Are there loans with no interest?
Most loans do charge interest. Banks and lenders need to make money when they let you borrow. They do this by charging interest.
However, there are a few special ways to borrow money without paying interest. These aren't always called ‘loans’ though - they might be called ‘credit’ or ‘schemes’ instead.
Some examples include:
- 0% credit cards - often interest-free for 12-24 months, but only if you meet the criteria
- Budgeting Loans - from the government for people on certain benefits
- Store finance - some shops off interest-free purchases
- Family and friends - if they're willing and able to lend
What is interest?
Interest is extra money you pay back when you borrow. Think of it like a fee for using someone else's money.
For example, if you borrow £100 with 10% interest, you'll need to pay back £110. The extra £10 is the interest.
The amount of interest is usually shown as a percentage. This is called the APR (Annual Percentage Rate). A higher APR means you pay more extra money back.
Interest can add up over time. The longer you take to pay back a loan, the more interest you might pay.
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Can I get an interest-free loan from the government?
The UK government doesn't offer regular interest-free loans to everyone. But they do have some special schemes for people who need help.
These include:
- Budgeting Loans if you're on certain benefits
- Advance payments if you're waiting for your first Universal Credit payment
These are not available to everyone and have strict rules about who can get them.
What are Budgeting Loans?
Budgeting Loans are interest-free loans from the government for people who receive certain benefits. You can borrow between £100 and £812 (depending on your situation) to help pay for essential things like:
- Furniture
- Household appliances
- Moving costs
- Work expenses
You normally need to have been on benefits for at least 6 months to qualify. These loans are different from regular loans because you don't pay any interest, but you do need to pay back the full amount, usually within 2 years.
What types of 0% credit can I get?
There are several types of interest-free credit you might be able to get:
- 0% purchase credit cards: These cards let you buy things without paying interest for a set time, often 12-24 months. After this time ends, you'll start paying interest if you haven't paid off the balance.
- 0% balance transfer credit cards: These help you move debt from one card to another without paying interest for a set time. There's usually a balance transfer fee to move the money though.
- Store cards and finance: Many shops offer ‘Buy Now, Pay Later’ or interest-free credit on bigger purchases like furniture or electronics. Be careful though - if you miss a payment, high interest rates might suddenly apply.
- Overdrafts: Some bank accounts offer interest-free overdrafts up to a certain amount. This means you can spend a bit more than you have in your account without paying extra.
What type of credit is best for me?
Choosing the right type of credit depends on your needs:
- For everyday spending: A 0% purchase credit card might be good if you can pay it off before the interest-free period ends.
- For existing debts: A 0% balance transfer card could help you pay off other debts without adding more interest.
- For a specific big purchase: Store finance or ‘Buy Now, Pay Later’ might work if you're sure you can make all the payments on time.
- For emergency needs: If you're on a low income, check if you qualify for a Budgeting Loan.
Remember, all types of credit need to be paid back. Before borrowing money, ask yourself:
- Can I afford the repayments?
- What happens when the interest-free period ends?
- Am I using this for something I really need?
The best credit is the one you can comfortably pay back without getting into money trouble.
If you're struggling with money, free help is available from places like Citizens Advice, StepChange, or MoneyHelper.
Disclaimer: We make every effort to ensure content is correct when published. Information on this website doesn't constitute financial advice, and we aren't responsible for the content of any external sites.
Zubin Kavarana
Personal Finance Writer
Zubin is a personal finance writer with an extensive background in the finance sector, working across management and operational roles. He applies his experience in customer communication to his writing, with the aim of simplifying content to help people better understand their finances.
