For many people, when it’s time to take an intimate relationship to the next level, they want to mark the moment in their lives with a ring that will symbolize such a big commitment. In 2022, the average amount a couple spent on engagement rings was $5,800.1 If you’re interested in learning more about personal loan financing options to afford the perfect diamond ring, keep reading to learn how jewelry financing works.
Finance An Engagement Ring
No matter what you choose, figuring out how to finance a ring can be an expensive purchase. And if you have bad credit, the stress of picking the perfect engagement can be more significant. Without the financing solutions that come with good credit, you may be popping another big question: How are you going to pay for it? Can you get engagement ring financing?
In this post, we’re going to take a look at what it means to have bad credit and how you can work around your score and purchase the engagement ring that will be a perfect fit for your partner—and your budget.
Your Credit Score
Before you begin looking to purchase an engagement ring, it is essential to understand where your financial profile stands. The best way to do that is to know your credit score.
Your credit score is a sort of financial risk assessment of you. Essentially, your credit score tells a potential lender what they need to know about your ability to make your money work for you, such as diligently repaying any money you borrow.
We all know that it’s better to have good credit as opposed to bad credit. Your score affects your financing options the most. Credit scores are calculated by companies called credit bureaus. TransUnion, Equifax, and Experian are the three main credit bureaus that lenders use. A credit bureau reviews your creditworthiness based on the following 5 factors.
This is the record of your late and on-time monthly payments to your creditors. Late fees and unpaid bills weigh the most on your credit. Always pay your bills on or before their due date to keep this factor from affecting your score.
Credit Utilization Ratio
A credit utilization ratio is the measurement of the amount of available credit you’re using at any point in time. For example, if you have a $200 balance on a credit card with a $1,000 limit, your credit utilization ratio is 20%. The lower this number is, the better for your credit.
This lists all the accounts you have had or are currently open. A strong history of accounts in good standing will boost your credit score.
If you are applying for financing on one thing, any relatively new accounts to purchase other things may indicate some erratic spending behaviors.
This is a review of the different types of accounts you have. Managing different types of loans, a line of credit, or payment on installment loans can show a pattern of good financial habits. For example, a personal loan and a credit card.
Do I Have Bad Credit?
After reviewing this data, the credit bureaus typically issue a score between 300 to 850:
|Credit Score Range
|Very Bad Credit
As you can see from the chart above, scores that are 600 and below are considered bad credit. If you are unsure about your score, you don’t have to wait for the next potential lender to perform a credit check. The three major bureaus—Experian, Equifax, and TransUnion—provide free access to credit scores and information about how to improve them.
With the national average of engagement rings close to $6,000, many people look to financing solutions to make this purchase happen.2 Let’s take a look at some of the more popular avenues in engagement ring financing:
Borrowers do not need a perfect credit score to get a personal loan. It’s possible for someone to fund an engagement ring purchase quickly with these loans. There are two types of personal loans available: unsecured and secured loans.
A secured loan is a loan that is backed by collateral or tangible assets like your home, car, or the money in your bank account. An unsecured loan is a loan that doesn’t require any collateral and is only backed by the borrower’s creditworthiness.
Secured vs. Unsecured Loans
With a secured loan, you are more likely to get a low-interest rate. However, if you can’t repay the loan, you run the risk of losing your collateral. On the other hand, unsecured loans usually have higher interest rates but are easier to get approved. For example, for payday loans—one of the most accessible loans to obtain—the approval and disbursement process can take just a couple of hours.
Quick Cash Loans
These loans work best when people can repay them before the end of the loan terms. When considering all the options available, a personal loan may be the best option to get your ring fast.
Point of Sale (POS) Financing
We’ve all seen the advertisements that scream, “Buy Now, Pay Later!” Those ads explain the concept behind the point of sale (POS) financing.
Like any installment plan, point-of-sale financing allows buyers to purchase items from a merchant through a series of monthly payments scheduled over some time. In this scenario, the merchant is the primary lender instead of a financial institution. As long as the buyer agrees to the lending terms and (typically) makes a down payment, the merchant “sells” them the product. The down payment requirement for point-of-sale financing varies by lender.
How Does POS Financing Work?
