You might not know this, but over 50% of all marriages end in divorce. It is always a good idea to start your marriage with the best chance of succeeding. One way to accomplish this is by purchasing an engagement ring that you can afford instead of putting it on credit. Suppose you are experiencing financial difficulties due to the downturn in your job security or economy. In that case, purchasing the perfect engagement ring may be challenging without taking out a loan. Many different types of loans are available, and each has its own benefits and drawbacks. The three most common types of engagement ring financing are wallet loans, pawn loans, and private lenders like banks or friends/family members (peer-to-peer lending).
Why Should You Finance an Engagement Ring?
Many engagement rings cost anywhere from $2,000 to upwards of $20,000. Although this may seem like a good idea since a divorce could occur, you should consider your investment in your partner. The engagement ring symbolizes your love for each other and is something you will wear on your hand for the rest of your life. Buying an engagement ring is not the same as purchasing a toy.
However, if you engrave the inside of your engagement ring with an expensive message, you buy a piece of jewelry that will last forever. Therefore, if things do not work out (such as You lose your job or find out that your partner is cheating on you), it may be difficult to sell off or pawn off the valuable gem. It can lead to financial hardships and heartaches in the future, should this occur.
Things to Avoid:
0% APR Introductory Rates:
Banks and other lenders often advertise a 0% APR introductory rate that can last anywhere from 6 months to 2 years. Although the interest is “0” percent, the money you borrow will have to be paid back within an allotted time frame. Therefore, consider paying off your loan as soon as possible to avoid penalty fees.
If you are comfortable with taking out a loan for engagement ring financing and expect to pay it off in one year or less, then this financing option may work for you. However, many people cannot repay their loans in time and end up paying double what they initially borrowed. The lender may increase their interest rate to 36% to cover their losses.
Low-Interest Credit Cards:
One good way to finance the ring is by using a credit card. A credit card with a low-interest rate usually has a long-term (6 months to 3 years) 0% APR. However, if you fail to pay off your balance, you can be charged up to 18% on your purchases. Therefore, read the fine print before applying for any credit cards or loans to make the most educated decision possible.
Safety of Pawning/Buying Jewelry:
Pawn shops and jewelry stores are only sometimes honest in their pricing and may sell you a fake ring even if it is different from what you want. Furthermore, pawning and purchasing jewelry may be illegal in your state. Therefore, you should research before purchasing jewelry and avoid unnecessary legal complications.
Online vs. Brick-n-mortar Loans:
Engagement ring financing is complicated in the current economic climate. Banks are not lending money to individuals as quickly, which has created a supply and demand for alternative lending options in the market. Interest rates for loans from banks or credit unions may range from 3% to 8%, whereas peer-to-peer lending rates can be higher at 14%. The high-interest rates with peer-to-peer lending are due to the risk of defaulting or bankruptcy.
Sometimes banks or lenders may charge up to a 2% fee for taking out the loan. A credit card may offer a 0% interest rate, but the interest accrues daily. You will have to pay it off monthly or be charged interest on top of your original loan amount. You may be offered perks to get approved for a loan, such as 1-year free insurance, cash back rewards, security systems, etc. It is something to consider as these perks may not be free, but they are nice perks nonetheless.
Aggressive Collection Policies:
Many banks and lenders have a collection policy that allows them to charge you up to 25% of the outstanding balance each month. It is in addition to any fees they may charge you for taking out the loan. If you want to finance an engagement ring without taking out a loan, there are many different options that your public library can offer. Since most banks and other lending institutions are reluctant to give loans, libraries can offer financing through peer-to-peer lending, pawn shopping, and credit card borrowing.
It would help if you thought about how difficult it will be to repay the money and how you will handle certain situations that arise. If you are unsure what type of loan to take out, consider finding a credit counselor or friend to help you decide. Additionally, look at these tips before shopping for engagement rings, and avoid any unnecessary pitfalls like the ones l