Why Dave Ramsey Says 0% Financing Is A Scam

Two people talking next to a washing machine in an appliance store.

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Some deals really are too good to be true.


Key points

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

It is not uncommon to finance large purchases and pay for them over time. Let’s say you need a car, for example, and it costs $30,000. That’s a lot of money to empty out of your savings account, if you have that much cash to start with. Instead, you may decide that an auto loan is the best or most necessary path.

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

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

The 0% interest trap

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

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But what happens 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 could end up spending more than expected.

You see, often what will happen with 0% interest offers is that if you don’t pay your entire loan balance by the end of your introductory period, you’ll accrue interest on your whole 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 that time, you still owe $8,000, you will be charged 15% on the initial $10,000.

(To be clear, this won’t always happen. It depends on how your financing agreement is worded. But it’s a possibility you’ll need to prepare 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 it. Instead, you should wait until you’ve saved enough to cover that purchase in full.

Finally, recognize that in some cases, 0% financing means paying more for the item you’re buying. Let’s say you’re looking for a car with 0% financing for a period of time. Chances are, Ramsey warns, you’ll pay a higher price for that vehicle in the first place.

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

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