Why Dave Ramsey says 0% financing is a scam

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Some deals are really too good to be true.


the main points

  • You may find different opportunities to finance a purchase at 0% interest for a while.
  • Financial guru Dave Ramsey cautions against this for several main reasons, including how it can lead to increased spending.

It is not uncommon for large purchases to be funded and paid for over time. Let’s say you need a car, for example, and it costs 30 thousand dollars. That’s a lot of money to empty out of your savings account – if you have that much money to start with. Alternatively, you may decide that a car loan is the best or necessary method.

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

But while 0% financing might sound like a great option in theory, financial expert Dave Ramsey cautions that it’s not the best in practice. In fact, consumers are advised to stay away from 0% interest offers – even if they seem like an excellent deal.

The trap 0% interest

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

But what happens if your purchases are not paid at this point? From there, you’ll generally stumble upon a file Is that true High interest rate. You may then end up spending more than expected.

See, often what will happen with 0% interest offers is that if you don’t pay off the entire loan balance by the end of the introductory period, you’ll accrue interest on 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 converts to a 15% interest rate. If at this point you still owe $8000, then 15% of your initial $10,000 will be charged.

(To be clear, this won’t always happen. It depends on how you draft your financing agreement. But you will likely need to be prepared.)

0% interest can lead to overspending

Another big problem with 0% financing? You may be tempted to spend money on things you really can’t afford. Buying and financing a car is one thing because you need a way to get to work and you don’t have the money to buy a car outright.

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

Finally, realize that in some cases, 0% financing means paying more for the item you buy itself. Let’s say you’ve been looking for a car with 0% financing for a while. Chances are, Ramsay warns, you’ll pay a higher price for that car in the first place.

At the end of the day, the one thing Ramsay wants consumers to remember is that “nothing is free.” So the next time you’re tempted by a 0% financing offer, you might want to work the other way — or start saving for the item in question so you can buy it with peace of mind.

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