No
Interest Loans

What is an Interest-Free Loan?

Interest rates are usually tied to most bad credit loans. Lenders charge interest as a fee for lending you the money over a certain period of time. When you take out a loan, you’ll be offered a specific interest rate, usually called an APR (annual percentage rate) and conveyed as a percentage. 

This means not only will you have to pay back the sum of the loan, but you’ll also be charged an amount for the lender giving you the money. Depending on the interest rate, what you actually payback could be a lot more than the original loan amount.   

It’s no wonder, then, that some people who require a loan wonder if there are interest-free loans and how they could obtain one.

As you can imagine from its name, an interest-free loan is a loan that charges no- interest. For this reason, it can be challenging to find.

Even when loans are advertised as interest-free, in many cases, you will still end up paying more than you borrowed in the end.

There are several types of interest-free loans available for those who take the time to search for them:

• Deferred interest loans – these loans charge interest when you fail to pay the entire amount of the loan off in full by the time the promotional period comes to an end. Retroactive interest payments will usually be owed if you haven’t repaid your total loan amount before the timeframe ends.

• Sometimes, an interest-free portion of a loan will only be applicable for a set period and not for the whole term of the loan. This is frequently seen with 0% APR credit cards that offer financing interest-free for the first 12 or 24 months before they switch to charging you interest (often at a high rate).

• Some interest-free loans will charge other types of fees, for example, application fees, prepayment fees or origination fees. The lender deducts these fees from the total amount of the loan, so you’re required to borrow more than you thought you needed to compensate. These tactics often won’t be explained upfront, so it’s essential to read the fine print carefully before you sign any agreement.

Although these loans sound unlikely, interest-free loans can be found. Though, they are typically offered high-priced services and goods. For example, on products like furniture, jewelry, and electronics. Often, these will be deferred interest deals which aren’t interest-free loans unless you can pay the entire amount off before the promotional period comes to an end.

You may find an interest-free loan at a car dealership to clear vehicles that are slow to sell or make space for new models. 

You may also be able to obtain an interest-free loan for a medical or dental procedure. Of course, these loans can only be used for the purpose they have been agreed on and are usually for substantial sums.

How Do Interest-Free Loans Work?

Most loans will require you to repay the amount you borrowed plus interest.

When you take out an interest-free loan, you won’t pay any interest charges. Instead, you’ll just be required to pay back the initial sum you borrowed. 

It’s important to always read the small print before taking out an interest-free loan. In many cases, you’ll find that the loan isn’t really interest-free but can come with hidden costs and fees or a high rate of interest if you fail to adhere to all the terms and conditions.

How Does My Credit Score Affect My Loan Interest Rate?

Every time you make a loan application (or any application for credit), the lender assesses whether you are creditworthy by considering information like: 

• Your credit history and other public data on your credit file. 

• The details you gave in your application, including your savings and income. 

• The data that they have about you if you’ve already been their customer in the past. 

If you have a high credit score, the chances of you being approved for credit are good, and you’ll usually be offered a lower rate of interest. 

You may also be permitted to borrow a more significant sum of money.

All lenders have different lending criteria, so you may find that one lender will offer a better or worse rate than the other. 

This is why comparing loans is so important. It’s also essential to check whether you’re eligible for a loan before you make an application since a record of your application will be kept on your credit file for some time. 

If you’re refused, this could have a negative impact on your credit rating.

How To Lower My Interest Rates

It makes sense to get as low an interest rate on your borrowing as possible as this will mean you pay back less money overall. Here are a few tips to point you in the right direction:

• Try to improve your credit score. You should check your credit rating with the credit reference agencies, correct any errors you see, and work out what may be affecting your rating. 

• Avoid making a lot of applications for credit in a short period of time. Every time you apply, it will be recorded on your credit file as a hard search, even if you aren’t accepted. If a lot of checks are done this will reduce your score, making it less likely that you’ll be approved for a better interest rate. 

• Find out more about the different types of loans available so you can find one that is right for you. This is especially important if your credit rating is poor. 

• Consider alternatives to a traditional personal loan. 

Will A No-Interest Loan Work for Me?

Most no-interest loans are not interest-free at all. The interest-free period is only for a set amount of time. Therefore, you should avoid this type of borrowing if you’re unsure whether you’ll be able to fully repay the whole amount by the end of the term. 

