes with little or no interest for a short period. Done as an in-store promotional tool, this financing method usually has significantly high-interest rates after that short period. However, if you are able to pay off the price of the ring during the promotional period, it can be an affordable approach. Consider the term and the payment schedule and amount before signing an agreement. As with any other type of financing, there are benefits and drawbacks.

Pros

  • Low upfront interest – If you’re getting your loan from the jeweler directly, then you can often get zero or no interest for a set period of time. Depending on the promotion itself, this can range from months to years. It allows you to make payments without the extra cost of interest, resulting in a lower cost in the long-term. Usually, this type of financing promo occurs at set times of the year (Black Friday, Boxing Day, etcetera). If you wait for these sales, then you can get ideal terms on the loan.
  • Negotiable payments If you’re going with in-house financing, especially if it is an independent retailer, you may be able to discuss the terms and come to a mutually agreeable arrangement. Whether it’s stretching the term of the loan to see lower monthly payments or haggling a better interest rate, when you deal with the jeweler directly, it is easier to customize an agreement. 
  • Unsecured loan This type of financing does not require any collateral, since the borrower’s merit is determined via credit score and their overall financial health. As a result, the risk for the borrower is less than if there were a lien on real property or other physical assets. There are still consequences to default, but not to your home or car.

Cons

  • Credit score requirements Since this type of financing is of relatively low risk to the borrower, the jeweler mitigates that risk by setting high standards in terms of credit score. For in-house engagement ring financing, most lenders require a score that’s either ‘very good’ or on the higher end of good. If you don’t meet that threshold, it’s unlikely you will get the financing. 
  • High interest after promo period – The promotion draws in consumers looking to propose marriage, with many coming up near Valentine’s Day and New Years. However, once that grace period comes to a close, then the interest skyrockets. If you don’t pay the cost of the ring back by the time the promo period comes to an end, then you end up paying far more for the ring than the original price. 
  • Tricky underwriting In many cases, there are stipulations to the loan agreement in the event of default or a remaining balance after the promo period. If you end up with a remaining balance by the end of the promotional, no-interest period, then you may be charged back-interest. The retroactive charge, plus the monthly payments, can lead to runaway debt. Be sure to find a reputable lender, check the agreement terms, and make sure you can repay the amount in full, on time. 

Buy Now, Pay Later

To expand their prospects, an increasing number of engagement ring retailers are offering a buy now pay later (BNPL) arrangement on higher-cost goods. A fairly straightforward option, this program allows you to repay your purchase in installments over a specific period of time. 

Generally, BNPL services are offered through third-party providers such as Paybright and Afterpay. Most offer an interest-free option that you have to repay in 4 installments. However, if you’re looking for a more long-term option, you’ll find terms that stretch up to 5 years, but you’ll have to pay interest. 

Pros 

  • Low-to-no interest A major reason for the popularity of buy now, pay later financing is the fact that it allows you to avoid the expense of interest. An engagement ring is a major purchase, and any opportunity for it to become more affordable is welcome. Provided you make the payments without default, it can be a very cost-effective way to pay for the ring in both the long and short term. However, do note that, most BNPL services offer no interest on their 4-installment loan plan only. 
  • Keeps your funds accessible By using the BNPL service, you can leave your line of credit or credit card free for emergencies. This will offer you the security of backup funds without the need to take out a hefty personal loan. 
  • Low monthly payments – If the BNPL provider approves you for a longer-term arrangement, you can walk away with surprisingly low payments. Naturally, the amount you owe in terms of installment will vary based on the cost of the ring. However, since there is no interest (if you choose the 4 installment loan plan), you still end up paying less. 

Cons

  • Penalties If you miss any payments, it can result in skyrocketing interest rates and costly penalty fees. As a result, the administrative burden of this type of financing adds to its risk
  • Credit implications If you choose the 4 installment loan plan, your credit score will not be affected if you make your payments on time. If you default on it, the BNPL provider can sell your debt to a collection agency which can tank your credit score. If you choose a longer term, you’ll be subject to a hard credit check. 
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How To Compare Your Engagement Ring Financing Options

Choosing the best financing for your engagement ring is a major component of family planning. After the engagement comes a wedding. Figuring out how to best pay for the ring when you pop the question helps you be in a good financial position for your next steps. So, before you get started, there are a few things to keep in mind when you’re looking for the right financing options. 

  • Interest Rate: It’s no secret that the lower the interest, the less you’ll pay. If you have solid credit, then you can likely access a zero-interest promotional offer or get a good rate on a personal loan. Determine if it’s better for you to wait and build credit, or if you are willing to take a higher rate of interest, even if it means paying more. 
  • Term: Consider the duration of the loan itself. This helps you evaluate the total cost of the loan itself – an essential consideration. It may sound nice to have low monthly payments, but if it means paying thousands extra in the long term, it may not be desirable. The longer the term, the lower the payments, but the higher the interest. The shorter the loan term, the higher the payments, but you end up paying less overall. 
  • Fees: To access the service, it is likely that you’ll need to pay an administrative or originating charge. That said, you don’t have to pay an unreasonable amount. Look at your options, including the cost of the service. Check for any types of prepayment fees (if you want to pay off the loan early). Investigate the consequences of a potential default and make sure that you are entirely comfortable with the charges associated with the loan.
  • Your financial situation: Getting an engagement ring suggests marriage right around the corner. Consider how this impacts your family planning, how it relates to your income, existing debt, and future intentions. Be sure that you research your options using a reputable online comparison tool and find something that works for you and your (to-be) fiancé.  
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How To Save When Shopping For An Engagement Ring

Rather than take out a loan to purchase an engagement ring, you can take steps to save up for it. If time is on your side and you’re not in a rush to pop the question, you might want to take this avenue instead. Here are some tips to help you save money to buy your love an engagement ring:

Put Away A Percentage Of Your Paycheck Away Every Month

The more time you give yourself to save, the easier it will be to put enough away so you’ll end up with enough to cover the cost of the ring. To do this, put a little away every month into a dedicated savings account. Take out either a specific percentage or dollar amount from your paycheck every time you get paid, and over the course of a few months, you should have enough to buy the ring in cash.

Learn how much of your income you should save.

Set Up Automatic Savings And Keep Spending To A Minimum

If you’re not disciplined enough to manually transfer a certain amount of money every month, consider automating your savings. Call up your bank and request to have a certain amount automatically transferred from your checking to your savings account every month. Consider sacrificing unnecessary expenditures temporarily until you’ve managed to save enough to buy that ring. 

Wait For Sales And Discounts

Your significant other doesn’t have to know that you bought their ring on sale. Regardless, buying a ring when it’s on sale is a great way to save a few bucks. Keep your eye on jewelry stores in your area and wait for a sale to be advertised, then make your move.

Consider White Gold Instead Of Platinum

The actual metal part of the ring can make a huge difference in the price that you end up paying. Typically, platinum can be more expensive than gold. So, instead of opting for this precious metal, consider going with white gold instead to help you save quite a bit of money when shopping for your engagement ring. 

Go Easy On The Carat Weight

You’ve heard of 1-carat, 2-carat, or even 3-carat diamond rings, right? Well, every notch you go up in weight will cost you. The thing is, the carat weight won’t necessarily influence the beauty or value of the diamond. So, consider keeping carat weight low if you’re looking to save some money on this big purchase. 

Choosing The Right Engagement Ring Financing Option

As discussed above, you have several options to choose from once you decide that financing an engagement ring is the right choice. If you’re ready to take out a loan to finance your engagement ring purchase, let Loans Canada point you in the right direction. We can match you with the best option based on your unique financial situation.

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