How to Finance an Engagement Ring

The desire to pick the perfect engagement ring can make staying within your budget difficult no matter how much money you've set aside. If you’re not paying in cash, the choices for financing the engagement ring of your soon-to-be fiancé’s dreams can also have unpleasant financial consequences. The time to think about financing options is before you start shopping -- not in front of an eager salesperson at the jewelry store.

Options include in-store layaway or financing, charging the ring on a credit card, or a taking out personal loan from a bank or a family member. Each one has advantages and disadvantages that are important to consider before making a choice.

In-store Financing Options

Layaway

If you choose the ring well in advance of the planned engagement date or don’t mind waiting to pick up the ring until it’s fully paid for, an in-store layaway program can be a good -- and interest-free -- financing option. Many stores offer free in-store layaway where you make a down payment and pay the remaining balance in monthly installments. For example, the store might require a 10 percent down payment and then spread the balance over 10 installments.

One potential disadvantage to an in-store layaway program is that the monthly payment might be pretty high, especially if you only make the minimum down payment. There's also the possibility of losing the ring and some or all the money you’ve already paid if you miss a payment.

In-house Credit

Many jewelry stores offer an in-house credit card with an interest-free introductory period. Although this means you can take the ring with you, it could also significantly increase the cost of the ring if you don’t pay the outstanding balance within the interest-free period. Depending on credit card laws in your state, interest rates might range as high as 18 percent to about 25 percent after the introductory period is over.

Use a credit card interest calculator to see how much you’ll actually pay by extending the repayment period. If you choose this option, read the terms and conditions carefully as some stores might add interest charges starting from the purchase date if you don’t pay in full within the interest-free period.

Bank Credit Card

The main issue with using an existing credit card to finance your engagement ring purchase is that there usually is no interest-free period. However, the interest rate may be far less than with a jewelry store card. If you have a solid credit history, opening a new, balance transfer credit card account with an interest-free period can be a good alternative.

Personal Loan

Personal loans typically offer repayment periods up to about 48 months. However, the interest rate you’ll pay depends mainly on your credit score and can be as high as with jewelry store financing. If the lender will accept the ring as collateral, you may qualify for a lower interest rate, but you could lose the ring -- or anything else you offer as collateral -- if you default on the loan.

Another option is to borrow money from a family member. If you choose this option, treat it like a business transaction, complete with a formal loan agreement.