No-interest personal loans sound like the most cost-effective option for lending. However, you may be curious about whether they are a tangible lending product. No interest personal loans do exist—kind of.
Some personal loans have no interest for specific promotional purposes, no interest based on the type of purchase, or offers for borrowers who fit certain credit criteria. These no-interest periods are usually limited to a set amount of time or come with origination fees that make up for the interest.
In some cases, getting a personal loan with this special interest can be worthwhile and mean savings. But usually it doesn’t mean zero costs to the borrower. Lower interest rates and promotional interest rates with a personal loan are best for certain expenses. Things like debt consolidation (paying off credit card debt or personal loan debt quickly) or when you need to borrow money for a short-term emergency such as medical expenses. You can find a personal loan with online lenders, banks, or credit unions.
Keep reading to learn more about the true costs that come with a “no interest” personal loan offer and what to look for in these loan terms before taking them out.
The Most Common No Interest Personal Loan
When searching for personal loans with no interest, you’ll most likely come across either a credit card or loan offer that comes with an introductory 0% interest period. Here is how most introductory interest offers work:
- No Interest for a specific period — any credit cards and personal loans can come with no interest payments for some time. This offer could mean a few things:
- Delayed interest payments on the personal loan rather than a low-interest rate overall
- Actual savings on interest rates (usually only for those who know how to maintain a fair or excellent credit score)
- Savings only for new customers who have not worked with a lender before
- 0% interest only if you pay off the loan by a specific date — in some cases, you can get no interest on a loan, only if you pay off the entirety of the loan by a certain date.
A No Interest Personal Loan With Certain Purchases
There are a few kinds of expenses or purchases that you can finance that may not come with any interest. Here are some examples:
When purchasing any of these motor vehicles, dealerships may offer unique financing options, including no interest for a monthly payment or entire loan repayment. Frequently these flexible loan terms are implemented to boost sales during a slow season or make room for incoming inventory. Unlike unsecured personal loans, these loans are secured for the lender. And so, financing approval may be more flexible for those who don’t have fair credit.
Another form of no interest financing you may find is with electronics. Retailers like Apple (with an Apple Card) or BestBuy with their credit card offer a 0% interest rate when financing electronics through their options. And if you are a student, you get even more of a discount when financing or buying electronics outright.
Medical and Dental Expenses
Depending on your medical provider, you may be able to finance medical or dental procedures without having to pay any interest on the charges. That way, you don’t have to look for an outside personal loan to pay the medical or dental bills.
Furniture is another item you can score no interest on, depending on the retailer. Like some dealerships, inventory space is a big deal, and seasonality impacts the kinds of offers furniture stores and manufacturers offer.
No Interest for Borrowers Who Have a High Credit Score or Meet Other Criteria
Suppose you have an excellent credit score, a steady source of income, and a solid financial portfolio with your credit history. In that case, you may get certain offers that include no interest (usually limited to time or specific terms). These promotional offers are generally offered by a financial institution (bank, credit union, private lender) that you have banked with or borrowed from before.
No Interest To Consolidate Credit Card Debt
One standard offering you may find from banks is credit cards with an introductory no-interest rates period. These are also known as balance transfer cards and work well when paying off credit card debt. Instead of paying higher interest rates on multiple credit cards, you only pay interest on the new credit card. Remember that you need to have good credit history to be eligible for a balance transfer credit card with most lenders.
And so, if you have established relationships with a bank, credit union, or private lender, it will be worthwhile to ask about credit card and personal loan offers.
Non-profit Loans and Borrowing From Friends or Family Members
If you need a loan due to financial hardship, non-profits may help. They sometimes provide personal loans without any interest. Or you may be eligible for grant funding from a non-profit or community organization.
Another option to consider is borrowing money from a friend or family member. Repayment terms are usually more flexible when borrowing a personal loan from a loved one. For one, variables like minimum credit score requirements or income requirements won’t be present. And when borrowing from family or friends, you won’t pay any interest on the personal loan (usually). Keep in mind that if you do get a personal loan from a family member, it may make the relationship a little more complicated.
Repayment Terms To Look at When Applying for a No Interest Personal Loan
When it comes to a no-interest personal loan, there are a few loan details that you should pay attention to. As they can make the loan expensive:
Origination Fees With a Personal Loan
Lenders add origination fees to create the loan account. With a low-interest personal loan, it is imperative to ask about this amount before signing on for the loan. In some cases, lenders may mark up the origination fees to make up for the lower interest rate.
Repayment Terms With the Personal Loan
Look at the required monthly payment, whether you can pay off the loan early (without a prepayment penalty), and potential late fees. Also, ask whether there is a cut-off for the 0% interest and other terms in the loan agreement that impact the 0% interest rate.
Looking at Your Person Loan’s Interest Rates—APR Rather Than MPR
APR is the total interest you will be paying on the principal loan amount for your personal loan. MPR is the interest for your monthly payment. Instead of focusing on the monthly payment or the months you won’t be paying interest, pay attention to the total interest rate.
Fixed-rate Personal Loans vs. Variable Interest Rates With the Personal Loan
Another factor to consider with a 0% loan is the type of interest. A fixed interest rate loan offers interest rates that stay the same for loan payment duration. In comparison, a variable interest loan offers interest rates that can change throughout the loan repayment. Being aware of the type of interest being charged and calculating the total amount of interest are crucial to understanding the true cost of borrowing.
How a Personal Loan Will Impact Your Credit Score
Before taking out personal loan funds, it is vital to consider how it will affect your debt-to-income ratio, especially if you have existing debt. This current debt should include any other loans or credit card debt. Your debt-to-income ratio will significantly impact your credit score. So familiarize yourself with how debt-to-income ratio works, and learn to calculate your own. Before signing up for another personal loan, think about what adding another loan will do to your credit usage history and credit scores.
Personal Loan Scams To Watch Out For
When looking for either unsecured or secured personal loans, you may encounter scams. Many scammers may claim to offer loans with no interest rates. So when looking for 0% interest personal loans, these scams may show up more often than when searching for other loan types. Be extra cautious of claims to offer personal loans that may seem too good to be true. A few red flags are a guaranteed rate, along with unmatched loan terms and monthly payments. Do some research on the lender before you submit personal information.
People get a personal loan for a variety of reasons. Debt consolidation for existing debt (higher interest debt), emergency expenses, and large purchases are all ways to use the loan funds. Personal loans can be found online or in-person through banks, private lenders, or credit unions. It may be tempting to accept an offer of a no-interest personal loan, especially if you don’t have the best credit score. However, no interest loans usually come with a catch, especially when getting cash rather than financing a purchase.
And so, before signing up for a personal loan that claims no interest, it is essential to review the loan agreement. Go over the eligibility details and monthly payment to learn about the actual cost of borrowing. If you have fair credit or excellent credit, going for a low-interest personal loan may be the better option. While those with a lower credit score may want to look at bad credit loans for people with less than perfect credit.