How to borrow money interest-free

While all personal loans charge interest, it’s still possible to get short-term, interest-free credit.

Here’s how to borrow money without paying interest.

While all personal loans charge interest, it’s still possible to get short-term, interest-free credit.

Here’s how to borrow money without paying interest.

Anelda Knoesen
From the Money team
6
minute read
Do you know someone who could benefit from this article?
Posted 13 JANUARY 2020

Can I get an interest-free personal loan?

Technically, no. 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 might be a suitable option.

If you’re looking to borrow a small amount of money over a short-term, there are interest-free credit solutions available. Here are four ways to borrow money without paying interest for a limited period:

1. Interest-free overdraft

A few banks offer an interest-free ‘buffer’ period on arranged overdrafts up to a certain amount. This could be a solution if you only want to borrow a small amount for short-term, emergency funds. However, overdrafts shouldn’t be used for long-term borrowing.

Some banks still offer an interest-free buffer period on their arranged overdrafts as standard.

**Correct as of December 2020.

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.
  • If the interest-free buffer is for a limited period only, you’ll then be charged the standard interest rate, which could be as high as 39.9%, once it ends. So make sure you pay off your overdraft in full before then. If you go over your arranged limit, you could face high charges and may even have the 0% offer taken away.

2. 0% balance transfer credit card

This could be an option if you’re paying high interest on other credit cards. Transferring the balance of existing credit or store cards to a 0% balance transfer credit card allows you to pay off your outstanding debts without paying interest over the term.

Just be aware that most 0% balance transfer cards aren’t totally free. The majority of lenders charge a transfer fee – usually around 3% – on the amount you transfer.

For example, if you have a debt of £1,000 and transfer it over, the transfer fee at 3% would be £30. But that’s still a lot less than the interest rate you’d be paying on existing cards, which could be 20% or more.  

You should also check the length of an interest-free period. It varies between lenders and can range anywhere from 18 to 29 months.

What to watch out for:

  • You must pay at least the monthly minimum payment each month or you’ll be charged a penalty fee and could lose your 0% interest offer.
  • If you use the balance transfer card to buy something or withdraw cash, you could be charged a hefty fee as purchases and withdrawals aren’t usually included in the 0% interest-free deal.
  • If you don’t pay off the full debt within the 0% period, you could face big 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. At the moment, the typical credit card interest rate is around 20%.

3. 0% purchase credit card

This could be a good option if you’re planning a single expensive purchase. A 0% purchase credit card allows you to buy something up front, then spread out the cost over a set period without paying interest.

Some providers offer an interest-free period of up to 20 months. Once the 0% period is up, you’ll then be charged the provider’s standard APR – typically around 20%.

However, deals with the longest interest-free period only tend to be offered to customers with an excellent credit rating.

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.
  • It might not be a good option if your credit rating is less than perfect.

4. 0% money transfer credit card

This could be a good option if you need a cash boost without having to take out a loan. A 0% money transfer credit card lets you transfer money from the card into your bank account. You can then spend it however you wish.

Also known as a ‘cash advance card’, a money transfer credit card could be useful if you’re looking to pay off an expensive overdraft or other debts.

Like a balance transfer card, you’ll need to pay an upfront transfer fee, which could be up to 4% of the amount borrowed.

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.
  • You’ll need to make sure the balance is paid off in full before the end of the 0% period when the interest kicks in.
  • 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.
  • If your credit rating is less than perfect, you might be offered less than the advertised 0% period.

Credit card eligibility

Use our credit card eligibility checker to find out which credit card deals you might be eligible for. This is a soft search which 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.

Other ways to borrow money

Family or close friends
If you need quick access to emergency funds, it might be worth asking a family member to step in and help. It could be a cheaper option as it’ll probably be interest free and might not be subject to a term length. 

It could be worth getting something in writing to formalise the agreement and protect both parties. You should also aim to set up a realistic repayment plan to show how you’re going to pay back the money.

Just make sure you can afford the repayments, as non-payment could end up souring relationships or even ruining a friendship.

Personal loan
If you need to borrow a larger sum of money (over £5,000), a personal loan might work out cheaper in the long run. 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.  

Just check whether the advertised APR is ‘representative’ or ‘guaranteed’. If it’s representative, this is the lender’s best rate which 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 also be charged penalty fees and additional interest if you miss or make a late payment.

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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