Are Interest-Free Loans Really Interest-Free? [year] GUIDE

People take loans to fulfill their needs. It is a specific amount of money that people can take from other people or banks.

But they have to return the borrowed amount in a fixed time with interest.

Taking a loan is not a good option for people who have only one source of income.

Because they will get burdened by the amount extra amount of interest that they have to pay with the borrowed money.

Want to know the best part?

For such people, there are now interest-free loans. Therefore, people only have to return the borrowed money.

But the main question here is. Are interest-free loans interest-free? This is a genuine question.

However, many people failed to give this answer. But you should not worry about this.

As in this article, you will get a full guide about interest-free loans.

So let’s start the discussion!


What Is A Interest-Free Loan?

Interest-Free Loan
Image By aoefib

An interest-free loan is a personal loan. But it has some special terms and conditions.

According to these terms you do not have to pay the extra cost of interest.

However, such loans come with different borrower requirements that are tied to the thing for which you use the loan money.

If you somehow do not follow these requirements, you will have to pay the interest amount with the borrowed money.

Want to know more?

There are only some lenders that do not charge interest on personal loans.

While the others do charge interest.

For Example:

Some universities provide Emergency Student Loans with 0% APR. 

Moreover, some local and nonprofit organizations offer interest-free loans. It means people only have to pay the money that they borrow.

Keep in mind:

Interest-free loans come with specific terms. Usually, they have a specific time limit.

If you pay the loan money back in the given time then there is no need to pay the interest.

On the other side, if somehow the time exceeds then you have to pay the full interest amount.

Check The Requirements On A Interest-Free Loan:

Interest-Free Loan

On social media, you may see many interest-free loans ads. Do not just apply for them when you see them.

Because they may come with specific requirements. So make sure you read all the loan requirements.

Also, contact the person who offers the loan to make sure you do not miss any requirements.

The main reason why you should read the detail is that in some cases interest-free loans also charge deferred interest.

It means that the money you borrowed will decide the interest amount instead of your active balance.

Types Of Interest-Free Loan:

Deferred interest is the most common type of interest-free loan. In the case of deferred interest, you will pay the interest, if you do not pay the complete loan during the specified time.

So, if you do not pay the loan money before the time ends, you will charge the interest amount.

On the other hand, the interest-free portion may apply for a specific time and not for a complete loan.

This type of interest-free loan is common with a 0% APR credit card.

It is the annual percentage rate that offers interest-free freelancing for 1 or 2 years before switching over to interest charges.

In the end, interest-free loans may charge other fees like

  • Origination Fees
  • Prepayment Fees
  • Application Fees

Here, lenders may deduct these fees from the amount that you borrowed.

It means to compensate you will need to borrow a good amount.

These tactics are not always explained clearly to the people.

But you should know about them before signing any loan document.

Alternatives To Interest-Free Loans:

Alternatives To Interest-Free Loans:

If you find a personal loan with 0% interest and you only have to pay the money that you borrowed.

Then this is a good deal. But unfortunately, you do not find loans easily that is completely interest-free.

There are only specific or limited lenders that give you interest-free loans. But if you do not find a complete interest-free loan.

Then for a better facility, you can use the following options to get a loan

1. Personal Loans:

Typically, personal loans have some interest. But you can pay the interest over a specific time along with your loan payment.

Also, on personal loans, there is no need to stress about the deferred interest. Some personal loans do not need collateral therefore they are unsecured.

Almost for all personal expenses, you can use a personal loan. For the approval of personal loans, you need to wait for a week.

While some lenders give loans as soon as your business proposal gets approved.

What’s the bottom line:

You can only qualify to get a personal loan when you have good credit.

As your credit will also affect the interest rate that personal loan lenders offered you.

In simple means, you get the facility of low-interest rates when you have excellent credit.

On the other hand, some lenders give loans for fair or poor credit like personal loans for a 600 credit score or less.

The main purpose of these loans is to increase the interest rates as compared to the best credit loans.

So, it is better to consider the multiple lenders as much as you can before getting a personal loan.

As in this way, for yourself, you will get the appropriate personal loan. Moreover, credibility makes the personal loan process easy.

2. Credit Cards:

Credit Cards

Credit cards are different than personal loans. It is a type of revolving credit. This means you can pay off and draw on your credit line repeatedly.

If you consider choosing a credit card over a personal loan. Then remember that credit cards have higher interest rates than the interest rates of personal loans.

However, you will not charge the interest by the many credit card issuers. Only if you pay off all your dues in a specified time.

On the other side, if your monthly payments are minimum. Then you may pay more credit card interest as you pay for a personal loan.

