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Don't Get Trapped Into A Low Interest Jewelry Store Credit Card

Low interest jewelry store credit cards Jewelry store credit cards can be a slippery slope. If you don't pay off your balance in time you can end up owing more in interest than the ring.

An engagement ring is one of the biggest purchases you’ll make in your life. While avoiding debt and paying cash is always the best way to go, you shouldn’t feel bad for financing an engagement ring. A recent study showed that nearly two-thirds of Americans don’t have enough to handle a $1,000 emergency expense. Considering the average engagement ring costs $5,000, it’s easy to see why financing is a popular option.

You’ve finally decided to purchase a ring, but you currently don’t have enough saved up to buy that ring she wants. After talking to a jewelry store salesman, you’re not confident you can pay off the balance within 12 months on a No Interest credit card promotion. You would prefer to pay off your ring over 36 months and you’ve come across another common jewelry store financing promotion: the low interest jewelry store credit card.

In this post, we are going to help you understand how these low interest credit card promotions work, as well as some other credit card fees and terms to be aware of.

How Does A Low Interest Credit Card Promotion Work?

If you’ve read our previous post on No Interest credit cards, then you’ll be pretty familiar with how a low interst credit card works. Here’s a table of the general differences between a No Interest credit card and a low interest card:

Terms No Interest Card Low Interest Card
Promotional Period 12 to 18 months 24 to 60 months
Introductory APR 0% 7.99% to 9.99%
Standard APR 17.99% 28.99% 27.99% to 29.99%
Minimum Purchase As low as $500 As low as $2,000
Deferred Interest? Yes No

Generally speaking, low interest credit card promotions offer longer terms, has a higher introductory APR and requires higher minimum purchases. However, the biggest difference from a no interest credit card promotion, is that low interest credit cards typically don’t charge deferred interest. Which means, if you don’t pay off your balance before the end of the promotional period or if you make a single late payment, you will not be charged interest retroactively on the entire amount from the initial date of purchase.

Instead, your APR will jump to the standard APR of around 28.99% (which, mind you, is nearly double the national average credit card rate of 16.93% ) until the remainder of your balance is paid off.

How Much Will You Owe?

Below is a simple example of a low interest credit card with the following terms:

Purchase Price Promotional Period Introductory APR Standard APR
$5,000 36 months 9.99% 29.99%

In this scenario, you purchase a $5,000 ring with a low interest credit card. As long as you don’t make a late payment, you will pay 9.99% for the first 36 months and 29.99% thereafter until the balance is paid off. Below, we’ve illustrated the difference in interest you’ll pay if you pay off the balance right at the end of the 36 month promotional period versus if you pay the balance off 7 months later. In both scenarios we are assuming you are making equal monthly payments.

Low Interest Credit Card Promotion Example This is a very simple example for illustrative purposes. You can actually owe a lot more if you don’t pay off the balance shortly after the promotional period ends

As you can see, by paying off the balance 7 months after the promotional period, you’ll end up paying $215 more in interest (or about 4.5% of the purchase price) compared to if you paid the balance off in time. While this is far less of a punishment compared to a No Interest credit card, you definitely want to make sure you can pay the balance off in time since the longer term means that there’s more time for you to fall behind and therefore more time for interest to accrue on your balance. Case in point, see the next section on minimum payments.

Minimum Payments

Most credit cards will have a minimum monthly payment that’s either a fixed amount - often $27 - or a percentage of the current balance (typically 1% or 2%), whichever is greater. While making the minimum payment helps you avoid late fees (and triggering the standard interest rate!), making these minimal payments will barely pay down your balance. Furthermore, for every minimum payment you make, you’re just digging yourself in a bigger hole that’ll you need to climb out of by making a big catch-up payment down the road. Of course, if you don’t make that catch up payment, then you’ll end up paying a lot in interest.

As a fairly extreme example, we’ve illustrated how long and how much it would take to pay off a $5,000 balance at various APRs if you paid 2% of the balance every month. As you can see, if you paid 2% of your balance on a 20% APR card, it would take you a whopping 56 years to pay off your balance and you’ll end up paying $22,000 in interest or 440% of your purchase price!

Credit card minimum payment example Making the minimum payments will leave you paying off your credit card balance for a long, long time

Other Fees To Be Mindful Of

So far we’ve been focusing on the interest component of jewelry store credit cards. Another thing to be mindful of are the other fees that these credit cards tack on. Most credit cards will charge late fees of up to $39 for every late payment as well as return fees of up to $39 if your payment gets returned. This can be a pretty big triple-whammy if one of your payments get returned, since you’ll pay $78 in fees and you’ll have to start paying the standard interest rate. With that being said and leaving on a positive note, most jewelry store credit cards do not charge an annual fee.

Is A Low Interest Credit Card Right For You?

Paying 9.99% over 36 months is a relatively low interest rate to pay (although you can find better rates elsewhere) if other financing options are not available. If you are absolutely confident that you can allocate enough of your monthly income to make payments well above the minimum payment over several years then a low interest credit card could be right for you.

In our next post in this series, we’ll roundup some of the most common jewelry store credit offers and their terms.

Gage Diamonds Financing

At Gage Diamonds, we think there’s a better way to finance your engagement ring. Unlike other jewelry stores, we have an exclusive, in-house financing partner. We make our “interest” by sourcing our products at wholesale prices and offering them at competitive retail prices. By partnering directly with our financing partner we can offer true 0% APR financing to our customers. That means no promotional periods or standard interest rates. What you see at checkout is always exactly what you’ll pay.

If you are interested in financing your engagement ring, wedding ring or other fine jewelry, please visit our financing page to learn more and apply.