Why Dave Ramsey says 0% financing is a scam

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Some deals really are too good to be true.


Key points

  • You may encounter different opportunities to finance a purchase at 0% interest for a period of time.
  • Financial guru Dave Ramsey warns against this for a few key reasons, including how it can lead to overspending.

It’s not uncommon to finance large purchases and pay them back over time. Say you need a car, for example, and it costs $30,000. That’s a lot of money to dump out of your savings account – if you even have that much money to start with. Instead, you may decide that an auto loan is the best or the best solution.

Of course, the downside of financing purchases is having to pay interest on them. But it’s not always the case. If you qualify for a 0% interest offer, you may be able to avoid paying extra money in the form of interest.

But while 0% financing may sound like a great option in theory, financial expert Dave Ramsey warns it’s not the best in practice. In fact, he advises consumers to avoid 0% interest offers, even if they seem like a great deal.

The 0% interest trap

Generally speaking, 0% financing is an option available to consumers for a limited period of time. Let’s say you are able to finance furniture at 0% interest. Chances are that this rate will only apply for, say, six months, a year or even two years.

But what if your purchase is not paid for at that time? From there, you’ll usually be stuck with a really high interest rate. And then you might end up spending more than you planned.

See, often what will happen with 0% interest offers is that if you don’t pay off your entire loan balance at the end of your introductory period, you will accrue interest on your entire balance. So let’s say you get 0% financing on a $10,000 furniture purchase, but that 0% runs out after a year and turns into a 15% interest rate. If at that time you still owe $8,000, you will be charged 15% of the original $10,000.

(To be clear, this won’t always happen. It depends on how your funding agreement is worded. But it’s a possibility you’ll need to be prepared for.)

0% interest can lead to overspending

Another big problem with 0% financing? It might tempt you to spend money on things you really can’t afford. It’s one thing to buy a car and finance it because you need a way to get to work and don’t have the money to buy one outright.

But let’s say you have a house full of perfectly functional furniture, and you’re tempted to upgrade because you see a 0% financing offer. If you don’t have the money to buy new furniture, you really shouldn’t buy any. Instead, you should wait until you have saved enough to cover the entire purchase.

Finally, recognize that in some cases, 0% financing means paying more for the item you’re buying itself. Suppose you are considering a car with 0% financing for a while. Chances are, Ramsey warns, you’ll pay a higher price for this vehicle in the first place.

Ultimately, the one thing Ramsey wants consumers to remember is that “nothing is free.” So the next time you’re tempted by a 0% finance offer, you might want to run the other way – or start saving up for the item in question so you can buy it more wit serene.

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