You have given it a lot of thought and are ready to pop the question to the girl of your dreams. It goes without saying you want want to get her the best ring you can within the budget you have allotted for yourself. You take a stroll to the local jewelry store and see a sign in big, bright letters that reads, “0% Financing on All Jewelry Purchases!” You immediately raise an eyebrow and think to yourself, “is this too good to be true?…They will loan me money for 0% and I can pay it off over a long period of time?” The short answer to your question is yes, this is too good to be true. This 0% comes with the normal microscopic fine print and caveats that every other credit offer comes attached with. At the end of the day you could be paying 2-3x more than the sticker price you agreed to! The Engagement Specialist recommends a few other approaches to getting the perfect ring that won’t leave you feeling cheated or have you digging in your couch for loose change.
Jewelry stores offer these very attractive offers for a few reasons. The first being they want to make it extremely easy for you to spend a lot of money with them. Psychologically we know that handing someone a $100 bill is very different than handing them a card and swiping it for the same amount. Jewelry stores bank (literally) on this trick to get you to effortlessly spend your money with them. Another reason they do it is because along with that same principle you will also tend to spend more than your budget when you don’t see the green money being retrieved from your hands. They hope a thought bubble pops in your head reading, “what’s another $2,500? I make decent money and I can pay that off over time.” You shouldn’t over extend yourself. She will love you just the same and of course love her ring equally even if you don’t spend that $2,500.
Now let’s talk about that part you will need a pair of binoculars to read. That tiny fine print most jewelry stores hope you brush over as you eagerly look for the dotted line to put your signature on. When you get approved for financing and make your purchase the jewelry store gets paid immediately by the finance company. That finance company then assumes the burden of collecting the money from you. That 0% percent offer that was so attractive initially starts to look less attractive when you unravel the details. First, that 0% usually is only for the first 12 months of the loan. If you actually are able to pay off your balance within 12 months then this is actually a pretty decent deal. However, 90% of people do not pay off the balance within a 1- year period. Keep in mind that if the average ring costs $4,000-$5,000 that could be a monthly payment of $333-$416. In other words…a very nice car payment! We all know that life happens and unexpected costs come up. Let’s say the monthly minimum is $100 and you decide on the 3rd month only to pay that amount. Unless you make up the difference you will find yourself going over the 12 month grace period. Also, if you happen to make a late payment or not pay the minimum monthly amount you could immediately forfeit the 0%. At this point, something known as deferred interest kicks in. What this means is that they will back charge you the interest on the date of purchase and not when you missed the payment. So if you are on track to pay off the balance in 1-year and on month 11 you accidentally miss a payment you could owe huge interest on every payment starting from month 1!
So what is this huge interest I keep referring to? It could easily be an interest rate of almost 30%! Yes, you read that correctly! And here is the biggest catch of all. When you go over the 12 month period deferred interest kicks rears its ugly head again. What that means is that since you didn’t pay off the balance in the 1-year period you will be charged the full variable interest amount from the date of your purchase. That all gets added to your bill with the lending agency! For example, if you bought a ring for $5,000 and paid off $2,000 after the first year you would then owe $3,000 when the 0% offer expires. Let’s say the rate after the 1-year period is 26%. Since you didn’t pay it off in time you will owe 26% on the whole $5,000. If you aim to pay it off in 3 years that $5,000 ring now costs you $7,252.20!
Here is what we at Brilliance In Diamonds – The Engagement Specialists recommend when you find yourself wanting to possibly finance a ring.
- Know what you can afford and set a budget for yourself. Then stick to it.
I know what you are thinking as you are in the jewelry store…”That 1ct diamond looks a lot better in the setting than the 0.90ct does and it’s only another $1,500.” In reality, it isn’t that huge of a difference and she will love you and the ring just the same if you get the 0.90ct. Stay strong!
- If you absolutely must finance the ring never do so at a jewelry store.
You know all those 0% credit card offers from your local bank that you get in the mail? Those are usually much better. Yes, those are also 0% for 1-year and the rate increases after that time period is over. The difference is that banks offer a variety of credit cards and some may not include the dreaded deferred interest charge described above. They will also be more willing to negotiate the annual percentage rate whereas lending agencies that offer financing for jewelry stores usually won’t. Your local banker also won’t be as overzealous as a jewelry store salesperson who just wants the sale at all costs to you. A good banker will advise and guide you to the right option for you and your situation.
- Don’t pay the full markup at a retail jewelry store.
Buy from a diamond jewelry wholesaler who operates on low overhead. If you want the red carpet treatment and a fancy, expensive looking store then guess what…your purchase pays for those beautiful things. All the cases, lights, displays, advertising, huge rent, commissions, etc. has to be paid for before they make a profit. That $5,000 ring from a retail jewelry store could cost $2,500 from a wholesaler. The low overhead of a wholesaler means they don’t have to add in huge profit margins. Diamond jewelry wholesalers offer all of the same benefits that a jewelry store has. The personalized service and diamond/jewelry knowledge of a wholesaler also greatly outweighs what you could get at a typical jewelry store.