How to Finance an Engagement Ring

Two things people shouldn't rush into are wild investment schemes – and marriage. Both acts have consequences. On the other hand, with Spring just around the corner, the human heart opens like a flower, and so can your wallet. If you plan to pop the question, congratulations, but be smart. You want to spend the rest of your life with your spouse -- not a bunch of wedding-related bills.

Start with the Cost of the Ring

According to Women's Health magazine, the average cost of an engagement ring in 2014 was $2,311. Of course, everyone has their own concept of "average." The average engagement ring cost $5,200 and about 12 percent of couples spent more than $8,000 for an engagement ring, according to an XO Group Inc. 2011 Engagement & Jewelry Survey.

Wedding blogger Krish Himmatramka recommends determining the stress on your finances if suddenly the ring was stolen or lost. If it will hammer you financially for more than three months, you probably overspent.

Paying for an Engagement Ring

Once they get "serious," couples should discuss their dreams, including housing, transportation, employment, education, children, and long-term visions – and paying for the wedding and ring(s). Here are several choices:

  • A good place to start would be an existing savings account, investment or other asset – but leave retirement and emergency savings accounts alone.
  • Many jewelers offer payment plans, but they can be risky. According to USA TODAY, "Major jewelers generally offer financing with the enticement of six months or one year interest-free. But if the ring isn't paid off within the promotional period, or if you're late on a payment, you could end up being retroactively charged 25% interest or more on the total price."
  • Personal loans, if you have good credit, can be a viable option – interest rates at the low end range between six and ten percent. Their fixed rates and payments make budgeting easier, and you can choose a term between one and five years.
  • Putting your purchase on a rewards credit card could get you cash back, merchandise or travel. These cards can come with higher interest rates, however, that would offset the value of the rewards if a balance is carried.
  • Balance transfer cards can provide a zero percent interest rate for up to 18 months. However, most charge a transaction fee of about three percent – probably still a good deal, but be aware.
  • If you're a homeowner, you might finance your ring with a home equity loan. Because this financing is secured by real estate, it's less risky for lenders and much cheaper for you. The main drawback to this option is the fact that home equity loans can have very long terms, and even at a low rate you could end up paying a lot more interest, unless you're disciplined enough to repay the loan ahead of schedule.

Working the System

For people with excellent credit, the best way to pay for an engagement ring might be a combination of these methods – for example, put the purchase on a rewards card, then pay that off with a balance transfer card with 18 months of interest-free financing. Any remaining balance after 18 months could be paid off with a low-interest personal loan. However, this could be risky if your credit isn't good enough to get you approved for these products. And if you can't pay off the ring within 18 months, you might be paying too much.

To narrow down your options, then, the first step is seeing what kinds of financing and interest rates you're offered. LendingTree's free credit scoring tool shows you what rates you may qualify to get on credit cards, personal loans and home equity financing.

Another Option

If your financing options are just too meagre or too expensive, or you decide that you'd rather not go into debt, consider downsizing. Some couples plan from the outset to upgrade the ring with a more expensive one when they can better afford it. Others go with a less-expensive ring and put their money toward an amazing honeymoon instead.

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