Don’t Let Others Control Your Future

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Normal is broke and common sense is weird. So we're here to help you transform your life. From the Ramsey Network and the FAIRWINDS Credit Union Studio, this is The Ramsey Show. I'm George Kamel, joined by the Rachel Cruze, and we're taking your calls at 888-825-5225.

Jump in, we'll talk about your life, and your money. Kurt is going to kick us off in Minneapolis. What's going on, Kurt?

SPEAKER_3 (0:35)

Yeah, I've got a question for you, people regarding purchasing of new vehicles. As you know, manufacturers sometimes offer up a 0% financing for 48 months, sometimes longer, whatever.

And in our particular case, we're looking at purchasing a new vehicle in the future here and are wondering if it's wise to take that 0% financing or to withdraw the cash and pay full for that vehicle in cash. And for context, we have no debt. Our vehicles are paid for and we hang on to them for a number of years. And so I just wanted to hear what your thoughts are on something like that.

SPEAKER_4 (1:18)

Yeah, it's a good question, Kurt.

Well, the short answer is no, we would recommend still paying cash for your cars. And it's for a couple of reasons. Yeah, the 0% financing can feel like a great deal, right? Because part of us avoiding debt is paying that interest on top of something that's going down in value, right? And in this specific situation, it seems like you can skirt around the math. But the problem is if anything happens between when you get the loan and you pay it off at any level, what all the fine print is and all the fees and all the back interest that could build up is there. So there's a risk associated with it there. But then there's also the side of debt that we just see this progression moving forward with your money when you own something outright and you don't owe, even if there's not interest, it's still this emotional tie to something that you have. It's not fully yours. And so you're still making payments. You're still kind of living in that rear view mirror mindset financially versus just being done with it. And we just talked to a lot of people who have built wealth, who are baby steps millionaires and beyond, right? And they don't ask these kind of questions usually. Like really, if you're going after wealth, you're not sitting there splitting hairs between interest rates and all of that. You just kind of simply ask, can we afford the car or not? So if you have the money for it, Kurt, yeah, I would just cash it out and be done with it, be done with the purchase instead of kind of tiptoeing around trying to play this mathematical game because debt, sometimes the toll on us is not always about math.

SPEAKER_2 (2:59)

What kind of car is this?

SPEAKER_3 (3:01)

Well, don't know yet. I'm not brand loyal or anything like that. So it'll be a mid-sized SUV of some kind probably to replace one that we have, which is a 2015 that we've had for a number of years, and again, paid off and all that.

And so we're just thinking of what we're doing here in the future. We're both retired. We retired early, both retired. Way to go.

SPEAKER_2 (3:25)

What's your net worth?

SPEAKER_3 (3:27)

Probably 2.5.

SPEAKER_2 (3:29)

Oh, incredible.

SPEAKER_4 (3:30)

Good for you guys.

SPEAKER_2 (3:31)

And you've got a ton of cash just sitting there in savings, ready to go for a car purchase like this?

SPEAKER_3 (3:37)

Not a ton of cash. That brings a little bit of a twist into this. We have cash sitting available for expenses and things like that. However, if we get to cash, we would have to sell some investments, which then is a potential tax issue with us too. So we have to look at that as well.

SPEAKER_2 (3:55)

Yeah, that's one factor to look into, depending on what bucket you're taking from, whether it's cash, a taxable brokerage, a traditional account, Roth. And so the other piece to think about with this, Kurt, is that 0% is not free. There's no such thing as a free lunch, and the house always wins. You've heard those two things?

SPEAKER_3 (4:13)

That's why I don't go to Vegas.

SPEAKER_2 (4:15)

Exactly, and that's why I don't go to car dealerships, because number one, you almost never qualify. So they will push this 0%, but only the top, top tier credit folks will get that. And it's not really free, because the manufacturer builds that 0% cost into the car. So you're paying full price, MSRP, zero discounts, no rebates. And so you're actually kind of getting screwed on the purchase price, while feeling like you got a deal at 0%.