Where can I get an interest-free loan?
Key takeaways
Some lenders may offer an interest-free period as a temporary promotional rate, but this comes with certain risks.
The interest rate you pay depends on the type of loan, your credit score, the amount borrowed and the loan duration.
The most attractive loans with a high credit limit and low interest charges are typically reserved for people with a good credit score.
Government and not-for-profit-backed interest-free loans and advances might be available if you are in a vulnerable financial situation.
Can I get an interest-free loan if I’m receiving benefits?
In the UK, personal loans always charge interest, so fully interest-free options aren’t typically available.
Some lenders may offer a temporary 0% introductory APR, meaning you won’t pay interest for a limited period. However, these deals are short-term and often come with strict conditions.
For example, missing a payment can end the interest-free period early, after which standard – and sometimes high – interest rates will apply.
What type of personal loans have the lowest APR?
Secured loans will usually have lower APRs compared to unsecured loans. This is because they usually offer larger amounts and lenders have collateral in the form of assets like a car or home.
This added level of trust allows lenders to feel safe offering lowering interest rates on their personal loans, but if you fail to keep up repayments, your asset (such as your home) could be at risk.
Unsecured loans, on the other hand, don’t have any collateral, and so usually will have higher interest rates.
Check out our guide to learn more about some of the differences between secured and unsecured loans.
What is the cheapest loan interest rate I can get?
The interest rate you pay will depend on the type of loan you take out, your credit score, how much you want to borrow, and how long you want to borrow for.
However, certain types of loans can have highly fluctuating interest rates, so what might start as a cheap rate when you first take out the loan might not stay that way.
The best way to qualify for a low interest loan and improve your chances of borrowing money more cheaply is to ensure your credit score is as high as it can be.
That means taking steps to improve your credit rating by getting on the electoral roll and making monthly repayments in full and on time.
Can I get an interest free loan if I’m receiving benefits?
If you receive certain benefits, you may be able to access an interest-free loan from the UK government through either a Budgeting Loan or a Budgeting Advance (or hardship payment).
These loans are designed to help cover essential costs such as furniture, clothing, rent in advance, travel expenses, maternity costs or funeral expenses. You only repay what you borrow, with no interest added, and repayments are usually taken directly from your benefits.
Budgeting Loans are available if you’ve been receiving one of the following for at least six months:
Income Support
Income-based Jobseeker’s Allowance
Income-related Employment and Support Allowance
Pension Credit
If you’ve recently moved from Universal Credit to Pension Credit, time spent on Universal Credit may count towards this six-month period.
Budgeting Advances are available for people claiming Universal Credit and don’t require the same six-month waiting period, although you’ll still need to meet certain eligibility criteria.
Loan amounts typically start from £100, with maximum limits depending on your circumstances, such as whether you’re single or have children.
You can check your eligibility and apply at gov.uk.
What are my alternatives to an interest-free loan?
While a zero-interest loan might not be available in the UK, you might be able to find a more affordable borrowing option than hunting on the open market. Examples include:
What are my alternatives to an interest-free loan?
Credit unions
Credit unions are member-owned, not-for-profit lenders that offer affordable loans and savings products. They’re designed to help people who may struggle to access mainstream credit, often with lower, capped interest rates and flexible terms. While not interest-free, they’re one of the closest, safest alternatives to high-cost borrowing in the UK.
Community Development Finance Institutions (CDFIs)
CDFIs are social lenders that provide fair, responsible loans to people excluded from traditional finance. They focus on affordability and support, not profit, often working with borrowers who’ve been declined elsewhere. While interest is charged, it’s transparent and typically lower than high-cost credit, making them a strong alternative.
Salary advance or employer loans
Some employers offer salary advances or low-cost loans repaid through your wages. These can be interest-free or very low cost, depending on the scheme. They’re designed to help with short-term cash flow issues and are becoming more common as an alternative to high-cost credit.
How can I get interest-free credit?
While in most cases you can’t take out an interest-free loan, there are other types of credit available that are interest free and could be a good alternative way to borrow money.
0% purchase credit cards
Interest-free purchase credit cards don’t charge interest for purchases for a set period. However, after the end of that period, the credit card’s standard interest rate will kick in and be applied to any remaining balance.
They are typically only available to people with good or excellent credit scores and because of the enticing 0% promotional interest rate, this type of credit card tends to have a slightly higher interest rate than others.
That is why it is so important that you read the fine print when applying for a credit card.
0% balance transfer credit cards
Balance transfer credit cards let you move debt from an existing card to a new one, usually to take advantage of a temporary 0% or lower interest rate.
They’re typically used to reduce the cost of existing borrowing, giving you a set period to pay down your balance without accruing interest. However, it’s important to check the details carefully because some cards offer 0% interest on balance transfers only, while purchases may still be charged interest.
Most balance transfer cards charge a one-off fee, usually between 1% and 3.99% of the amount transferred. Once the introductory period ends, the standard interest rate can be relatively high.
Because of this, a balance transfer card is only ‘interest-free’ for a limited time, and only if you stick to the terms, such as making at least the minimum payments on time.
Interest-free shopping credit
Many retailers have buy-now-pay-later (BNPL) schemes that offer 0% short-term loans to spread the cost of your purchase rather than pay the full amount upfront.
These schemes can be a cheap and easy way to access free credit and break up large payments into manageable amounts. However, just like personal loans, credit cards and other forms of borrowing money, BNPL schemes have drawbacks and potential pitfalls.
Late fees for missed payments can be hefty, and consistently missing repayments can add up to a debt far greater than your original purchase.
That’s why you shouldn’t choose a BNPL option if you’re not confident that you can keep up with your repayments.
Interest-free overdrafts
Certain bank accounts may allow you to spend from your overdraft without being charged interest. This can be done in two different ways.
Some bank accounts with an interest-free overdraft allow you to spend into your overdraft up to a certain amount without paying interest.
If you continue to spend past this point, you will pay interest on anything you’ve spent over the interest-free amount.
Other bank accounts that advertise an interest-free overdraft may only offer this rate for a limited time as part of a promotional period – typically up to a year.
At the end of this interest-free period, the standard interest rate will kick in and be applied to your current overdraft.
How do I qualify for low interest loans?
A low credit score, or bad credit score, is one of the biggest barriers to being able to borrow money cheaply.
If you think that's what's preventing you from getting a low interest rate on a personal loan, get your credit report and check your credit history for errors.
You should also make sure you're on the electoral roll, close down any credit accounts or bank accounts you're not using, and make sure you stay within your credit limits.
MoneySuperMarket is a credit broker – this means we’ll show you products offered by lenders and make it easy to compare loans. We never take a fee from customers for this broking service. Instead, we are usually paid a fee by the lenders – though the size of that payment doesn’t affect how we show products to customers.
Author
Tim Heming
Personal Finance Expert
Tim Heming is a journalist and editor who has written about personal finance for national newspapers and consumer websites for 15 years. Tim enjoys providing no-nonsense information to help consumers...
Reviewer
Alan Cairns
Senior Content Editor
Alan breaks down subjects like money and energy into plain English to help you save money.
