Engagement Ring Finance

According to the 2020 Australian wedding industry report, an average couple spends $5,367 on their engagement ring. Whether the ideal ring costs less or more, you may be wondering how you'll cover the cost. If you haven't saved up, there are engagement ring loans you could apply for. These include in-store financing, buy now pay later and personal loans.

Image: Getty Images

How much should I spend on an engagement ring?

Ever heard of the old "3-month" salary rule? If you have, then you should forget it. There are no rules, only a longstanding marketing ploy by the established diamond company De Beers. How much you should spend on an engagement ring is entirely up to you.

According to a Diamondport survey, couples spend around $5,297.50 on average on engagement rings. That's close to the figure quoted in the wedding industry report. The report also noted that 4% of the respondents spent over $20,000 on their engagement ring, while 1.5% spent over 25,000, and it found that while there was a correlation between income and the cost of the ring, it wasn't always the case.

When you're working out your budget for the ring, there are 2 things you need to consider:

• Your finances and affordability
• Your partner's preferences

The first may be easier to work out than the second. Your partner may have a specific style in mind, but they may also prefer a less-expensive version to an expensive ring with the wrong cut. It's best to work out their preference before making the big purchase.

Diamondport also found that both partners contribute to the cost of the ring around 20% of the time. This may be worth considering if you know they have a preference that exceeds your budget.

That said, it's best to work within what you can reasonably afford. An engagement ring is the first step – there will be other, bigger expenses to consider, like the wedding and your first home. With home loans, especially, having other existing debts could have unintended consequences on how much you can borrow. It might be best if you wait a while and save for the occasion instead.

How can I finance an engagement ring?

Sometimes your heart moves faster than your savings. If you can't pay for the ring outright, here are some options you can consider:

• Interest-free finance. Providers like Zip and Afterpay allow you to buy now and pay interest-free in instalments. Depending on the provider, the instalments may be short, ranging up to 8 weeks. While this option is interest-free, you should consider the loan term and whether you can repay the loan during this period. Late fees will apply if you fail to make your repayments on time.
• In-store finance. Many jewellery stores, including Michael Hill, Zamel's and Wallace Bishop, offer in-store finance or payment plans. Remember to check the fees, rates and terms before you apply.
• Personal loan. You could also apply for a standard personal loan. An unsecured loan allows you to borrow from $1,000 up to $50,000. You'll have from 1 to 7 years to repay the loan. Interest and fees apply.
• Credit card. There are a number of credit cards that offer 0% interest for an introductory period. These terms can vary from 3 to 14 months. Anything you purchase during that period will be interest free. Do keep in mind that standard interest rates (around 20% or more) will apply after the introductory period. If you're opting to go with a credit card, you should account for whether you can repay the loan within the introductory period.

How can I compare engagement ring loans?

If you're opting for a loan, it's important to compare loans and lenders. That way, you can find a loan that's the best bang for buck and offers the features you want.

• Interest and comparison rates. The interest rate is the fee you will be charged for borrowing. It's an important indicator of the cost of the loan, but not the only one. The comparison rate is the true cost of the loan. It includes both the interest rate and the various fees and charges that come with the loan. Both are presented as a percentage. It's important to take them both into account when comparing. In some cases, you may find a low interest loan. Keep an eye out for the comparison rate and fees. If this is high, the loan may end up costing you more.
• Loan term. The loan term is how long you have to repay the loan. Some loans offer terms up to 7 years. While this will reduce your monthly repayments, keep in mind that you'll be paying interest and fees for all those months. This can significantly increase the cost of the loan.
• Monthly and total cost and affordability. Once you have the interest and comparison rates in hand, you can then work out what your monthly repayments will be. You can use a personal loan calculator – this will give you an indication of the affordability of the loan. Consider whether the loan sits comfortably in your budget. If it looks like you'll have trouble making your repayments, or if you'll be left out of pocket, you should reconsider. You should also consider the total cost of the loan. Here's where knowing your loan term can help. You need to look at how much the loan will cost at the end of the loan term. If it's a figure that makes you uncomfortable, then you should consider other options.
• Fees. These can include establishment, ongoing and administration fees, and will add to the overall cost of your loan. Some of these fees may be included in the comparison rate, but there are other fees that may not. These include fees for additional repayments, late payments, etc.
• Fixed or variable interest rates. The rate of interest for an unsecured personal loan can either be fixed or variable. A fixed interest rate stays the same over the loan period. A variable rate can change on a monthly basis, depending on the market rate. The catch is that variable rate loans often have more features. Pick the type of interest that suits your financial circumstances and needs.
• Loan amounts. Minimum and maximum loan amounts are set by lenders and usually vary between $1,000 to $50,000. It's important to check if the amount you need is within the range offered by the lender.
• Loan features. Some loans come with additional features which may be useful. These include additional repayments and redraw facilities. Check if fees are charged for these features.

