Commentary: Sorry Dave Ramsey - You Blew This One

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I recently saw this question posed to money-guru and radio host Dave Ramsey, who I listen to occasionally and we, in fact, are on some of the same radio stations across America:

Dear Dave,

Could you explain why buying a new car at 0% interest isnít a good idea?

Dear Raina,

The only way you have a chance of getting 0% interest on a new car is if you have perfect credit and pay full MSRP (manufacturerís suggested retail price).

But, if you walk onto a car lot with cash, and haggle with the salesperson a little bit, theyíll knock a bunch off the sticker price. If you can buy the car for less than the 0% interest gimmick, how is that 0%? See what Iím saying? The cash buyer pays less.

Besides, you shouldnít even consider buying a brand new car, unless youíre debt-free and have $1 million or more in the bank. You lose a ton in value the second you drive a new car off the lot. How is that 0%?

A new car also loses about 60% of its value in the first four years after you buy it. How is that 0%?

The whole 0% interest gimmick tricks a lot of unsuspecting folks into buying something they donít need and canít afford!

- Source: KTSA

OH Dave. Please come on my show OR let me come on yours, either way!

You do not need perfect credit to get 0%. Interest rates are at historic lows, which means it costs automakers much less to offer this perk.

REALLY? You think you have to pay full sticker price to get 0%? Do you get out in the world at all? Anybody can negotiate a deal and then decide if they want 0% or a rebate, whichever works better for them.

How is 0% a gimmick? No interest means (call me simple) NO INTEREST.

Are you really suggesting you shouldnít buy a new car unless you have $1 million dollars in the bank? Have you checked the prices on used cars recently? Do you take in account the cost of repairs versus being under the factory warranty?

Lastly, in todayís world, throwing around cash at a dealership doesnít mean squat, and may likely cost you more money. I address that here:

Dude, stop the car advice. Leave that to me, and Iíll stay out of the areas you may be good at. This is not one of them.
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After reading your information about determining equity in my lease vehicle at turn in time, I am still confused. How can I "trade it in" or "sell it" to the dealer when I don't actually own it? What am I missing or misunderstanding?
The Car Pro
A lease is just like a purchase, in that you can trade it at anytime. If it is before the end of the lease, there is a payoff that changes daily. The dealer you trade it to will pay it off so they can get the title and give you the equity.

Jerry Reynolds
The interest charges of a vehicle can be calculated into the price of the of the loan. If the present value of the vehicle is $60000.00 and the interest rate is 6% per year for 7 years, the interest charges are $3600 per year for 7 years of $85200 divided by 84 months or $1014.29 per month. The above calculation is simplistic. If 0% financing is real, how do auto manufacturers stay in business? Dave Ramsey teaches that a millionaire is someone with a net worth of at least $1 million. He advises to buy used cars until a person has at least a $1 million net worth. He advises that the value of vehicles with motors be less than one-half of one's annual income.. When a person has a net worth of $1 million, it is okay to purchase a new vehicle.. He also teaches that a person who leases a vehicle is paying the dealer or the manufacturer depreciation. During a lease who own the vehicle? Dave Ramsey is not the only one who talks about these kinds of things: The Millionaire Next Door by Thomas J Stanley and William D Danko, The Millionaire Mind by Thomas J Stanley, Stop Acting Rich by Thomas J Stanley, Millionaire Women Next Door by Thomas J Stanley, The Next Millionaire Next Door by Thomas J Stanley and Sarah Stanley Fallaw and finally, Everyday Millionaires by Chris Hogan who is associated with Dave Ramsey.

On August 11, 2010 the check cleared that paid off my car loan. I have been debt free since that time. All of my credit cards have been closed and I am hoping to have a zero credit score some day.
The Car Pro
Thatís good news Gary, congrats. However, because someone writes a book about being a millionaire doesnít mean they are qualified to give good automotive advice, anymore than I would go on my show and give stock advice.

My biggest concern with Daveís advice was him saying you have to pay MSRP to get 0%, totally wrong. People buying beater cars often pay more in repairs than a new car payment would be so we disagree there too. He also doesnít stay up on the used car market and doesnít know sometimes new cars are cheaper overall than used ones.

I pick my words carefully on my show and if I am not 100% sure of what I am saying, I donít say anything, and my ego isnít so huge that I canít say ďI donít know.Ē

Thanks for listening.

Jerry Reynolds
Dave Ramsey is all about long term financial gain. I teach his class to young adults . I have consistently seen the autos in the driveway as the largest problem in their financial lives. you can't have a years worth of income or more on things that go down in value and ever get ahead. So it's not the 0% that's the problem. It's borrowing money on vehicles that go down quickly in value that's the rub here.
My wife and I are retired multi millionaires do live a lifestyle that I could never imagine.
I love cars and I love leading people to much better life for them.
The car pro gives savvy advice but buyer beware, sharks in suits
Dave Ramsey has some good ideas but certainly not on this topic. The paying cash thing proves he doesn't understand where car dealers make their profit. I once purchased a dealer ad car (you know the specially priced car used in advertising when you inquire about they say "we just sold it but we have others") In this case they actually had the car and I wrote a check out for it. No extras, no extended warranty, no financing. It was a very painful process as the GM was not happy with a very low profit deal. Ever since then I have financed thru the dealer even if I did not have to. On my last new car I was offered 1.9% for 5 years and did not have to trade any of the rebates to get it. For the 0% financing, you have to look at what you may have to give up to get it to see if it makes sense. Thanks for all you do Jerry!
The Car Pro
Thanks Wayne. You are a savvy buyer and that shows. I appreciate you listening and thank you for the kind words.

