Can you get interest-free loans?

What is interest?

Interest is the extra money a lender charges you for borrowing. It's worked out as a percentage of what you borrow.

As an example, if you borrowed £1,000 at 10% interest per year, you could expect to repay around £1,100 over the course of that year — though the true cost may be higher depending on how the interest is calculated and whether any fees apply.

As a rule, most loans, credit cards, and overdrafts charge interest, and the higher the interest rate, the more expensive it is to borrow.

Are there loans with no interest?

In almost all cases, no. Standard personal loans will always come with an interest rate attached — that's how lenders make their money.

What you can do is shop around for a low interest rate, making the loan cheaper.

How to get a cheaper loan

A few things can help improve your chances of being offered a better deal:

• Build your credit score — A stronger credit history signals to lenders that you're a reliable borrower
• Borrow only what you need — Smaller loans over shorter terms often attract lower rates
• Use eligibility checkers — These let you see which loans you're likely to be approved for without affecting your credit score
• Compare lenders — Rates vary significantly, so it's worth using a comparison site before applying

There are some exceptions to the rule — a small number of genuine interest-free loans do exist. But they tend to be targeted schemes with strict eligibility criteria, rather than something any borrower can walk into. These are covered in the sections below.

Interest-free loans from the government

The government currently offers a small number of interest-free schemes — but they're targeted and not open to everyone.

Loan type	Who it's for	Key details
Budgeting Loan	People on certain legacy benefits (not Universal Credit)	Borrow £100–£812 depending on your circumstances. Repaid through benefit deductions over up to 24 months.
Universal Credit Advance	New Universal Credit claimants	Covers the wait before your first payment arrives. Repaid automatically over up to 24 months.

What are Budgeting Loans?

A Budgeting Loan is one of the few genuine interest-free loans available in the UK — but it's only open to people who are already receiving certain benefits.

You can apply if you've been on one of the following for at least 6 months:

• Income Support
• Income-based Jobseeker's Allowance
• Income-related Employment and Support Allowance
• Pension Credit

This isn't the complete list — check GOV.UK for the full eligibility criteria, as the rules are changing as more people move across to Universal Credit.

If you're on Universal Credit, you can't get a Budgeting Loan — but you may be able to apply for a Budgeting Advance instead, which works in a similar way.

What can you use a Budgeting Loan for?

Budgeting Loans are designed to help with essential, one-off costs that are hard to save up for. That includes things like:

• Furniture or household equipment
• Clothing and footwear
• Rent in advance or removal costs
• Home improvements or repairs
• Travel costs
• Maternity or funeral expenses

What other types of 0% credit can I get?

Outside government schemes, a few commercial products offer a 0% period — but they're temporary, and the conditions matter.

• 0% purchase credit card — No interest for a set period (often 6–24 months). Only works in your favour if you clear the balance before the deal ends.
• 0% balance transfer card — Move existing debt across and pay no interest for a fixed period. Usually comes with a 2–3% transfer fee.
• Buy Now, Pay Later (BNPL) — Spread the cost of a purchase interest-free through services like Klarna or Clearpay. However, miss a payment and fees can kick in fast.
• Credit unions — Not-for-profit local lenders with lower rates than most banks. Some offer interest-free hardship loans to members.
• Employer salary advance — Some employers let you access wages early at no cost.

These aren't guaranteed to everyone, and most require a decent credit score to access the best deals.

What type of credit is best for me?

It depends on your situation. Here's a quick guide:

Your situation	Worth considering
You're on legacy benefits and need emergency cash	Budgeting Loan
You're on Universal Credit and need cash quickly	Universal Credit Advance
You want to spread the cost of a big purchase	0% purchase credit card or BNPL
You've got existing credit card debt	0% balance transfer card
You want a small, fair loan in your community	Credit union
You need a short-term cash boost from work	Salary advance

Before you borrow anything, it's worth asking yourself a few questions. Can you clear the balance before a 0% deal expires? Do you qualify for a government scheme? Is there a fee hiding behind that "free" offer? Most importantly, can you afford the monthly repayments?

For free, impartial advice, you can contact these organisations:

• Citizens Advice — 0800 240 4420
• MoneyHelper — 0800 011 3797
• National Debtline — 0808 808 4000
• StepChange — 0800 138 1111

Remember, if someone's advertising an interest-free loan with no conditions attached — read the small print twice.