So, it has come to that moment, the one that your significant other has silently been waiting for. It is time to propose and to do that, you need a ring worthy of the occasion. And if you are like most would-be grooms, you probably want to get the best ring possible.
According to statistics, a diamond engagement ring could cost anywhere from $1,000 to $5,000 and the national average in North America is roughly $6,000. In fact, it is commonly suggested that you should spend 2-3 times your monthly salary as a guideline.
Depending on your monthly income and expenses, buying an engagement ring can put a tremendous strain on your finances (especially those fresh out of grad school). One of the methods to alleviate this issue is via financing and buying on credit.
In this write up, we will explore the various options available and find out how to finance an engagement ring the smart way…
The fintech industry has remodeled the lending market in many ways by bringing in finesse, ease of accessibility and most importantly, increased competition. In the credit market, the bigger players provide borrowers with a variety of standard options while the smaller players usually offer more flexible products.
In recent times, one of the most popular developments in the jewelry industry has been the emergence of 0% interest financing options . Basically, the zero interest rate is a promotional period provided by the retailer during which the customer must repay the full amount of the item purchased or risk paying high interest rates.
Kay Jewelers offers their clients a 0% interest financing plan. This 12-month promotional plan requires buyers to pay the whole amount in full before the end of the period. Failure to comply results in interest charges of 17.99% to 24.99% depending on your creditworthiness. In order to quality for this financing option, you are required to make a down payment of 20% and the minimum purchase amount is $500.
Jared also has a similar financing option which offers 0% interest for a 12-month repayment term. Again, interest rates after the expiry period can go as high to 24.99% depending on the state you reside in. A minimum monthly payment is required and this financing option is offered to jewelry buyers as a personal loan.
Zales is a company that is suitable for people who prefer to make a smaller down payment. This retailer offers a 0% interest financing option and requires buyers to make a 15% down payment. The minimum spend must be at least $750 for a 1 year term.
Those going for the 36-month payment plan must spend at least $1,500 to qualify for the 0% interest rate. After expiry of the promotional period, the APR (annual percentage rate) can go as high as 29%.
Tiffany & Co. is one of the few publicly listed jewelry companies which offers 0% interest financing plans. Their 12-month plan requires buyers to make a down payment of 25%-80% depending on their current credit standing. This down payment also determines how much the buyer will pay monthly with amounts ranging from $25 to $93. Like Jared, Tiffany’s plan is packaged to buyers in the form of a loan.
The Citi Diamond Preferred Credit Card – The 12-month option requires customers to make a monthly payment of $125 for a $1,500 ring. Failure to settle the payment in time results in an interest rate charge equivalent to the regular APR of the borrower as per their creditworthiness.
Citi Diamond Preferred Credit card also has a 36-month repayment option for those buying a ring of at least $3,000. In this case, buyers pay low interest at about 14% to 24% depending on the credit score of the buyer. And of course, if you fail to settle the payment in full within the stated term, the standard APR kicks in and rates can go as high as 29% depending on the buyer’s creditworthiness.
I know some readers would be excited to see and explore the 0% interest financing options offered by retailers. After all, if you take things at face value, it sounds like a good deal since you are getting “free money upfront” to alleviate short term cash flows.
However, the catch is embedded on the likely situation that the buyer fails to pay the amount in full within the term of the offer. As you can see in the numbers above, the APR rates charged upon the expiry of the payment period are exorbitant. The flipside is that this can easily tie the buyer in an unending credit cycle.
If you can handle repayment plans responsibly and have a calculated plan to pay back in full before term ends, making use of credit to purchase a diamond ring would make sense. Otherwise, I advice readers to save up cash for full payment instead of adopting a “buy now, pay it later” attitude.
The emergence and improvement of e-commerce technologies have provided exciting alternatives for consumers to shop at the comfort of their homes and away from pressurized sales environments.
Due to better quality diamonds and lower prices, online shopping for engagement rings has gained a lot popularity in recent years. Besides better sales policies, online retailers also offer attractive plans for financing a ring.
Here’s a quick rundown of offers from reputable online retailers:
Blue Nile is one of the top online jewelry stores that provide zero interest financing plans to customers. The company has a handful of plans with the main ones being the 6-month, 12-month, and 18-month options.
The 12-month plan, which is offered as a loan requires buyers to spend at least $1,500 and has a low monthly payment of $125. The 18-month plan offered through Astor by Blue Nile requires buyers to spend $2000. Failure to pay in full the amount within the term period of the plan results in full interest charges from the purchase date at the Standard Variable APR, which can be as high as $29%
Blue Nile also offers buyers another option with a promotional APR of 9.99 for 24 months, 36 months, 48 months and 60 months periods. Minimum purchase range from $2000-$2,999.99, $3000-$3,999.99, $4,000-$5,999 and $6,000 or more, respectively.
James Allen is another renowned online store that specializes in engagement and wedding rings. This retailer offers special financing plans through the LJC credit card program.
The first option they have is a 0% interest 6-month financing plan that requires buyers to spend at least $1,000. Buyers must pay the full amount before the 6-month period expires. Failure to do so results in interest rate charges of 28.99% to 29.99% which apply retrospectively to the time the purchase was made.
There is also a similar 24-month plan which attracts interest charge of 9.90% APR with 24-monthly payments. The minimum purchase amount for this plan is $2,000.
On GetFinancing, the buyers have access to multiple lenders through various online lending platforms like LendingClub, AvantCredit and First Mutual Finance, among others. This ensures that they are charged competitive rates depending on their credit standing.