Jerry Reynolds
Jerry I really appreciate your advice and the help you give to people, and me, regarding the car industry and buying the correct car, it is invaluable. But I also like Dave Ramsey's advice and the people he has helped. Dave's whole thing is to get people debt free with no payments on anything so all the money that would go to payments and interest can go to better living and investments. OK, so he made a mistake on some details it really doesn't detract from his message "Become Debt Free". So in summary I will say that both Jerry Reynolds and Dave Ramsey are both teachers of very different valuable subjects and if you pointed out his technical mistakes on car financing, without a direct attack, he would be appreciative.
The Car Pro
Bill, your points are well taken. I donít believe I attacked him, but when I see blatant bad advice, no matter who it is, I will point it out. Iíd hope someone would do that to me if I was so totally off base. I appreciate you listening to the show.

Jerry Reynolds
Our ministry taught Dave Ramsey courses several years back. His teachings have helped many people. I enjoy listening to his wise counsel.

I think it is wise, however, to understand that one must use discernment, because every case is different. The idea that one should sacrifice and save to pay cash for a vehicle years down the road is not for everyone.

There are some situations in life where a new or used vehicle now rather than later makes sense. For some people, despite having to finance for 5 years , it may be worth the cost.

Tomorrow is not promised and if a person can have a reasonable amount of happiness now, it may be worth the financial burden.
We are never 100% debt free. But the chance of sickness or other tragedies happening in one�s life is very real.

I thank both of you for the good advice you provide your listening audiences.
The Car Pro
Thank you Ken, thatís more than fair and I agree. There is always middle ground. Bless you!

Jerry Reynolds
Yes, Dave Ramsey always tells people to buy a "beater" instead of a new car. Anybody who owns a "beater" knows that the repair bills never stop.
The Car Pro
Itís true, especially today Bill, with used cars so high. I appreciate your feedback!

Jerry Reynolds
I used to listen to Dave Ramsey, and sometimes he gives good advice. But a lot of the time his advice is terrible. I have to agree about buying a "beater." When I was younger and did not make a lot of money, all I could afford was an old beater. The repair bills were as much, and sometimes more, than a car payment, plus the expense and inconvenience of tow bills when I was stranded. I decided then to buy new and have a warranty and peace of mind. Ramsey is wrong on this one.

Ramsey HATES debt. And it might be because he screwed his finances up when he was younger, was on the wrong end of calls from bill collectors and had to file bankruptcy twice (by his own admission on his show). That severely tainted his thinking about debt and now he overreacts the other direction. He claims his company does not use any credit cards, but I seriously doubt that. Try booking a flight without a credit card.
The Car Pro
David, good info, thanks for sharing. I listen some but not enough have that depth of knowledge. i appreciate you sharing.

Jerry Reynolds,
Very well stated, Jerry. I look forward to hearing Dave on your show some Saturday morning!
The Car Pro
That would be great, but something tells me he wonít accept the invitation.

Jerry Reynolds
g duncan
Yes...and he is wrong on a lot of stuff he posts or says on his program. If he was 1/2 as smart as he thinks he is...he would be in good shape.

You poor fools are sheep to slaughter. You get to make your own decisions and you will face the consequences of those decisions . I drive anything I want now because I got my family into a debt free lifestyle in our thirties.
Got no problem with you having a nice ride just don't want the ride to have you.
I'm a Ramsey loyalist but I also enjoy the car pro show and have used his approved dealers.
Let's get this patched up, no need for this conflict.
Thanks and good day.
The Car Pro
Aubrey, I appreciate the comments. I like Ramsey too but wonít said idly by when he gives bad car advice like you have to pay MSRP to get 0%. I applaud your success, but I see too many people buy bad cars and end up paying more repairs than a new car would cost them.

Thanks for listening to the show.

Jerry Reynolds
RB Denham
I think Mr. Ramsey assumes everyone is a spendthrift. He's way at one end of a vast spectrum regarding money management.
The Car Pro
Yes, I agree. My issue is he doesnít keep up with the auto industry and doesnít know when it is the best time to buy new versus used. The fact he said you had to pay MSRP to get 0% tells me a lot.

Thanks for listening.

Jerry Reynolds
Just what does a "MILLION" dollars have to do with buying a vehicle. Does he think you can earn enough interest to make the payments even with ZERO percent interest finance? What family in the real working world has a million banked dollars with two kids, a dog..(or cat), two working adults a house payment and all the insurance and the "TAXES" people have to pay. NOT GOING TO HAPPEN...KNUCKLEHEAD...
The Car Pro
I thought that was a nutty comment, too. In radio, you never lose sight of your core audience, and 99% do NOT have a Mil in the bank. He has gotten so big he can no longer relate to the people who listen to his show.

Jerry Reynolds