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Can I get an interest free-loan?

Where can I get an interest-free loan?

Alicia Hempsted
Written by  Alicia Hempsted
Jonathan Leggett
Reviewed by  Jonathan Leggett
5 min read
Updated: 15 Mar 2024

0% interest loans are not widely available in the UK, but they aren't the only way to get interest-free credit.

Can I get an interest-free loan?

In the UK, it is not possible to get an interest-free personal loan. All personal loans will incur interest. Some lenders may offer zero interest as a promotional rate, but this rate is only temporary.

An introductory 0% annual percentage rate (APR) means that for a short period of time you won’t pay interest on your loan, but these types of savings may only be short-lived and come with risks.

Making a late payment, for example, will often result in the promotional rate ending early.

What type of loan has the lowest APR?

Secured loans will usually have the 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.

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, how much you want to borrow, and how long you want to borrow for.

Some of the lowest interest rates are typically for secured loans, which at the time of writing (March 2024) can be around 5% or sometimes lower. On the other hand, some of the lowest interest rates for unsecured loans tend to be around 6%.

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.

What is the No Interest Loan Scheme (NILS)?

The No Interest Loan Scheme (NILS) is a UK government-backed pilot loan scheme, run by Fair4All Finance, that was trialled in 2022.

The scheme saw credit unions and alternative lenders offer zero interest loans to vulnerable people in financial difficulty, who had been rejected for credit by mainstream lenders.

Loans offered through the NILS could not be applied for directly. Instead, people that are eligible are referred to the scheme by a housing association, credit union, or a participating lender.

Borrowers referred to the scheme can take out loans between £100 and £2,000 to cover essential expenses.

While the initial pilot brought 20,000 people into the scheme, plans are afoot to expand the scheme to many more vulnerable people in 2025.

Can I get an interest free loan if I’m receiving benefits?

A budgeting loan, also known as a budgeting advances, is an interest-free loan backed by the UK government specifically for UK residents receiving certain benefits.

This type of loan is intended to be used to pay for certain essential costs, like clothes, funeral costs, and home maintenance.

This type of loan is only available if you have been claiming one or more of the following types of benefits for the past 6 months:

  • Income Support

  • Income-based Job Seekers’ Allowance

  • Income-related Employment and Support Allowance

  • Pension Credit

The amount you can borrow with this type of loan starts from £100, with maximum borrowing limits depending on whether you have a partner or are claiming Child Benefit.

You can visit gov.uk to learn more about budget loans and check your eligibility.

How can I get interest-free credit?

While in most cases you can’t take out a zero-interest loan, there are other types of credit available that are interest free.

0% purchase credit cards

Interest-free purchase credit cards don’t charge interest for purchases for an agreed period. However, after the end of that period, the card’s standard interest rate will kick in and be applied to any remaining balance.

Because of the enticing 0% promotional interest rate, these types of credit cards tend 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 allow you to transfer the balance from an existing credit card to a new one. You would normally do this to get out of paying high interest on an old card and make the most of the initial 0% or low interest rate on your balance transfer card.

Balance transfer cards normally have a one-off fee to secure a 0% interest deal. Fees can range between 1% and 3.99%, and the interest rate that kicks in after the interest-free offer expires can be higher than usual.

Interest-free shopping credit

Many retailers have buy-now-pay-later 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, these schemes have their drawbacks.

Late fees for missed payments can be hefty, and consistently missing repayments can add up to a debt that might even be 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

Some types of bank accounts 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 spend into your overdraft up to a certain amount without being charged interest. If you continue to spend past this point, you will be charged 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 – typically up to a year. At the end of this period, the standard interest rate will kick in and be applied to your current overdraft. It’s not uncommon for these types of bank accounts to have higher overdraft interest rates than normal.

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