That zero percent loan sounds great, but...

Even with no interest to pay, a zero percent loan requires a monthly payment over the long term.

Reed Saxon/AP/File
In this 2009 file photo, a sticker offering zero percent financing is seen on a vehicle below a promotional sign at Santa Monica Chevrolet in Santa Monica, Calif. Such loans sound like free money, but they require a long-term commitment to a monthly payment.

Brian writes in:

I was at a local car dealership looking for a replacement for my truck. I only have about $8000 in savings so I knew I would have to take on some debt to buy. The dealer offered to sell me a new F150 for a good price and a 0% loan for 36 months for $589 a month car payments. This seems awesome and I am looking for any problems with it.

Over the last few months, I’ve received a few emails like Brian’s, where individuals were strongly enticed by 0% or other extreme low interest loans. Are they a good deal? Should they sign up for these loans before making a purchase?

The problem with such loans is that they don’t eliminate what I consider to be the chief problem with all debt. Yes, they have spectacular interest rates and, yes, they’re often sold as being “free money.”

However, all debt – including 0% debt – has a strong negative impact on your future cash flow. By signing up for this debt, Brian, you’re agreeing to pay $589 a month for the next thirty six months.

That means, for each of the next thirty six months, you’re going to have to come up with $589. It doesn’t matter whether money is tight that month. It doesn’t matter whether you have a job or not. None of that matters. Come up with the $589 per month or they’ll repossess your truck. Add on top of that the vehicle registration costs, the insurance costs, and the maintenance costs and you’re marking off at least $700 a month for this new vehicle each month.

That’s a pretty big responsibility to throw onto your future self. For the next three years, you’re making a commitment to $700 a month without knowing what the future may hold.

Does your future hold steady employment – or is a pink slip around the corner? Will your health be perfect in three years? In three years, will you find yourself in a situation where an F-150 doesn’t meet your needs?

Even if everything goes perfectly, there will still be months when $700 from your monthly budget will really hurt in the form of missed opportunities. Some will simply jump on board those opportunities anyway in the form of credit card debt, further mortgaging their future self.

If I’ve learned anything over the years, it’s that relying on your “future self” to do things you want right now is a quick route to failure. Our future selves are unreliable for the reasons I listed above: job loss, change of heart, illness, life changes, and so on.

Debt is always a challenging choice because it relies on that inherently unreliable “future self” to pay it off. The fewer commitments you put on your future self – and the more commitments you just take care of today – the easier you’ll find your life getting as time goes on. That means more freedom in the future, not less. That means a greater ability to go in whatever direction life leads you, not less.

I won’t say explicitly that a debt-free lifestyle is the best choice. There are times where debt is the preferred option or the only option. For example, if you’re living in a situation where the cost of renting housing is comparable to that of taking out a mortgage to purchase a home, the purchase may be the better choice.

In most situations, though, debt merely allows you to put big burdens on your future self in exchange for something you don’t need today. Brian, do you really need the shiny new 2011 F-150? Or would a used model work for now, putting less of a burden on your future self, while you save up the cash for the vehicle you really want down the road?

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