The pros and cons of engagement ring financing
No one is going to ask their partner's hand in marriage anticipating a resounding no, but unfortunately this does happen. What happens to the ring if you had it financed?
If you financed the ring through a loan, things can be a little tricky. Although it is possible to find a loan provider that will let you out of the loan agreement before it has been paid back, the catch lies in the fact that it is not easy to get out of a personal loan if you have already used the money to buy something. If you find yourself in this position, you can check if your lender charges prepayment fees. Although you will still be liable for interest that has accrued, you will be able to pay the loan off early.
What about a credit card?
Opening a retail credit card is an act that might affect your credit scores, in particular if the line of credit that is given to you is not very much more than what you charge. During your application process for credit, scoring models compare the credit you have available to your balances, resulting in what is known as your debt usage ratio. If the total of your balances comes to more than 20 to 25 percent of the credit you have available on any given credit card, it could be detrimental to your credit score.
Another pitfall to look out for is that certain plans may offer interest-free financing for the first 12 months. If you take longer than that to pay your amount owing, you will be subject to huge interest rates until the end of the loan period.
The good and the bad
Taking out financing for an engagement ring comes with both good and bad aspects. Let's break it down:
Even if finances are running low, you can still access the ring you would want in an ideal world. A loan would give you the flexibility to buy the ring now and pay it off later.
The process of taking out a loan as quick and not difficult. Sometimes you can even get your approval by the following day.
If you shop carefully, you could take advantage of interest free offers, but bear in mind it is only efficient if you pay off the loan within the 0% interest time.
Debt! The old adage says that if you live beyond your means, you have to work double to compensate. Remember that skipping payments or defaulting on your loan can have disastrous effects on your credit score.
High interest and you paying far more for a ring than what it was actually worth.
Juggling the math. Good credit ratings mean lower interest, while a bad credit rating means higher interest. Even if your credit rating is low through no fault of your own, you will still be subject to higher fees if this is the case. To really benefit from whatever your financing situation is, you will always be on a better foot if your credit rating is high.