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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.

 

Written by
Alex Hasty
Insurance comparison and finance expert
Last Updated
19 DECEMBER 2022
6 min read
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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.

But if you want to borrow a small amount of money over a short period, 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’ on arranged overdrafts. This is the amount of your overdraft that you won’t pay interest on or be charged a fee for. It could be a solution if you only want to borrow a small amount over a short time, like to pay an unexpected bill. However, overdrafts shouldn’t be used for long-term borrowing.

Interest-free amounts and time limits can vary among banks, so make sure you check the terms and conditions carefully. If you exceed the limits of your ‘buffer’, the interest charges can be hefty.

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 after that. 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 for a set period of time.

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, the transfer fee at 3% would be £30. But that’s still a lot less than the interest rate you’re likely to be paying on existing cards.

You should also check the length of an interest-free period. It varies among 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 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).

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 upfront, 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.

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 want to.

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.
  • 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 that won’t affect your credit score.

Comparethemarket 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 for another way to borrow money? Try a 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 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.

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.

Personal loan eligibility checker

Frequently asked questions

What does APR mean?

APR stands for Annual Percentage Rate. It’s the total cost of borrowing money, including interest and other charges, over the course of a year. When it comes to loans, customers with the best credit scores are typically offered the lowest APRs.

What is a good credit score?

That’s a tricky one to answer, simply because there are three different credit reference agencies in the UK – Experian, Equifax and TransUnion – and each has their own way of scoring credit.

Ultimately, the higher your score, the more chance you have of being approved for credit.

How can I improve my credit score?

While a good credit score can’t get you an interest-free loan (as they don’t technically exist), it can help you access better deals with a lower APR.

Paying your bills on time, clearing outstanding debts and even registering to vote can all help improve your credit rating over time. Find out what else you can do to help build your credit score.

The content written in this article is for information purposes only and should not be taken as financial advice. If you require support on the products discussed here, please speak to your bank/lender or seek the advice of an independent professional financial advisor. We also have more information on our Customer Support Hub.

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