Scott Pape, otherwise known as The Barefoot Investor, has ‘gone postal’ on a viral TikTok video about a ‘trick’ to beat the banks and stop paying compound interest on home loans.
The video, posted by an Aussie ‘expert’ has, so far, 5.1 million views. In it, he says:
“Hey everyone. I don’t usually do these sorts of things. I’m not a big TikTok user, but what I am good at is finance and understanding how to beat the banks. So I’ve got a couple of people that I’ve given this advice to and everyone’s been telling me that I should make it public. So here we go.”
His big secret? You can ‘stop’ compound interest on your loan by paying your normal repayment plus $1 per day.
“You will pay a big fat zero in interest, absolutely zero in interest, and you will end up cutting your mortgage from 25 years down to about five … and you can do this with credit cards, you can do this with car loans. Anything that has a variable interest rate, you can do it and you can beat the banks,” he claims.
Scott Pape had some fun with the TikTok tip:
“I know what you’re thinking – surely the banks would HATE this knowledge being leaked, right? I mean they would go broke (or broker, in the case of Credit Suisse),” he wrote on his email blog this week.
“Don’t worry, he’s onto it: ‘So the banks don’t like this. They don’t like this knowledge being out there, and they will try to stop you. They’ll send you ‘cease and desist’ letters. They will try to stop you from doing it, but at the end of the day, they can’t. If you get a cease and desist letter, once you start doing this $1 a day payment thing to your financial institution, ignore it. What are they going to do? Take you to court and say, ‘Oh, Your Honour, he’s paying too much’. It’ll get laughed out of court. So if you want to beat the banks, beat them by not paying compound interest.’”
Here’s where Mr Pape rips this inane TikTok tip.
“Okay, in our home, ‘stupid’ is a swear word. But I’m going to call it what it is: This is STUPID!” says Mr Pape.
“You cannot stop interest by paying $1 a day on your home loan. Still, that won’t stop people from trying. There are thousands of comments under the video saying things like: ‘Not sure if it works, but I’m giving it a go!’
“Which reminds me of another viral ‘secret’ for glowing skin: stick coffee beans up your quoit. (Seriously, google it … just maybe not at work). Does it work? Erm, no! Meanwhile, you’re walking around with a short black up your clacker.
All fun and games aside, Mr Pape concedes that, a video that has 5 million views says three things: people are desperate for solutions to higher interest rates, just because a video goes viral doesn’t mean it’s true, and that financial literacy in this country is poor.
“Look, the only way you can pay your home loan down quicker is to get a lower rate, and make extra repayments … preferably more than $1 a day,” he says.
“And if you’re struggling to make extra repayments, give up the coffee – it’s no good for your skin anyway.”
Also read: Higher interest rates drive big annuities take-up
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You really have to worry about the intelligence (or lack of it) of the morons who believe all this garbage on the internet. These are the people that are going to be in charge in future. We can only hope we will be long gone before these people start making policy decisions.