Merchants make POS financing—also known as a POS loan or in-store financing—available only to customers that open a store credit card. This card is good only at the merchant’s store and perhaps some affiliate or partnered retailers. For example, popular jewelry stores like Zales and Kay Jewelers have credit cards available that you can use to purchase the ring you want outright. Then, you will make monthly payments on that credit card like you would any other account with a balance.
The trick with a merchant-based credit card lies in the details. Interest rates are typically very high, and financing terms can change if a balance remains on the card for more than a year or two.
The New Way To Borrow?
Store cards are known to require a good score for approval, but if you find the engagement ring of your (or your beloved’s) dreams, you should research the details. If you can afford to pay off the card quickly, this option may be a good one for you.
The explosion in online retail has created even more options for the “buy now, pay later” model. Third-party apps and websites partner with major retailers to sell products like engagement rings to their members. Through these services, customers can set up payment plans that will cover the total cost of the item in anywhere from two to four equal payments. As with most online vs. brick-and-mortar retail experiences, these online options offer more convenience.
A Loan from Friends & Family
Another option to finance an engagement ring could come from those closest to you. A loan from a friend or family member could help you avoid the high-interest rates and tight loan terms that come with many lenders.
They could have available funds in a savings or checking account that can be transferred to you as quickly as any other loan, all without the hassle of an application process. If you choose this route, it’s recommended that you put any agreement in writing and stick to it. There’s no reason to let an issue like money bring stress to your most important relationships.
Make a Unique Choice
Who said diamonds were anyone’s best friend? Sometimes, saying “I love you” doesn’t have to require you to open a new account. There are tons of online auction sites and marketplaces where people sell their old jewelry. Additionally, independent jewelry makers and designers sell one-of-a-kind engagement rings made from unique precious stones and metals.
There are even sites like Etsy where buyers can connect with craftspeople who create custom engagement rings engraved with names and particular messages. And nearly all of these options are available at a fraction of the price of traditional jewelry options.
Don’t Get a New Credit Card
Yes, it is possible to get credit approval and finance an engagement ring with one of those cards with a 0% APR. But opening up a new account for a purchase like an engagement ring may be more trouble than it’s worth. Many of these cards only offer that rate for a limited amount of billing cycles after credit approval.
After these special introductory periods, that APR can go from 0% to anywhere from 14%-24%. That means that any remaining balance on that ring will be hit with those surcharges. In addition to the current debt that you may have, remember that every new credit approval has the potential to create a new bill for you and your new spouse.
Frequently Asked Questions About Engagement Ring Financing
Your credit history plays a significant role in determining the financing options available to you. Lenders use your credit history to assess your reliability as a borrower. If you have a history of timely payments and responsible credit use, you’ll likely have more options, even with a low credit score.
Yes, it’s possible to finance a diamond engagement ring even with poor credit. There are several options available, including personal loans, point-of-sale financing, and loans from friends or family. However, it’s important to consider the interest rates and terms of these options carefully.
Progressive leasing is a lease-to-own or lease purchase program offered by some jewelers. It allows you to take home the engagement ring immediately while making regular payments over a specified period. At the end of the lease term, you own the ring. Approval is often based on income and employment rather than credit history, but the interest rates can be quite high.
Improving your credit score can open up more favorable financing options. You can improve your score by making timely payments on all your debts, keeping your credit utilization low, not opening new credit accounts unless necessary, and regularly checking your credit report for errors.
Some lenders or jewelers may offer financing options with no credit check, such as a lease purchase program. However, no credit check loans often come with higher interest rates and fees. It’s important to read the terms carefully and consider whether this is the best option for you.
When choosing a financing option, consider the interest rate, the length of the repayment term, the monthly payment amount, and any potential fees. Also, consider how this new debt will fit into your overall financial picture, especially if you have poor credit. It’s important to choose an option that you can manage without causing financial strain.
A Note from CreditNinja on Engagement Ring Financing
Getting engaged is one of the single most important moments in your life. Finding that special someone is a gift, and it’s natural to show them how much you care with the perfect engagement ring. Most couples end up spending 3% of their total wedding budget on wedding rings.3 The right engagement ring financing option could give you the means to propose a moment that both of you will never forget.
Just remember to consider the full financial responsibility of making a jewelry purchase, including the monthly payment amount, interest rate, and additional fees. The perfect engagement ring doesn’t have to come from the bottom of your pocket—just from the bottom of your heart.