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Should You Finance an Engagement Ring with a Credit Card?

Financing your engagement ring purchase with a credit card. If you're thinking of buying your engagement ring with your credit card, here are some things to think about.

When it comes to a big purchase like an engagement ring, few people have enough cash saved to pay up front.

That’s why finding the right financing plan has become just as important as finding the perfect ring.

Unsurprisingly, store credit cards are a popular option for engagement ring financing. Many offer 0% interest promotional rates, which means if you pay off your balance in time, you could avoid owing anything beyond the price of the ring.

These credit card offers are rarely as rosy as they seem, however. Without careful planning, you could end up owing more than you spent.

Let’s take a look at some of the pitfalls of credit card financing – and how you can shop smart as you hunt for the ideal ring.

What Is Deferred Interest?

Many companies in home goods, furniture, healthcare, electronics and jewelry partner with private label credit cards to create in-store financing. When these companies advertise 0% interest, what they really mean is deferred interest.

This can be a problem, since 82 percent of Americans don’t know what deferred interest means.

Here’s how deferred interest works: Cardholders get a set amount of time – usually a year – to make interest-free payments on a large purchase. If they pay the entirety of the balance before that grace period ends, they avoid interest entirely. However, if they have any remaining balance – even one dollar – they owe interest on every dollar they spent.

Of course, deferred interest is a great option for some people, but it’s a bad option for many. Only half of subprime buyers successfully pay off their balances by the end of the promotional period. That means 50 percent get stuck paying interest – at the average retail APR of 24%.

Credit scores aside, one quarter of all deferred interest card-users will fail to pay their balances in time. As a result, more than a third of cardholders pay 50 percent more than the original purchase price.

How Honest Are Retailers?

It’s important to be cautious and do your research when dealing with deferred interest credit cards. Take a hard look at your jewelry store’s financing plan. Does it boost sales by ensuring customers aren’t inhibited by bad credit or meager savings? Or does it reel customers in with vague terms that mask hidden costs?

A 2018 Wallet Hub report found that:

  • Most retailers don’t list the regular APRs of deferred-interest financing plans in large enough font or in a prominent location
  • Retailers have not taken steps to improve the transparency of their financing in the last four years
  • Zales ranked in the top three least transparent companies, in terms of in-store financing
  • Only three banks issue 88 percent of deferred-interest credit cards: Synchrony, Citi and Comenity.

Unfortunately, jewelry stores are some of the worst offenders. Customers who use the deferred-interest card from Zales, for example, get hit with 28.99% APR if they miss a monthly payment or end the promotional period with a balance. That’s the second-worse rate in the entire retail industry.

What If I Don’t Pay My Balance in Time?

Deferred interest is costly, but store credit cards can lead to larger problems.

If you continually make the minimum payment on your balance, an increasingly large chunk of your payment will be applied to the interest – not the balance itself. If your balance is high and the interest is high (as is common with store credit cards), your monthly payment might not even cover the mounting interest. That means you could make your payment each month, and the amount you owe could still be growing.

Credit card companies intentionally calculate minimum payments this way, and many people spend decades paying off balances that began as relatively small.

If you cannot make your monthly payment, the credit card company will likely reach out in at attempt to get the money. These reminders are often persistent and unpleasant.

Remember Synchrony Bank, one of the three largest providers of deferred-interest retail credit cards? The Consumer Financial Protection Bureau reported that Synchrony engages in “heavy-handed collection tactics”, like calling cardholders at work, calling up to 20 times a day, and threatening to arrest cardholders.

Needless to say, retail credit cards are a risky option. If you’re not fully informed of the pitfalls, the costs can quickly outweigh the benefits.

What Are My Other Options?

One alternate option is to open a new credit card (not a retail card) with a 0% introductory APR. Some cards don’t have lurking deferred interest – after the promotional period, they just switch to an ongoing interest rate. If you pay off your balance in time – great. If not, you don’t owe any retroactive interest.

There are two potential problems with this approach. One is that these cards are generally only available to people with excellent credit scores (above 700).

The other is that there are still costs associated with a card like this. For example, if you miss a payment, you’ll likely lose your 0% APR and be switched to the ongoing rate. While that rate will be better than a retail card’s, standard credit card rates are rising, and that trend is expected to continue.

Also, don’t forget about credit card fees. Opening a new credit card should involve plenty of research about the various associated fees.

Another option is to go with a transparent in-store financing program like the one at Gage Diamonds. Gage’s setup is unique in that it provides zero-interest financing without the threat of deferred interest.

When a customer wants to finance a ring, Gage performs a holistic financial evaluation – not just a credit check – so shoppers with low credit scores can still finance as long as they have a steady job and a checking account in good standing. Buyers choose a financing plan and make payments straight from their checking accounts, with zero interest and no hidden fees.

Gage earns money by buying products wholesale and selling them at a competitive retail price. This allows the company to offer in-store financing that is not designed to make a profit at the expense of customers.

Visit the Gage Diamonds financing page to see if you qualify.