Interest free loans may seem impossible. As you may probably be aware, the interest which is placed on a loan is how the lender will make their profit.
However, there are actually interest free loans on the market and a new scheme which has recently been announced by Chancellor of the Exchequer Phillip Hammond, designed to get people out of debt.
The interest free deals which circulate the market can help people get their finances back under control by reducing the amount of interest that you are paying on your debts to 0%.
We are going to look at four ways which you can seek out an interest-free loan. We will also point out any potential pitfalls and fees that you should take note of when applying for these loans.
Phillip Hammond’s Zero-Interest Loans
Phillip Hammond announced in the Budget that he would be introducing zero-interest loans. However, these are not like just taking out a payday loan for bad credit. They are specifically designed for the purpose of helping people who have found themselves in debt due to high-cost credit and are therefore only for these people and not the general population.
This new scheme is set to help around 3 million people all across the UK who have fallen victim to the spiralling debt caused by high-interest lenders.
Essentially, people can take out these loans to help them and only have to pay off the exact amount they borrowed rather than the amount plus a set interest rate.
An interest-free overdraft
Now, an overdraft may not be what you were thinking when you said “loan”, but an overdraft is actually a loan.
This is one of the easiest ways to obtain interest-free cash as a large number of banks offer current accounts with 0% overdrafts. However, the 0% part does not always last forever and is usually just a welcome bonus for a certain amount of time.
How much you can borrow depends on the terms that you and your bank can agree on, however, we are usually talking quite small amounts here. A typical overdraft may be around £1,5000.
The catch with many overdrafts is that you may be charged for staying in your overdraft too long and doing this can be very counterproductive.
A 0% new purchase credit card
You can get interest free cash by taking out a credit card which offers you 0% interest on new purchases. How long that money will remain interest free depends on the credit card you get. As of present, the longest 0% offer comes from MBNA which offers their customers a 30-month interest free period.
There are five other providers which offer an average of a 28-month interest free period on new purchases.
You need to watch out for when your 0% deal ends, you will normally be charged a rather high amount of interest on what will be your remaining balance. Therefore, it is crucial that you clear your balance before this happens.
If you do still have remaining balance when you 0% deal ends, you may want to try and take out 0% balance transfer card and shift the leftover debt onto there.
PayPal credit is great if you are in immediate need of access to credit. You simply apply online and it will apply your credit limit to your PayPal account, this will usually be done within the same day of application. This credit can be used for your online purchases from retailers which accept PayPal (which is most of them).
That being said, to make it interest free, you will need to spend above £150 in a single transaction. You will then get 4-months of interest free cash in order to pay off your debt.
Please note that you will likely not be accepted for this if you have a bad credit rating.
The newest “pay it off later” tech to grace the financial work is Klarna. It is the only interest free loan listed in this guide which does not require a hard credit check and will not appear on your credit report.
With Klarna, you get 14 to 30 to pay off a purchase, depending on the retailer. It only works with retailers which offer Klarna. More and more are signing up, recently ASOS started accepting it.