Zero Percent Interest: Too Good to be True?

Finance, Home & Family, People
on August 8, 2011

Dave Ramsey is a money-management expert, national radio personality and best-selling author.

Dear Dave,
What’s wrong with buying a new car at zero percent interest? How do the dealers make money offering this kind of deal?

—Ray via Twitter

Dave Says: The only way you’re going to have a snowball’s chance of getting a zero-percent-interest deal is if you have perfect credit and you pay full retail price—the manufacturer’s suggested retail price, or MSRP.

You can walk onto a car lot with cash, haggle with the salesman or manager, and knock a bunch off the sticker price in about two minutes. So, with cash, you can buy the car for less than the MSRP without their “zero percent interest” gimmick. In other words, a cash buyer doesn’t have to pay the same price.

Besides, why are you looking to buy a new car instead of a good, used car? That’s what I always recommend. You lose enough in value the second you drive a new car off the lot to make you sick. A new car also loses 60 to 70 percent of its value in the first four years. What’s “zero” about those percentages?

Zero percent interest is nothing but a sales gimmick—one that tricks a lot of unsuspecting people into buying something they can’t afford!

Dear Dave,
My wife and I are on Baby Step 6 of your plan, and we’re about a year into a 30-year, fixed- rate mortgage. Should we consider refinancing to a 15-year, fixed-rate note, or pay extra on our current mortgage?

—Chad in Raleigh, N.C.

Dave Says: There’s really no reason to go through the hassle of a refinance on your home, unless you’re going to see substantial savings through a lower interest rate. If I’m you, I’m just going to hang on to my current mortgage and throw all the money I can at that note. If you play your cards right, you can pay it off in 15 years anyway!  

Dear Dave,
My wife and I are in the middle of a divorce. She has about $100,000 in student loan debt. I didn’t co-sign on the loans, so will the debt remain hers?

—Jimmy in San Antonio, Texas

Dave Says: Under normal circumstances, if you didn’t sign for the loans with her, then the student loan debt should remain her responsibility. If you don’t sign for a loan, you’re not responsible. But there’s not much you can do if the judge decides, as part of the divorce decree, to saddle you with responsibility for a portion of those loans. That kind of thing sometimes happens when two people split up, so my best advice would be to make sure you’ve got a really good lawyer who has your best interests in mind.

I’m sorry you have to go through all this, Jimmy.