How to borrow money interest-free
Interest-free loans may not be a thing, but it’s still possible to get short-term, interest-free credit.
We look at how interest works on a loan and explore alternative options for interest-free borrowing.
Interest-free loans may not be a thing, but it’s still possible to get short-term, interest-free credit.
We look at how interest works on a loan and explore alternative options for interest-free borrowing.
How does interest work on a loan?
When you apply for a loan, you’ll be offered an interest rate. That is essentially how much it will cost you to borrow. You’ll have to pay the interest on top of your monthly repayments for the length of the loan.
The interest rate is worked out as an annual percentage of what you borrow and is based on factors including:
- How much you want to borrow
- How long you need to repay the loan
- Your credit score and borrowing history
- The Bank of England base rate
- What type of loan you choose.
Loans are often advertised with a representative annual percentage rate (APR). The APR is the interest rate plus any fees you’ll have to pay for the loan, such as an arrangement fee.
Lenders must give the representative APR to at least 51% of customers accepted for the loan, but the rate you’re offered could be lower or higher than advertised.
Can I get an interest-free loan?
No, there’s technically no such thing as a 0% interest loan – unless, that is, you’re offered a no-interest loan from the ‘bank of mum and dad’, or a generous friend or family member.
Personal loans, whether secured or unsecured, all charge interest.
However, interest rates for personal loans are typically much lower than credit cards. If you’re looking to borrow up to £25,000 over a longer period, a low-interest personal loan could be a suitable option.
But if you want to borrow a small amount of money over a short period, there are interest-free credit solutions available.
Short-term interest-free finance options
If you’re looking for the cheapest way to borrow money, it’s good to know that you could have a few options for interest-free borrowing in the short term. However, whether they’ll work for you depends on your personal circumstances.
Here are five ways to borrow money without paying interest for a limited period:
Interest-free overdraft
If you arrange an overdraft with your bank, you’ll be able to borrow up to a certain amount over your current account balance.
Overdrafts typically have higher APRs than loans and credit cards, so they’re not normally one of the cheaper ways to borrow.
However, some student bank accounts offer interest-free overdrafts, making them essentially an interest-free loan for students in the UK.
A few banks offer an interest-free ‘buffer’ on arranged overdrafts. This is the amount of your overdraft that you won’t pay interest on or be charged a fee for. But it’s typically a nominal amount unless you have a packaged bank account.
Other banks may offer an interest-free overdraft for a set period to attract new customers.
What it’s good for:
An arranged interest-free overdraft could be a solution for short-term emergency borrowing, for example to cover an unexpected bill.
Arranged overdrafts are subject to status and eligibility. You must be 18 years old or over and you must be a UK resident to apply for an overdraft.
What to watch out for:
- Make sure you fully understand how long the interest-free period lasts for and what your interest-free limit is.
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If the interest-free buffer is for a limited period only, you’ll be charged the standard interest rate after that. So make sure you pay off your overdraft in full before then.
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If you go over your arranged limit, it may affect your credit score and you could even have the 0% offer taken away.
0% balance transfer credit card
With a 0% balance transfer credit card, you can transfer outstanding balances from other credit cards and get a break from paying interest on your debt for a set period. The length of the interest-free period varies among lenders and can range anywhere from 16 to 30 months.
Just be aware that most 0% balance transfer cards aren’t totally free. Lenders often charge a transfer fee – usually around 3-4% of the amount you transfer. But that could still work out as a lot less than the interest rate you’re paying on existing cards.
What it’s good for:
A 0% balance transfer credit card could be an option if you’re paying high interest on other credit cards and you want to simplify your debt. The interest-free period could help you pay off what you’ve borrowed more quickly and mean less interest on your borrowing.
You must be over 18 and a UK resident to apply for a 0% balance transfer credit card. All applications are subject to status and lending criteria and are based on your individual circumstances.
What to watch out for:
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You must pay at least the monthly minimum payment each month or you’ll be charged a penalty fee and you could lose your 0% interest offer.
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You may need to make any balance transfers within a set period after opening the account in order to benefit from any 0% offer.
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If you use the balance transfer card to buy something or withdraw cash, you could be charged a hefty fee as purchases and withdrawals often aren’t included in the 0% interest-free deal.
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If you don’t pay off the full debt within the 0% period, you could face high interest charges on the remaining balance.
- If your credit rating isn’t perfect, you might be offered a shorter 0% interest-free period than advertised.
- Once the interest-free period is up, the rate will typically revert back to the lender’s standard APR (annual percentage rate).
0% purchase credit card
A 0% purchase credit card allows you to buy something upfront, then spread the cost over a set period without paying interest.
Some providers offer an interest-free period of up to 23 months, if you qualify. However, deals with the longest interest-free period only tend to be offered to customers with an excellent credit rating. If you have a low credit score, this interest-free period could end in a matter of months.
Once the 0% period is up, you’ll then be charged the provider’s standard APR.
