Zero Interest Loans - Good or BadMany car manufacturers today are offering zero interest loans. Today I heard a story of a family that had used this type of financing to get into $1,500 in car payments per month on a $60,000 per year salary. Now, how good were no interest loans for this family? As I see it, there are some problems with interest free loans. What people do not take into account is the risk. A glitch in your income will not ruin your budget if you pay cash for a vehicle. On the other hand, car payments, even those with no interest, will cause you to deplete your emergency savings account quicker or you may be forced to sell the car to pay off the loan. How many people do you think take their car loan into account when determining the amount they need in their emergency savings account? When you are making payments, you are not saving this money and making interest on it yourself. You will then need to get another loan for your next car since you have not been able to save. Taking a loan always allows you to pay more for a car than you had planned. You know, that extra bell or whistle will only cost another $20.00 per month. It is much too easy to pay more than you had planned or you can afford. When you use zero interest loans, you are using money in the wrong direction. Rather than paying yourself and gaining interest, you are paying someone else who could take your car if you default on the loan. To keep your financial house in the best of shape you need to be paying yourself and gaining the interest. I also believe that there is a psychological aspect to it as well. We need to stop using money that we do not have or thinking that we can use someone else’s money for our gain. The no interest loan is not the greatest financial evil but I believe that it is a step in the wrong direction. Just save up for that next car.
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