Through Affirm Financing, Brian Gavin Diamonds customers can choose flexible lending options of 6, 12, and 18 months depending on their budget. Interest rates will vary from 10% to 30% based on your creditworthiness. In short, Brian Gavin Diamonds does not provide any deferred interest options commonly offered by other jewelry retailers. This makes their terms straightforward with no hidden fees.
Helzberg Diamonds is another jewelry retailer that provides zero interest ring financing options via their in-house credit card. They have 6-month and 12-month 0% financing plans with the latter requiring a purchase of at least $750.
There is also a 36-month option which attracts 7.99% to 17.99% APR and equal payments for 36 months on purchases of at least $1,500. The 60-month option has 9.99% APR and equal monthly payments for 60 months on purchases of at least $5,000.
In my opinion, the only form of retail financing you should ever consider are the 0% interest plans that require full payment within a prescribed period. Ideally, you incur no charges at all if you service your payments on time and regularly.
However, you need to be aware that retailers will penalize buyers ruthlessly for failing to make monthly payments on time. Most of these plans have clauses that would result in full interest charges at standard APR from the date the purchase was made, with rates ranging from 10% to as high as 30%.
In short, finance companies are banking on you (pun intended) to miss the monthly repayments because that is how they make money! So, what other alternative methods of borrowing money and raising funds are there available?
• Borrowing money from family and friends: Coming from an Asian perspective, I know some people may find it a little hard to pursue this option due to social stigma. However, this is one of the most effective and least expensive ways to finance an engagement ring.
Since you are borrowing from a friend or a family member, chances are they won’t charge you interest. And there’s no need to feel ashamed if you are asking for help from someone close since you can keep the details of the soft loan private.
• Peer-to-peer (P2P) lending platforms: P2P lending has become one of the most popular methods of financing expenditures. Whether you are getting a loan for asset finance or trying to service a portfolio of existing credit card debts, platforms like LendingClub offer solutions to various needs . The good thing about these platforms is that borrowers can assess several offers from lenders (who are essentially investors) and pick the one that compels them most.
• Max out your low interest credit card first: While credit cards generally attract high interest rate charges, this is nothing compared to what jewelry retailers charge when a buyer fails to comply with the 0% interest promotion terms. So, if you have a low interest rate credit card that’s not maxed out, it makes sense to go the method that incurs the least cost.
• Take a personal loan: Jewelry stores charge exorbitant interest rates. If you know beforehand that you cannot comply with the terms of the retailer’s promotional offers, it is better to get a loan from a 3rd party. Mainstream lenders often provide competitive rates on standard personal loans compared to rates offered by jewelry retailers.
For instance, according to the U.S. Bank Association, the current lending rates range from 7.49%, which is way lower than what jewelry stores charge for failing to comply with 0% interest financing option terms.
• Pay cash: If you have the money, why not pay in full? This will save you a lot of money that you would have otherwise spent on interest costs. If your regular income cannot accommodate the expense, you can also add an extra hour or two to work part-time on a side project to build up some savings.
Apart from a house and a car, an engagement ring is probably the most expensive purchase that you would ever make. However, you can still take advantage of special situations and shop smart in order to lower your costs.
Here are some tips you can use to reduce the cost of an engagement ring:
• Your engagement ring does not have to be overly expensive. If you cannot afford a $5,000 diamond engagement ring, it is perfectly OK to buy a $2,000 ring. According to a report published by The Knot, most partners have no problem upgrading to a more expensive ring later in life, say on the fifth or 10th anniversary. Bear in mind that there is no need to go beyond your current means.
• Shop for diamonds below popular carat weights: The pricing of diamonds is somewhat irrational when it comes to carat sizing. For example, the price of a 1.0 carat ring cost significantly more than the price of a 0.90 carat diamond ring even though it is hard to tell the physical difference between the two rings.
You can also choose to go for a less expensive diamond cluster ring or a halo ring design to make the center stone appear bigger rather than buying a single large diamond solitaire ring.
• If you opt for a repayment method, take your time to assess the best plan that is suitable for your needs. Keep an eye on the potential impact of the deferred interest on those zero interest financing plans. Make sure you read all the fine print and find out all the costs that would be involved. And if you need help with crunching numbers, you can always make use of a credit calculator to make the task easier.
• Take advantage of seasonal offers: Every so often, engagement ring retailers would offer discounts or run promotions during special occasions like Valentine’s Day or Christmas.
The point to take note here is that high quality diamonds NEVER go on sale and these promos are usually restricted to savings on the setting. If you are able to shave a couple of hundred dollars off the total cost, it could mean a big difference especially if you are running on a tight budget.
Financing is a double-edged sword that can ease your cash flow needs and on the other hand, it can also put you deeper into unnecessary debt. If you do plan on buying on credit, make sure you do your research in a clear mind and read the fine print carefully. To avoid unnecessary surprises, make sure you fully understand the terms and conditions as well as the fees involved.
In the grand scheme of things, an engagement ring is only part of the marriage. Beyond the proposal, there are other considerations like home ownership and wedding expenditure to take care of. Straining your finances for a diamond ring is actually detrimental to the relationship and you don’t want to start off a new life on a bad footing.
At the end of the day, you should approach the purchase of a diamond ring wisely. And being a practical shopper myself, I recommend shopping online at retailers like Blue Nile, James Allen and White Flash where you can get better selections, customer service and prices.