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For Better or Worse: The Dos and Don’ts of Engagement Ring Financing

Written by Camille Puschautz on May 18, 2015 in Credit  |   1 comment

Spring has sprung, summer is right around the corner, and wedding season is on the horizon. If you’re planning to pop the question to your significant other this year, one of the first things you should do is consider how much you can afford. According…

For Better or Worse The Dos and Don’ts of Engagement Ring FinancingSpring has sprung, summer is right around the corner, and wedding season is on the horizon. If you’re planning to pop the question to your significant other this year, one of the first things you should do is consider how much you can afford.

According to a study by wedding website TheKnot.com, the average cost of an engagement ring in 2014 was $5,855, but costs and budgets can vary greatly. At Mervis Diamond Importers, which has three stores in the metro Washington, D.C., area, the average ring costs approximately $8,000, says Johnathan Mervis, director of business development at the third-generation family business.

Some buyers opt for seller financing, where they pay for a ring with credit from a lender. “Seller financing” is a bit of a misnomer for jewelry, however, as most small jewelers partner with banks to offer financing to customers.

“We work with reputable financial institutions to help [customers] take advantage of financing,” Mervis says. The financing opportunities vary, depending on the buyer’s needs and where the buyer falls on the credit score scale, he adds.

If you choose to finance your fiancé’s ring rather than pay in cash, it’s important to think about additional costs. Interest can add up over time, and if you miss payments, your credit score could be impacted.

Types of engagement ring financing

There are many types of engagement ring financing. Many jewelry lenders offer deferred-interest or 0 percent interest financing. These plans offer an interest-free purchase, provided you pay off the loan within a certain time period. Mervis says many customers, even those who can afford to pay for a ring in cash, opt for this plan.

“They’d rather invest their extra dollars in the stock market or real estate instead of paying interest on diamonds,” Mervis says.

If you opt for this type of financing, Mervis suggests setting calendar reminders each month so that you can be sure to pay the loan on time. If you don’t pay back your loan within the timeframe, you will end up paying interest starting from the date of the purchase until you pay it off. This is where “deferred” interest comes into play.

There are also equal installment plans, where the customer pays a certain amount each month at a fixed interest rate, similar to a mortgage or a student loan. The interest rate for which you qualify will depend on your credit history and other factors.

You can apply online for financing before you even enter a jewelry store, much like prequalifying for a mortgage. If you’re approved, you’ll have a ballpark amount to begin your search, and you may be able to use that preapproved offer at more than one jeweler. You can also apply for financing in the store.

Your credit score will determine the affordability of the loan—the higher your credit score, the more competitive your interest rate will likely be.

If you’re on a tight budget, you may want to ask a qualified individual to co-sign the loan. Mervis says some buyers even bring their future spouse into the process to cut the cost in half while ensuring that their partner gets the perfect ring.

Mervis says that lenders usually offer promotional deals around Christmas or Valentine’s Day, but these deals could get you in trouble if you don’t pay attention to the terms and conditions. For example, once the promotional period expires, the interest rate may increase. Other financing plans may require a minimum amount that you have to spend, which could cause you to buy a more expensive ring than you would otherwise.

How financing an engagement ring can impact your credit score

Most jeweler financing plans will require a credit check, known as a hard inquiry, which will remain on your credit report for 24 months.

If you finance the ring and end up missing payments, your credit history will also be affected. Payment history accounts for 35 percent of your Equifax credit score, and payments that are overdue can impact your credit score for at least two years.

Many buyers are more willing to use their credit cards vs. using seller financing, Mervis says. A credit card can be less intimidating than opening a new account, and buyers often earn rewards points from using more credit than usual. However, maxing out your credit card will impact your credit utilization ratio, which could affect your credit score. Your credit utilization ratio accounts for 30 percent of your credit score.

Consider your options carefully before rushing out to buy a ring. Your financial goals as a couple, such as paying for a wedding or buying a house, may be more important to your future spouse than having an expensive engagement ring.

The information contained in this blog post is designed to generally educate and inform visitors to the Equifax Finance Blog. The blog posts do not give, and should not be assumed to provide, personalized tax, investment, real estate, legal, retirement, credit, personal financial, or other professional advice. Before making any financial decision, you should always consult with the appropriate professionals who can explain your options, rights, and legal responsibilities, and advise you on any tax, legal, credit, or business implications that may result from those decisions. The views and opinions expressed by the authors of blog posts are their own views and may not be the views or opinions of Equifax, Inc. and/or its affiliates.

1 comment

  1. Christopher C. says:

    Trying to get engagement ring

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