What should I avoid when applying for an engagement ring loan?

• Applying for the first loan you see. You won't know if you're getting the best deal if you apply for the first loan you find. Compare your options first and make a shortlist based on cost, terms and eligibility.
• High rates and fees. You will be charged interest and you will be charged fees. Look out for both interest rates and comparison rates. The latter will tell you the true cost of the loan and includes both interest and additional fees. Calculate how much you have to pay every month and how much the loan will cost you over its lifetime. Sometimes your monthly payments may be low, but with longer terms, you'll be paying more interest and fees. This can cost you more in the long run.
• Borrowing more than you can afford. Check the cost of the loan and make sure you can afford it. You should be comfortably able to include your repayments in your budget. You should also avoid borrowing more than you need. Aim at buying a ring you can reasonably afford.
• Payday loans. While it might be tempting to apply for quick finance via a payday loan, these loans are exorbitant. They should only be used in case of a financial emergency, and an engagement ring does not count as one. Typically, for a payday loan of $5,000, you have an establishment fee of $400 and interest up to 48% of the loan amount. This could potentially lead to financial problems and spiralling debt.
• Multiple loan applications. Every loan application shows up on your credit report. Several applications within a short period can have a negative impact on your credit score. This can make it harder for you to get a loan in the future. Select a single loan and lender that you're eligible for and that suits your needs.
• Unlicensed lenders. Some loans can be too good to be true, while some lenders can be predatory. It's best to check if the lender is legitimate and what its history is. You should check the lender's website and make sure it's a reputable company and that it's registered with ASIC. The lender should also be easy to contact. Going a step further and checking out reviews online will give you an idea of what to expect from the lender.
• Long-term repercussions and legal issues. Once you sign a loan agreement, you are bound to its conditions. You will have to pay the loan, and all the fees and payments. Keep in mind that for unsecured loans, the lender can initiate legal proceedings against you if you don't repay the loan. It can also report the debt to a credit reporting body like Equifax and use the services of a debt collector.

What if I take out an engagement ring loan but my partner says no?

No-one makes a proposal expecting to be declined, but unfortunately, this can happen. So what should you do if you took out a loan to pay for the ring?

The first thing you should do is try to return the ring to the retailer. You'll need to reach out to the store to check their returns policy.

As for the loan, here's where things get tricky. Check if you'll be charged early repayment fees before repayment or early exit fees. If your loan charges fees, try giving your lender a call and see if these can be waived. You can use the money returned by the retailer to repay the loan in full and close your loan account.

How can I apply for engagement ring finance?

🤔 Work out what type of finance you need, how much you need to borrow and what you can afford.
🔎 Start comparing lenders and loan products. Don't forget to compare interest rates, fees and eligibility criteria. You can use Finder's comparison table to help you.
✅ Select a lender. Click "Go to site" to be directed to the lender's page, or "More info" if you want to read about the lender.
🖨️ Organise and prepare the required documentation. This will make the application process easier.
📱 Apply. Most lenders have their applications online.

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Frequently asked questions

• What is an early repayment penalty?

  Some lenders charge a fee if you wish to repay your loan ahead of time. This may be for making too many additional repayments, or for paying it off in full before the term ends.

• Can I use my engagement ring as security?

  Some non-traditional lenders may give you this option, but secured loans come with the risk of repossession if you default. You should consider the risks carefully before opting for it.

• Is there a catch with interest-free in-store finance schemes?

  There may be restrictive loan terms, late fees or high interest rates once the interest-free period ends. Make sure you know the offer terms before you apply.