Here’s the kicker:

Some credit cards give the 0% APR for the introductory periods. This introductory period is of 12 to 18 months. It depends on the card issuer.

It means that you can avoid paying interest completely. If before the end of an introductory period, you repay the full balance.

But if in time you can not pay off the card then you may be stuck with some heavy interest charges.

3. 401(k) Loan:

You can open a 401(k) account with the help of an employer. If you take the employer’s help to have this account then you can borrow $25,000 or the double amount from your 401(k) plan.

Normally, within 5 years you have to pay the full amount for a 401(k) loan.

But still, you can avoid the 5 years rule if you plan to invest the money by buying a house.

As compared to the personal loan, the interest rate for 401(k) loans are lower.

But over the prime rate, this plan has a specific percentage.

Also, 401(k) loans do not need a credit check, unlike personal loans. And they 401(k) loans are not reported to the credit bureaus.

Do you want to know more:

If you select the 401(k) loan it means you are borrowing money for your future self.

Even if you pay back the full money, you could lose the overall gain on investment.

In addition, if you leave the employer that has an outstanding loan balance and sponsors your 401(k).

Then you will have to repay the full loan by the following year or penalities and face taxes.

But this is not good as you may come in a difficult financial position and can not live peacefully.

Be Careful When You Borrow:

There are some other types of loans that you may come across like

  • Pawnshop loans.
  • Car title loans.
  • Payday loans.

These types of loans may be enticing if you have low credit. Because typically they do not require a credit check.

However, these loans can be very risky. Also, many of these loans have very short repayment terms.

Usually, they have 30 days or less time. But with the high-interest fees and rates astronomically.

For Example:

Payday loans may charge up to 400% APR. Because of this, you should keep these loans options last in the list after you have tried all other methods.

Should You Get A Interest-Free loan?

Here are some reasons due to which you should take an interest-free loan. So have a look at them.

1. Debt Consolidation:

It is one of the most common reasons due to which you should take an interest-free loan.

You will combine all the outstanding balances into a monthly payment, when you apply for a loan and use this money to pay off multiple credit cards or loans.

This debt grouping makes it easier for you to work out time fame. So that without getting overwhelmed you can pay off your balances.

In addition, at a minimum cost, personal interest-free loans allow you to pay off your credit cards.

Isn’t it amazing?

You can reduce the amount for interest with minimum interest rates. And also the time that you take to pay all debt.

Moreover, you can pay for your credit cards before the specified time through fixed-term consolidation.

2. Payday Loan Alternative:

Payday Loan
Image By Adam Smith

Personal loans are better than a payday loan if for emergencies you need money.

Because you can save hundred of interest charges by using an interest-free personal loan.

Also, according to the research, the average payday APR is 91% while the maximum personal loan interest rate is 36%.

In addition, payday loans repayment terms are short. They usually have a time of 2 to 4 weeks.

This quick turnaround time makes it difficult for the borrowers to repay the loan payment within the due date.

In most cases, borrowers are usually forced to renew their loans instead. Due to this accrued interest is added with the borrowed money.

Simply, the total interest amount increases. On the other hand, a personal interest-free loan has longer-term lengths and costs the minimum or even 0 interest.

3. Home Remodeling:

You should use the interest-free loan to complete the necessary repairs like redoing the electrical wiring or fixing the plumbing or upgrade your home.

Moreover, the interest-free loan fits great with the people that have zero equity in their homes.

Also, for the users that refuse to take a loan or credit line.

4. Moving Costs:

Moving Costs

According to research, the average local move cost is $1250. While the long-distance move costs $4890.

So if you do not have such a huge amount of money in your hand. Then you may need to take an interest-free loan to pay your expense for moving.

Along with moving household items from source to destination, these loans also help you to

  • Buy new items for the home.
  • Cover all extra expenses.
  • Move household items in a different country.

If you are moving somewhere without having a job, then these interest-free personal loans will help you to stay afloat.

Therefore, you can avoid raiding your emergency fund or savings.

5. Emergency Expenses:

To handle any emergency, you should take interest-free personal loans. Because by taking them you do not have any need to use your savings.

As you save money to fulfill your dreams.  But if you use your savings in such a situation then you can not fulfill your dreams.

You will have to wait more and to fulfill your life goals work harder. Therefore it is considered better to take an interest-free loan.

Because in this way, you can pass the emergency and return the money at a specific time without any interest.

Also, your money and emergency funds will be the same. It means you may not wait for more time to achieve your goals.

6. Appliance Purchases:

Appliance Purchases

Home appliances can stop working at any time. To continue your work you need to buy new ones as soon as possible. 

Because if you do not buy them in a short span then your work will become bigger and you can not handle it ones.