You could find that the rate of interest you are charged once that period has expired is very high, which could lead to you spiraling into financial debt that could be hard to get out of. In such cases, taking out a traditional loan with interest may be a better option for you.

For these reasons, you must always do your research well before agreeing to any loan offer. Look carefully at your lifestyle and your budget as well as your incomings and outgoings. 

It’s essential to consider carefully whether you’ll be able to maintain the repayments on this type of loan or whether a different financing option is a better choice for you.

Why Is Creditspring a Good Alternative?

Although most interest-free loans do not offer what they claim to, there is somewhere you can be confident you’re borrowing money without any interest or hidden fees.

Creditspring offers a no-interest loan that is an ideal solution for anyone who is suddenly facing an unexpected expense such as an urgent car repair or an emergency boiler replacement.

For people with a less than perfect credit score, traditional borrowing may be too expensive or even out of the question ultimately, and that’s where Creditspring can help. 

It’s easy to manage your repayments with Creditspring. With the no-interest loan, you only need to repay the amount you borrowed along with a fixed low monthly membership fee – absolutely no-interest at all!

If you’re approved for a membership, you’ll be invited to borrow up to two advances of up to £500 each. 

You’ll then be required to pay off the loan each month over a year while paying a low £7, £10, or £14 membership fee (dependent on your membership). This makes it a breeze to budget effectively.  Staying consistent and up to date with payments will make you more creditworthy – giving you access to more credit products.

Since Creditspring’s products are designed to help many, including those with a poor credit history who struggle to gain access to other types of credit, you don’t need to worry that your credit score is too low. 

Even if your credit isn’t in good standing right now, that doesn’t necessarily mean you cannot be a Creditspring member, as your credit score isn’t the only thing taken into account. So, check whether you’re eligible now – there’s nothing to lose, and you could gain access to no-interest loans that can help you cover your unexpected costs. 

FAQs

Do 0% loans really exist?

It is still is possible to get a 0% interest loan in the UK, but first it’s important to understand what that really means. A 0% loan is most likely not a ‘free’ loan. In most cases there will be other terms attached. So like any financial product, it’s necessary to understand all the terms, why someone would offer an interest free loan, and what to be aware of in general.

It’s possible to get an interest-free loan that has charges elsewhere in the product. Some companies who want to sell products, like cars and tv companies, will offer a 0 interest loan if you buy their product. Credit card companies may offer 0% interest for a limited time. In all of these cases, the loan is not free and you shouldn’t expect it to be. There will be charges elsewhere, even if you aren’t paying interest.

That doesn’t mean these loans can’t be useful. By removing interest charges, lenders can make it easier for people to understand the real charge. This is because interest rates can be confusing for many, and APR can be even more confusing, especially for shorter dated loans.

Why loan with 0 interest can be helpful?

So now we know that most 0% loans or interest-free loans aren’t really free. There is a cost that shows up somewhere and that cost is usually how the lender will make a profit. That does’t mean loans with 0 interest are bad. They have many other potential benefits, and like all financial products, you need to compare the true costs and benefits to make a decision.

By offering loans with 0% interest, lenders also give a borrower time to get their finances in order. If they can put a substantial amount of their outstanding debt onto a 0% transfer card, they can stop worrying about charges piling up and instead focus on how they will make repayments. Removing interest makes things that much simpler which can go a long way when trying to navigate your finances. However, it’s still important to make sure you understand the total cost of credit when comparing an interest free loan with a more standard interest loan.

How can interest free loans have an APR?

It’s important to understand the difference between an interest rate and the APR. The APR reflects the total charge for credit, including all interest charges and other charges. It is calculated based on a number of factors including the charge for credit, how much is outstanding, and how fast it is repayed.

An interest rate is a specific way to charge a fee. If the cost of the loan is based on an interest rate, you will pay a specific % of what you borrow, determined by that interest rate. The total cost of credit will be your interest and charges and that will make up most of your APR. In most loans the interest rate and the APR are very similar if not the same.

For interest free loans since there is no interest on the principle loan amount, the interest rate is 0%. However, as we know from the above sections, there is usually still a cost to these loans. This cost will show up in the APR. So in the case of fixed-fee loans, the charge of the fixed fee will make up the APR. For a 0% balance credit card, the transfer fee will show up in the APR.