0 percent loans, road to riches or poverty fast-track?

In this video on how to buy a new Porsche for $250/mo a LOT of people suggested waiting until the manufacturer offerred 0% loans as a way to get a bargain on a car. In this video I am going to talk about 0% interest car loans, “No interest for nine months!” store purchases, interest free credit card loans, and credit card cash advances and how they fit into a financial plan.

Before I get started, let me remind you that I have a 5 part video series on “How to get rich“, on the screen now is a link to that playlist. In this video I want to talk about free money – interest free loans – in store purchsase promotions, car promotions, and credit card offers.

Zero interest car loans

Lets start with the biggest and most important of these issues, the 0% car loans. Let me repeat soime thing important I said in the video “how to buy a porsche for $250/mo” video – The only way you are going to ever be rich is if you remember this one rule:

Only borrow money to pay for things that appreciate in value

Cars go down in value quickly, therefore do not borrow money for them. THIS is where people got confused thinking that if its 0% loans, it was then ok to borrow for the car – NO! You are still borrowing money for something that will be worthless in two decades.

Hans: “What if you have the money in the bank but they offer 0% loans for your car, it crazy not to take it – right?

Great question! Remember the rule, Only borrow money to pay for things that appreciate in value. So it depends on what you are going to do with the money you borrow. If you get the 0% loan and use that money to invest in a rental property or your own business, THEN that is awesome. On the other hand, if you are going to use that money to take an expensive European vacation then NO, its a horrible idea.  Imagine two different futures.

  1. In future one you borrow 30k for a new ford mustang which two decades later is worth $0.
  2. In future number two you use that 30k 0% loan as a downpayment on a 150k condo which is worth 220k in two decades.

Do you want $0 or $220,000?  Another thing to remember, there is no such thing as free! You dont pay for google searches out of your savings account but you agree to give them your valuable personal data which they then make a huge profit on by selling it to big data companies. Same with 0% car loans. They dont offer 0% car loans on hot, new, popular models. They offer 0% loans on dogs that are hard to sell and the reason they offer it is that they have a competitor who is offering a car that is a better value and they are bribing you to buy their inferior deal. You are PAYING for they 0% loan.

This is a good time for a brief time out to cover a point that a lot of people get tripped up on, its called a HELOC (Home Equity Line of Credit)  which is an open ended loan secured by the equity in a house you own.  They come with a checkbook so you can simply write checks, free money!!!!  Some people use their HELOC to buy cars, vacations, etc. By my rule thats OK though because the house appreciates in value, right? Not so fast. Here is the rule again:

Only borrow money to pay for things that appreciate in value

Note that the rule says “… to pay for things that appreciate in value”. The car and the vacation do not appreciate in value so dont borrow to buy them!

LIVE A LITTLE!

Hans: “Dont be so uptight about money – live a little!” Its friggin free money, you work hard – you deserve it!

You might say that you can never afford a house or investments so you might as well live a little, well think about this. You make $2500/mo after taxes. You can get a new F-350 for $610/mo. You can get the new iPhone Pro for $135/mo. You maxed all your credit cards so your credit card payment is $480/mo.  Congratulations! With just three “free” payments, 50% of your paycheck is gone and you have not paid for rent, gas, food, or health insurance. You have now handcuffed yourself and handed the key to your new master – corporate America. Don’t be a slave to corporate America!

Zero interest credit card checks

So, credit cards. Those 0% interest checks they send you in the mail are a good deal right? Free is good! No! They are the road to poverty, here is why – the fine print. These free money offers always have a fee hidden in the small print. Those 0% interst checks your credit card company sends you in the mail have a 3% to 5% service fee in the fine print. Often the free money is only for 3 months which means that “0% interest” is actually 15% interest because the fee is just a tricky way of them pre-charging you for interst. THEN the evil part comes in the payments. After cashing one of those 0% interest checks, if you are even one day late making the payment, you are screwed. The 0% interest turns into 17-21% interest with penalties. They are the casino, you are the small time gambler convinced you have “a system” that can beat them – they win, you lose. These 0% interest checks are one of the main contributors to people maxing out their credit cards.

Credit card cash advances

Free money, right?  You go to the bank and they give you CASH!  These are toxic.  Not only do you have to pay a cash advance fee of 3-5% BUT you have to pay interest on the money as well, 12-21% interest which is crazy in an era when your savings account only gives you 2% interest.  The only thing more devastating financially than a credit card advance is a payday loan.