Have you ever come across a term- interest-free loans or zero-interest loans? It is not surprising to know that the term threw you off balance. It seems like you are paying money back to the lender without interest, right?
If so, the lending industry would have got vanished years ago. Of course, if you are borrowing money, you will have to repay the money along with the interest.
This is because a pound today will not have the same worth in the future because of economic crisis. Financial institutions charge interest to withstand dropdown in the value of money. Personal loans and secured loans cannot be interest free.
Whether you are borrowing a nominal amount or a large amount, you will have to pay interest. However, it does not mean that lenders are being fraudsters by advertising their products as interest free.
What are interest-free loans and how can you get them?
Contrary to personal loans and secured loans, interest-free loans are a type of debt you take on using your credit card. However, if you do not manage it carefully, you will end up paying much more interest compared to other short-term loans.
You can avoid interest on your credit card debt if you pay off before the grace period expires. Note that the cost of the loan will quickly add up because of fees imposed due to late payments. Zero interest deals do not come with personal loans and secured loans. You can seek deals with low interest rates but you cannot avoid them at all. Here is how you can get interest-free loans:
- 0% purchases credit card
It can be a good option if you want to make a purchase either from a store or online. 0% purchase credit card are different from standard credit cards. The latter allows you to pay off bills within the grace period that lasts up to 14 to 18 days and sometimes a month, but the former allows you to get interest free period from 6 to 12 months. It allows you to make a big purchase and spread it over the interest free period. However, do not buy anything you cannot afford.
- Interest free balance transfers
When you have an outstanding debt on your credit card, you can transfer it to an interest free balance transfer credit card. This will help you have an introductory period of six to 18 months although you will likely pay balance transfer fees probably between 3 to 5%. However, you will have to pay off a minimum due amount along with the amount you purchase.
It is usually advisable that you should focus on settling your outstanding dues first, and if you make any new purchase, make sure that it does not make it hard for you to maintain the minimum balance. Otherwise, you will immediately lose the introductory period.
Why are interest-free loans not ideal for every purchase?
Interest-free loans are generally suitable for small purchases. Even if your credit card offers a good credit limit, you should avoid using it for buying a car, for instance, or refurbishing a home.
In case you fall behind repayments due to any reasons, you will end up paying a huge amount in interest. Further, it will pull your credit score making it all but impossible to apply for a loan at affordable interest rates.
This is why it will be better if you apply for a personal loan instead of funding your needs with interest-free loans. If interest rates are higher, you can think of putting collateral to avail yourself of attractive interest rates.
However, make sure that you repay the whole of your loan on time. Otherwise, you will end up losing your valuable asset. Contact a reputed direct lender like easyloansuk.uk to get attractive interest rates on unsecured and secured loans.
Interest-free loans exist but they are a type of debts you take on using your credit card. Other types of loans including short term do not come with zero interest facility. However, you can qualify for low interest rates if your credit score is good and income statement is strong.