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Is A Personal Loan The Best Way To Pay For An Engagement Ring?

If you use a personal loan for an engagement ring, you're guaranteed to pay interest on the purchase, even if you qualify for a low rate. If you use a personal loan for an engagement ring, you're guaranteed to pay interest on the purchase, even if you qualify for a low rate.

You’ve found your soul mate, but the hunt isn’t over: It’s time to find the perfect ring at the perfect price.

If you don’t have the savings to pay for an engagement ring out of pocket, you’ll likely look for a low-cost financing option.

Personal loans are a less expensive way to borrow than jewelry store financing and lease-to-own options, and their terms are more straightforward than most retail credit cards.

However, personal loans are not without their drawbacks. Here are some of the advantages and disadvantages of financing an engagement ring with a personal loan:

What Is a Personal Loan?

Personal loans generally come in sums less than $25k and are issued by a bank or loan company. Individuals apply for a personal loan, and the loan amount and interest rate depend on the individual’s credit history and income.

If your application is accepted, you will have options regarding the term of your loan. If you choose a longer term, you’ll have lower monthly payments but will pay more interest over time. If your loan term is shorter, you’ll have higher monthly payments but will ultimately save money on interest.

Most personal loans are unsecured, which means the borrower does not offer a home, car, or any other valuable asset as collateral. Because this type of loan is risky for lenders, it tends to come with relatively higher interest rates and more stringent credit score requirements.

Who Is a Good Candidate for a Personal Loan?

Personal loans are an excellent financing option for people with good credit.

First, borrowers can put personal loans toward both ring and wedding expenses, minimizing additional lines of credit and simplifying monthly payments. For example, instead of using a lease-to-own partner for the ring and a credit card for wedding expenses, you could take out one loan for both. That way, you don’t have to juggle multiple due dates and payment plans.

Additionally, borrowers have flexibility regarding the terms of their loans. If you want a low monthly payment, some companies allow up to seven years to pay off your balance.

Lastly, borrowers get their funds quickly. With some loan companies, you’ll receive the money as soon as the next business day.

For people with poor credit, however, personal loans are not as attractive.

Banks and loan companies use credit scores to determine interest rates on personal loans – the lower your score, the higher your interest. If your credit history is less than impressive, lenders may offer you a rate of 30% or higher. With a rate that steep, you can easily pay double the purchase price of your ring over the term of the loan.

A more immediate concern for people with poor credit is that many reputable lenders will not approve their applications. Four of the top personal loan providers – Ernest, SoFi, Upstart, and Payoff – have minimum credit score requirements ranging from 620 to 680. SoFi examines applicants’ income, career experience, and debt-to-income ratio before granting a loan. Upstart looks at work history and education. Ernest requires documented proof of on-time payments.

Borrowers with low credit scores may find that their personal loan options come loaded with sky-high interest rates.

Points to Consider Before Applying

Before you move forward with a personal loan application, here are some additional caveats to consider:

  • How is interest calculated?

    Don’t sign on the dotted line if you don’t fully understand how your interest is calculated and what you’ll end up paying. Essential questions include: Does my interest accrue monthly or daily? Is this a flat interest rate, or is it a compound rate that requires me to pay interest on both the original amount and the interest I accrued?

  • Is there an origination fee?

    Some lenders charge loan processing fees known as origination fees. These range from one to eight percent of the total loan amount. Popular loan companies FreedomPlus and Lending Club both charge origination fees – make sure to research your lender’s fee policy ahead of time.

  • Is there a credit check for applicants?

    Most lenders will perform a soft credit pull at the time of application and perform a hard credit pull if you decide to go ahead with the loan. A hard credit pull might put a small ding on your credit score.

  • What happens if I return the ring?

    No one wants to think about returning an engagement ring, but be aware that personal loan providers can be particularly difficult to deal with if you decide to do so. Your best option would likely be to pay off your loan early and deal with any prepayment fees your lender charges.

Cost-Saving Alternatives

No matter how high your credit score, you can never secure 0% interest on a personal loan.

Gage Diamonds cuts out the financial middle-man by partnering directly with their sister finance company and makes money by buying rings wholesale and selling them at competitive retail prices. That’s why Gage Diamonds is able to offer 0% interest financing for up to 24 months. Additionally, Gage does not rely on credit scores to determine a customer’s eligibility. Customers need only a checking account in good standing and consistent monthly income to qualify.

Paying for your engagement ring and wedding is no small task so don’t pay more than you have to. Visit our financing page to learn more.