Do Interest-Free Loans Exist?

Learn all about interest-free loans and alternative interest-free credit options.

Updated: May 18, 2024
Matt Crabtree

Written By

Matt Crabtree

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Borrowing costs, and not just the initial amount of money you borrow, there's interest on top of it too, and other fees too. Interest is what lenders charge for lending you money.

The interest you pay will vary from lender to lender; some may offer a high annual percentage rate, and others will personalise your options to your credit rating.

If you're looking for an interest-free loan, you may be looking for a while. There is no such thing as an interest-free loan. However, other financial options do offer an interest-free period. It's only natural you're looking for finance that's interest-free.

Who doesn't want to spend money without worrying about paying interest? Unfortunately, there isn't a loan or a credit card that allows you to borrow completely interest-free.

There are other types of finance available with interest-free periods. In this article, you'll learn how to borrow money interest-free and the different finance options that come with an interest-free period.

What Is an Interest-Free Period?

An interest-free period is when you don't have to pay interest on borrowed credit.

Unfortunately, certain lines of credit don't offer an interest-free period. There is no such thing as a no-interest loan or an interest-free loan. Some loans will allow you to delay your payments by two months, but this isn’t an interest-free loan period, as your fixed term extends by two months.

There is no interest loan on the market. However, low-interest loans and other credit are available to you and offer interest-free periods.

Depending on the line of credit you apply for, an interest-free period is usually up to 56 days. Within 56 days, you can spend the credit without worrying about paying interest on your purchases. Interest-free credit cards tend to have longer interest-free terms. 

Credit cards tend to have much longer interest-free terms, such as purchase cards, balance transfer credit cards, and money transfer cards, which usually offer an interest-free term for up to 23 months. Different credit card providers will offer different introductory periods.

Where Can You Find Interest-Free Credit?

There are no interest-free loans that you can apply for, but other types of credit offer interest-free lending for an amount of short time.

It's important to know that your credit rating can affect your potential interest rate and credit limit. If you've got a low credit score, you may be offered a higher interest rate than you would if you had a good credit score. You can check your credit score anytime with the UK's top credit reference agencies: Equifax, Experian, and TransUnion. So, if you're looking for better interest rates, you should improve your credit rating.

The following finance products usually have interest-free terms:

  • Interest-free overdrafts: You can get an interest-free overdraft from your banking provider. Most banks and financial institutions offer arranged overdrafts, allowing you to spend up to a certain amount without being charged interest. However, you will face daily interest charges if you go above this arranged overdraft.
  • Purchase Credit card: A credit card you use to make big purchases and spread the cost. You can get 0% interest periods with most purchase credit cards.
  • Balance transfer credit card: Helps you consolidate outstanding debts onto one card. You can repay the remaining balance without any added interest if you get a balance transfer card within an interest-free period.
  • Money transfer credit card: You can transfer money from this card to your bank account to cover overdrafts or other debts. The idea is to reduce debt on high-interest overdrafts on your current account.

Interest-Free Period Pros and Cons

Like any credit agreement, there are pros and cons. In this section, we'll explain the pros and cons of credit with interest-free periods.

Pros

✔️ Interest-free spending: You can spend what you borrow for a short period without worrying about accruing interest.

✔️ Debt consolidation: If you've got credit card debt, you can use balance transfer credit cards to put existing debt onto one card. If there's an interest-free period, you can repay the balance of the overall debt without worrying about interest increasing.

✔️ Spread the cost of purchases: If you have an emergency at home, like the washing machine breaking down, you can use a credit card with an interest-free period to spread the cost without worrying about your interest rate.

Cons

❌️ Interest-free limited period: Once the introductory term ends, you must pay an annual percentage rate on your purchases. Changing from 0% interest rates to higher ones may be difficult. To avoid surprises, look for personal loans or credit cards with a low interest rate.

❌️ You may still pay a fee: If you're using a balance transfer card, you may still have to pay a balance transfer fee during the interest-free period.

❌️ You can lose your interest-free term: Missed or late payments may end your interest-free period. In addition to terminating your interest-free term, you’ll be charged additional interest for missed payments, which could harm your credit score, as it will show on your credit report for future lenders to see.

Other Loans You May Be Interested in

Although you can't apply for an interest-free loan, other loans could help you borrow money in different ways.

Other loan options include:

  • Personal loans: A personal loan is a traditional loan. You borrow money from a lender and repay the balance over a set period. You'll make monthly repayments, and your credit history determines your credit limit and interest. Personal loans include car financing, wedding expense loans, debt consolidation loans and other credit lines based on your credit report.
  • Secured loans: If you're worried about having a poor credit history, you can apply for a secured loan. You borrow money from a lender and offer up collateral in exchange for your house or other valuable asset. You still get to keep the assets but risk losing them if you don't repay the loan. Examples of secured loans include mortgages, share-secured or savings-secured, and life insurance loans.
  • Low-interest loans: There are low-interest loans you can apply for. Low-interest loans usually have a lower credit limit. You need to look around and compare APR rates from different lenders to make your monthly repayments more affordable.
  • Payday loans: A short-term unsecured loan that lenders provide you with a small amount of money with high interest based on your income. When taking out a payday loan, you’ll pay more interest than other loan types. 

Leading Interest-Free Loans: The Verdict

To get the lowest interest rates possible since no-interest loans don't exist, ensure you work on your credit file to get better deals so your future interest charges stay low.

Borrowing money can get expensive, so pick a personal loan or credit card with a low interest rate and make all your repayments on time.

You may not need to take out credit with a new lender; try contacting your bank to see if they offer an interest-free overdraft. Some banking providers will give better deals to current customers.

So, now that you know that a no-interest loan isn’t a thing, you can start your search for alternative financing.

Related Guides:

FAQs

Can I Take Out a 0% Interest Loan?

What Is the Easiest Way to Borrow Money?

What Are the Disadvantages of an Interest-Free Period?

Can a Loan Harm Your Credit Rating?

How Does My Credit Score Affect My Loan Amount?

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