What it’s good for:
A 0% purchase credit card could be a good option if you’re planning a single expensive purchase. If you’re able to pay off your debt before the end of the interest-free period, it could allow you to split the cost of a purchase over a longer timeframe, without paying any extra in interest.
If used in this way, a 0% purchase credit card could effectively act as an interest-free loan.
You must be over 18 and a UK resident to apply for a 0% purchase credit card. All applications are subject to status and lending criteria and are based on your individual circumstances.
What to watch out for:
- You’ll need to clear the card in full by the end of the 0% period to avoid hefty interest charges.
- You must pay at least the monthly minimum payment each month or you’ll be charged a penalty fee and could lose your 0% deal.
- Late or non-payments could also result in a fee and you’ll most likely lose the 0% deal.
- The length of 0% interest-free period you’re offered will depend on your credit score and may be different to that advertised.
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Don’t withdraw cash on your card – the 0% interest-free period normally only applies to purchases, while interest charged on cash advances can be high.
0% money transfer credit card
A 0% money transfer credit card lets you transfer money from the card into your bank account. You can then spend it however you want to.
Like a balance transfer card, money transfer cards don’t let you borrow for free. You’ll need to pay an upfront transfer fee, which could be around 4% of the amount borrowed.
What it’s good for:
A 0% money transfer credit card could be a good option if you need a cash boost without having to take out a loan. You could use a money transfer card to pay off your overdraft or essentially use it as an interest-free small loan to spend as you will.
But as with all these options, to make it work for you, you’ll need to pay back what you borrow before the end of the interest-free period.
You must be over 18 and a UK resident to apply for a 0% money transfer credit card. All applications are subject to status and lending criteria and are based on your individual circumstances.
What to watch out for:
- Once the interest-free period is up, you could end up paying a much higher APR than you might for a personal loan.
- If you make a purchase or cash withdrawal with the card, you’ll be charged interest.
- You must make the monthly minimum payment every month or you could lose the 0% deal.
- Depending on your credit rating, you might be offered less than the advertised 0% period.
0% store finance
Several online retailers and high-street stores offer buy now, pay later (BNPL) credit to help you spread the cost of purchases, such as clothes and furniture.
Many stores offer 0% APR for a fixed period, giving you time to pay off your balance before being charged interest.
Well-known providers include Klarna and Clearpay, who pay the retailer for you, then you can pay back what you owe over time.
What it’s good for:
BNPL can be a convenient way to buy what you need without having to wait until payday. It’s also ideal if you want to try before you buy, as you only have to pay for the items you keep – as long as you meet the returns requirements.
What to watch out for:
- Because BNPL makes it easy to borrow money, you may be tempted to spend beyond your means. It’s essential to keep track of how much you owe so you can stay on top of your debts.
- If you’re planning on making several purchases, there may be better options available to you. One example is a 0% purchase credit card, which is likely to give you a longer interest-free period.
- If you miss a payment, the fees can be high with BNPL and you might lose your 0% deal.
Credit card eligibility
All of the interest-free credit card offers available are subject to the provider’s eligibility criteria and an assessment of your creditworthiness and affordability. It’s a good idea to shop around and see what deals may be available to you so you can compare your options.
Use our credit card eligibility checker to find out which of our credit card deals you might be eligible for. This is a soft search that won’t affect your credit score.
Compare the Market Limited acts as a credit broker, not a lender. To apply you must be a UK resident and aged 18 or over. Credit is subject to status and eligibility.
Looking to borrow a larger sum? Compare personal loans
If you need to borrow a larger sum of money (more than £5,000), a personal loan could be a better option. Although interest-free personal loans are not available, rates are typically lower than credit cards and can be spread over a longer period on a fixed-term, fixed-rate basis.
Here are some tips to help you get a lower interest rate on a personal loan:
- Build your credit score – the lowest rates are typically reserved for customers with the highest credit score, so read our guide and see if there’s anything you can do to boost your credit score.
- Wait between credit applications – if you make several loan or credit applications in a short amount of time, it suggests to lenders that you’re struggling financially. Space out applications and check your eligibility before you apply.
- Compare different types of loans – to find the right fit for you for your circumstances.
Things to watch out for:
- Check whether the advertised APR is representative or guaranteed.
- If it’s representative, this is the lender’s best rate that they only have to offer to 51% of successful applicants. You could be charged a higher interest rate if you have a low credit score.
- If the APR is guaranteed, then it’s what you’ll get if you’re accepted for the loan.
- You could be charged penalty fees and additional interest if you miss or make a late payment. It could also damage your credit score.
Use our personal loan eligibility checker to find out which loans you’re eligible for. Don’t worry, it’s a soft check and won’t impact your credit score in any way.
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The Editorial Team - Compare the Market
Experts in personal finance, insurance and utilities
Compare the Market’s Editorial Team is made up of industry experts with decades of experience in personal finance, insurance and utilities. Each of our authors has an area of expertise, where they can share their extensive experience to help you get a better deal, by finding the right product and saving money.