Dave Ramsey’s Absolutely Right About This Type of Borrowing

A woman shopping an online sale from her laptop while surrounded by clothes and shoes.

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Don’t make a borrowing decision that you’ll regret.


key points

  • Online installment loans are increasingly being offered.
  • Dave Ramsey believes this type of loan should be avoided.
  • Online installation plans can be expensive over the long-term.

Dave Ramsey has advised against taking out most types of debt, even suggesting you steer clear of a mortgage when possible and pay cash for a house.

In some cases, Ramsey’s anti-borrowing stance could potentially lead you astray, causing you to end up with less wealth. For example, forgoing credit card rewards and failing to build your credit score could mean giving up valuable benefits and making your financial life harder.

But, there’s one type of loan that Ramsey suggests avoiding — and that he’s absolutely right about. Here’s what it is.

You should definitely avoid this kind of loan that Ramsey warns against

On the Ramsey Solutions blog, there’s a clear warning about a particular type of loan you may be offered but that you should say no to. It’s an installment loan, or a buy-now, pay-later loan.

Typically, these loans offer you the opportunity to buy an item by making several small payments over time. The example given on Ramsey’s blog is shoes that are for sale if you make four payments of $19.50.

Buy-now, pay-later plans have long existed in the retail world, and Ramsey indicates there are now digital installment loans offered by online stores. Many promise that you can make a few different payments over a short period of time, such as four or six weeks, and not pay interest on the amount you’ve borrowed. And, in some cases, there’s no minimum purchase required so even small payments can be financed with installment loans.

Here’s why you should steer clear of installment loans

Ramsey explains several key reasons why you should avoid financing purchases using buy-now, pay-later loans.

First and foremost, he warns that many come with very expensive late fees. These fees can add up to a significant percentage of the amount borrowed, and many consumers end up getting stuck paying them because they forget or can’t afford to send in their money on time.

Ramsey also indicates that while some loans promise no interest, others charge high rates — especially if you take longer than expected to pay your debt. And he explains that some services charge other fees, such as imposing a cost to reschedule payments or charging a convenience fee for each payment you make.

And, he goes on to explain that even if you make your payments on time and avoid unexpected fees, you still likely don’t want to take on this type of loan because it “numbs you to the reality of how much you’re really spending.” By breaking big purchases down into small monthly payments, items feel affordable even if they aren’t and you obscure the total opportunity cost of making this type of purchase.

These are all really valid reasons for avoiding installment payment plans. If you’re considering financing a purchase this way, you should think twice about doing so because you could soon find yourself in financial trouble and really regretting your choice. Instead, if you can’t afford to buy an item upfront, it’s best to wait until you can so you don’t risk owing interest or late fees or committing future income to making payments for an item that was out of your price range from the start.

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