Not all home appliances are costly. But some have high prices that you can not afford immediately.

So, in such a case, it is better to take an interest-free loan. To buy the required item.

As only in this way you can fulfill your requirement without disturbing your budget or burdening yourself.

It gets better:

Taking a loan is not only limited to buy a damaged item. You should take a loan to buy the costly items for your home.

Especially, installing a home entertainment costs a lot of money. Because you have to buy multiple things to create a proper setup.

If you take an interest-free loan for creating entertainment in the home. Then it is a good idea.

As you can pay the borrowed money in intervals. Also, the 0 interest will not add any burden on you.

7. Vehicle Financing:

Vehicles are the need in this era. They are available at both cheap and costly prices. You should buy a cheap vehicle to save money.

But its maintenance and repairing cost too much money. So it’s better if you buy a brand new vehicle by investing money.

Having a branded and costly vehicle is included in luxury, not a requirement. Therefore, you should not spend your savings.

You can take an interest-free loan in this case. In this way, you will have a luxury vehicle without empty your account.

With this, you can manage the maintenance of the vehicle and enjoy your life without having financial issues.

8. Wedding Expenses:

Wedding Expenses

Like all other expenses, a wedding is the most important expense. According to research in 2019, the average wedding cost was $28,000.

For couples, who can not afford a fancy wedding an interest-free loan is the best option. Because in this way, they can enjoy their wedding without having financial crises.

People usually take large loans for selecting the right venue, a bridal dress, and for food.

As the small expenses like photography, flowers, wedding coordinator, and cake can be managed easily.

Moreover, you can buy an expensive diamond ring by taking an interest-free personal loan.

The ring that you use in your wedding will determine the actual cost. If you think if you have enough investments to get a costly engagement ring then you can spend your investments.

On the other hand, if taking out your investments can disturb your financial position. Then there is no need to use your savings you can just take a small personal role for that.

9. Vacation Costs:

To enjoy life it is better to need a break from the busy life schedule and work. Because vacation helps you to rediscover yourself and see natural beauty.

But not all people afford to go on fancy vacations. Because they have fewer savings or a single income source.

If they somehow manage to go on vacations with their savings. Then they may face a financial crisis on returning.

Therefore, it is always a better choice to take personal interest-free loans to go for vacations with your loved ones.

What Things You Should Consider To Get Interest-Free Loans?

To get interest-free loans you can apply to multiple places. But not all lenders provide genuine interest-free loans.

As they have specific requirements that if you do not follow you will be in crisis.

So it is best to look at all the loan requirements carefully before you sign any official document.

Because when you think about the interest-free loan, your motive is to save the money and lower your loan cost.

Therefore, it is better to understand everything about interest-free loans before you apply for them.

So consider the following questions before you apply for interest-free loans.

1. Is It A Interest-Free Loan?

Many people on the internet run interest-free loan ads to get people’s attention. But their main motive here is to get more customers instead of providing interest-free loans.

So make sure, the loan that you are applying for is interest-free. To know about all the requirements you can directly ask the advertiser or can read the document carefully.

Just to know that you do not have to pay any interest in any way.

2. Can You Meet The Loan Terms?

If you can not fulfill the terms that are associated with your loan. Then it is better not to consider such an interest-free loan.

Instead, you can go for another loan like a personal loan or anything that you find cost-effective and valuable.

Moreover, if you select any loan type, make sure you can return the borrowed money within the required time limit.

3. Will You Lose Other Perks?

Some lenders take advantage by offering interest-free loans. So make sure you do not borrow money from such lenders and save your other perks.

After receiving answers to all questions consider such an interest-free loan. As here you can save your money and tackle the emergency.

But if you do not get a single answer to a question. Then stop considering such a loan plan and follow the one that gives you the benefit.

There are many loan options that you should review. If you select a loan plan, then make sure the lender is good.

And he has fewer requirements attached to the loan. So that you can complete all the loan requirements easily.

Moreover, if you are stuck with multiple loan options. Then select the one that has less interest rate and the best lender that attached fewer requirements.

Also Read: Living Stingy: A Helpful Guide to Frugal Living

Wrapping It All Up!

That’s all viewers, in conclusion, we will say that you should consider the interest-free loan. Because it will help you to tackle the situation without spending your investment.

Also, you can return the money slowly in some time instead of giving it at the same time. This can reduce your burden and help you to enjoy life without having any financial problems.

But most importantly, you can not get an interest-free loan easily. You have to search properly so that you can find the original deal.

Also, you should read all the requirements just to make sure you can fulfill all the requirements without increasing your burden.

If you manage to get such a good deal then avail it as soon as possible before you miss the chance.

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