When I bought my wife’s engagement ring eight years ago, I paid for it in cash. I was a college student at the time, but I saved up enough money from my full-time job to get a $2,800 ring custom made.
Nowadays, the average engagement ring costs $5,764, according to The Knot. It’s not easy to save that much money, especially if you’re planning for a wedding and other big purchases as you start your life together.
As a result, buying an engagement ring with a credit card might sound like a good idea. Before you do so, though, it’s important to understand the pros and cons of using a credit card for such a large purchase.
When buying an engagement ring with a credit card is a good idea
The average credit card interest rate is 15.32%, according to the Federal Reserve. So, on the surface, paying for an engagement ring with a credit card might sound like a terrible idea. But if you do it right, it could be worthwhile. Here’s why.
You could avoid paying interest
When Lucas Horton proposed to his wife in 2006, he bought the engagement ring with a credit card. The owner and artisan jeweler at Valeria Fine Jewelry in Dallas used a card with a 0% introductory APR. He then paid off the balance before the promotional period ended to avoid interest on the purchase.
“With some cards, you have a year and a half to pay off the ring with no interest,” Horton said. “That should be doable.”
Let’s say you get the Citi Simplicity Card, which offers a 0% APR on purchases and balance transfers for 18 months. An engagement ring that costs $5,764 would require monthly payments of roughly $320 to pay off the balance before the promotional period ends.
If you can manage that monthly payment, getting an engagement ring with a credit card could be a good idea.
You could earn rewards on the purchase
Some other 0% APR credit cards offer rewards on your purchases. For example, the Chase Freedom offers a 0% APR on purchases and balance transfers for 15 months. Additionally, you’ll earn a $150 cash bonus after you spend $500 in your first three months and up to 5% cash back on your purchases.
If your engagement ring is more than $500, that’s effectively a $150 discount off the bat. Plus, you can pay it off interest-free.
It could help you maintain good credit
The most important factor in your FICO credit score is your payment history; it makes up 35% of your score. So, putting any large purchase on a credit card and paying it off over time can boost your credit score.
The pitfalls of buying an engagement ring with a credit card
While the idea of paying for your engagement ring with no interest sounds smart, it’s easier said than done. Here are some potential downsides to consider.
Your repayment plan could go awry
Even if you have plans to pay off the card before the promotional period ends, something unexpected could derail your strategy. If you have a robust emergency fund, that might not be a problem. But if you don’t, an emergency expense or a job loss could throw you off.
If you don’t pay off the balance before the promotion ends, your interest-free debt could turn into toxic high-interest debt overnight.
Minimum payments are tempting
In the example above, you’d have to make monthly payments of about $320 to pay off the ring in 18 months. But the card’s minimum monthly payment won’t be anywhere near that amount. In fact, minimum payments are typically just 1% of your balance plus interest.
As you pay down your debt, that low minimum payment could be tempting, especially if there are other ways you’d rather spend your money. If you’re not sure you can stick to your repayment plan, avoid the risk.
You might not get approved
You typically need good or excellent credit to qualify for a 0% APR credit card — which generally means a credit score of 670 or higher. If your score isn’t quite there yet, applying for a 0% APR credit card could result in rejection, and you’d take the negative hit to your credit score from the hard credit inquiry for no reason.
3 other ways to pay for an engagement ring
If you can’t get approved for a credit card or you’re not sure you want to risk using one, there are other options available. Here are a few ways to pay for an engagement ring other than with a credit card.
1. Income and savings
Cash is the best way to pay for an engagement ring and most other large purchases. If you’re not planning to propose anytime soon, start saving as much money as possible to avoid having to finance the ring at all. That way, you don’t have to bring more debt into your new relationship.
2. Jeweler financing
Some big-box jewelry stores offer promotional financing that’s similar to what you might get with a 0% APR credit card.
“Some of those places are probably a little bit more liberal with who they approve,” said Horton. “So, if you don’t have good enough credit for [0% APR] credit cards, your next best bet might be to go to one of those places that are offering that kind of special financing.”
But these plans are typically deferred-interest promotions. If you don’t pay off the bill in full before the promotion ends, the creditor will apply interest from the original purchase date instead of charging you interest on the leftover amount.
As a result, this type of financing could be even more dangerous than a 0% APR credit card if you don’t pay off the balance in time.
3. Personal loan
Personal loans don’t offer promotional financing, but you might be able to qualify for a low interest rate. The Federal Reserve pegs the average interest rate for a personal loan with a 24-month term at 10.22%. That’s well below the average credit card interest rate.
What’s more, personal loans have set monthly payments and repayment terms, which could be good if you’re worried about falling into the trap of making minimum payments on a credit card.
Take the time to compare top personal loan companies to see if their offers fit your needs.
Take your time and shop wisely
As you consider whether to buy an engagement ring with a credit card or some other way, make sure you get a good deal on the ring itself. Horton recommends working with a small jeweler instead of a big-box retailer.
“If you have just one guy doing almost all the work, their overhead is going to be lower,” he said. And lower costs for the jeweler mean lower prices for you.
Be sure to shop around for your financing as well. For example, if you go the credit card route, look at several 0% APR credit cards before you choose one. And before you apply for a personal loan, research multiple options before settling on one.
Note: Student Loan Hero has independently collected the above information related to the Citi Simplicity Card and Chase Freedom. Citi and Chase have neither provided nor reviewed the information shared in this article.
Interested in a personal loan?Here are the top personal loan lenders of 2018!
|Lender||APR Range||Loan Amount|
|1 Includes AutoPay discount. Important Disclosures for SoFi.
2 Includes AutoPay discount. Important Disclosures for Payoff.
3 Important Disclosures for FreedomPlus.
4 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
5 Important Disclosures for LendingPoint.
6 Important Disclosures for LendingClub.
All loans made by WebBank, Member FDIC. Your actual rate depends upon credit score, loan amount, loan term, and credit usage & history. The APR ranges from 6.16% to 35.89%. For example, you could receive a loan of $6,000 with an interest rate of 7.99% and a 5.00% origination fee of $300 for an APR of 11.51%. In this example, you will receive $5,700 and will make 36 monthly payments of $187.99. The total amount repayable will be $6,767.64. Your APR will be determined based on your credit at time of application. The origination fee ranges from 1% to 6% and the average origination fee is 5.49% as of Q1 2017. There is no down payment and there is never a prepayment penalty. Closing of your loan is contingent upon your agreement of all the required agreements and disclosures on the www.lendingclub.com website. All loans via LendingClub have a minimum repayment term of 36 months or longer.
7 Important Disclosures for Earnest.
8 Important Disclosures for Avant.
* The actual rate and loan amount that a customer qualifies for may vary based on credit determination and other factors. Funds are generally deposited via ACH for delivery next business day if approved by 4:30pm CT Monday-Friday. Avant branded credit products are issued by WebBank, member FDIC.
** Example: A $5,700 loan with an administration fee of 4.75% and an amount financed of $5,429.25, repayable in 36 monthly installments, would have an APR of 29.95% and monthly payments of $230.33
* Important Disclosures for Upgrade Bank.
Upgrade Bank Disclosures
** Accept your loan offer and your funds will be sent to your bank via ACH within one (1) business day of clearing necessary verifications. Availability of the funds is dependent on how quickly your bank processes this transaction. From the time of approval, funds should be available within four (4) business days.
|7.73% – 29.99%||$1,000 - $50,000||Visit Upstart|
|6.26% – 14.87%1||$5,000 - $100,000||Visit SoFi|
|6.99% – 35.97%*||$1,000 - $50,000||Visit Upgrade|
|8.00% – 25.00%2||$5,000 - $35,000||Visit Payoff|
|4.99% – 29.99%3||$10,000 - $35,000||Visit FreedomPlus|
|5.99% – 18.99%4||$5,000 - $50,000||Visit Citizens|
|15.49% – 34.49%5||$2,000 - $25,000||Visit LendingPoint|
|6.16% – 35.89%6||$1,000 - $40,000||Visit LendingClub|
|6.99% – 18.24%7||$5,000 - $75,000||Visit Earnest|
|9.95% – 35.99%8||$2,000 - $35,000||Visit Avant|