Interest free short term loans

What is an interest free short term loan?

An interest-free loan is a debt that you have for a short period of time and on which you pay no interest.

An interest-free loan for a short term loan commitment can only really be taken out in the form of a credit card or an overdraft on your current account. It can be a useful way of borrowing money short term at no extra cost, if you plan and budget for it correctly.

If you need an interest-free loan for longer, you could consider a personal loan.

Can I get an interest free loan?

Most loans charge interest. Personal loans and mortgages all charge an annual rate of interest. Some banks offer interest-free overdrafts up to a set amount, but you need to apply and an arrange this borrowing facility in advance. If you are looking for the cheapest personal loan It is important to shop around for the best loan rates with Uswitch as there are lots of different deals on the market.

Interest-free loans are only available in the form of a credit card with no interest, or a bank overdraft. It is not possible to take out a 0% interest personal loan but there are some forms of credit that offer you a zero interest loan for a short period of time.

For example, you may be offered 0% interest car finance at a car dealership or showroom. This means you will borrow money from the dealership without paying any interest, but you may be charged fees instead, so make sure you read the small print.

The cheapest short term loan and the simplest form of interest-free credit is a credit card. This gives you the flexibility to use the interest-free loan period whenever you need it. The average length of interest-free borrowing can be anything from just over a month to up to two years. For a traditional credit card, you have around 50 days from the date of purchase before you need to start paying interest on the items you have bought.

Specialist interest-free credit cards are available that offer 0% interest for 12 to 24 months. These cards are generally used by people who have an existing credit card debt and who want some time to repay it. The credit card provider will charge you a fee for moving your existing balance across to the 0% credit card, but no interest during the 0% period.

However, it is important to have a plan to pay off your credit card debt as you will be charged interest at the end of the term.

You can find out more about cheap loan deals and the cheapest way to borrow money by checking out our Uswitch guide here.

How do low interest loans work?

If you're looking for long term and low interest credit, then a personal loan could be the right option. But if you want short term interest-free loans, then a credit card or free overdraft facility is probably the only option that will be viable. A loan without interest is only really possible with a credit card or bank overdraft.

You can get an interest-free loan period by using a credit card to buy goods or services and by paying back the balance in full at the end of each month. Do not just pay off the minimum amount because otherwise you will be charged interest on the remaining outstanding balance.

Alternatively, you could use the overdraft facility with your bank. This needs to be arranged in advance, and you must stick within the overdraft amount, or you will be charged interest and extra fees.

Fee-free overdrafts are usually between £250 and £500 for current account overdrafts. They are not intended for large sums of borrowing and they are designed to help you avoid charges if you slip into the red from time to time.

Can I get a 0% interest loan?

Generally, 0% interest personal loans don't exist, as personal and secured loans always have interest included in the repayments.

If you want to borrow at the cheapest rate but you need more money than a credit card or overdraft can offer, you could consider a low cost personal loan.

Loans can be used for big purchases or projects, as interest rates are generally quite low for borrowing amounts between £3,000 and £10,000. They are better suited for long term cash borrowing at a low rate. However, they are not as flexible as other forms of borrowing, such as credit cards.

So it's quite common for people to take out a loan to buy a new car, or renovate their kitchen. However, if you need a few hundred pounds quickly, then borrowing on your credit card or your current account overdraft facility is a quicker and simpler way of borrowing short-term money.

Tips to find the lowest interest rate for personal loans

If you are looking to find the lowest and the cheapest interest rate for personal loans then it is a good idea to shop around using the Uswitch loans comparison search tool. You can compare loans and find the best loan for your lifestyle and needs. There are also a number of tips you can use to cut the cost of your loan:

1. Boost your credit rating: You can improve your chances of being accepted for the best personal loan deals by ensuring that your credit rating is in good order. Your credit rating is the tool that lenders use to decide whether you offer you credit when you make an application for a loan, credit card, mortgage or credit contract such as a mobile phone or broadband deal. You can find out in more detail how to improve your credit rating with this Uswitch guide.

2. Make sure you are on the electoral register: this is a very important way to ensure that you have a good credit rating.

3. Pay on time: make sure that you don't miss repayments on other forms of credit. If you miss a payment or get into arrears you will be seen as a more risky customer and charged a higher rate of interest.

4. Don't take on too much credit: to get the best deals, try not to overstretch your finances. Lenders may not offer you credit if your credit rating shows that you have a lot of existing debt or that you are maxed out on your other cards.

5. Don't make a lot of credit applications: Too many searches for credit in a short amount of time can make you appear financially desperate and unappealing to lenders.

What are the ways to borrow money interest free for the short term?

If you want to borrow interest free, then there are a number of  possible methods to benefit from an interest free loan.

Using a credit card's basic interest-free period

The first way to get a short term loan on a credit card is by using its 'interest free period'. Generally, most credit cards will let you make purchases with no extra interest, as long as you repay the money in full within 51 to 56 days.

Each credit card will specify the length of this period, but it's generally around 50 days or so. This is very likely to be the case even if you have no special offers, such as a 0% purchases deal on your credit card.

This option is best if you have a low or poor credit history. This is because you may still be able to apply for a bad credit credit card, and utilise the interest free period. However, your credit limit will be much lower in order to minimise the risk.

Just be sure to have a Direct Debit set up to repay the entire balance in full before the money is due.

0% purchases credit card

If you want a short term loan without interest that lasts a little longer in order to buy something online or from a shop, then a 0% purchases credit card is the best option.

These credit cards can essentially offer you a 6 month or 12 month interest free loan, or sometimes, even longer, depending on the deal and how good your credit score is.

The idea with a 0% purchases credit card is that your balance will not accumulate any interest on it during the interest-free period. It's best used to make one or two big purchases when you first get the credit card, and pay it off in instalments, spread out over the course of the interest-free period. Make sure you have a plan for paying off the borrowing, otherwise you could get into debt problems.

For example, if you want to buy an annual train season ticket for £5,000, which would be cheaper than renewing your ticket every month, you could put the purchase on your interest-free credit card, and repay the debt monthly (which would be like paying for a monthly ticket, only cheaper).

Any type of loan used for purchases should be used responsibly and in a way that benefits your current lifestyle, rather than used for buying things you wouldn't normally be able to afford.

However, if you're struggling with debts and need a short term interest free loan, then read on to learn more about balance transfers.

Interest free balance transfer credit cards

By using a balance transfer credit card you can transfer your current credit card debts to a 0% repayment plan.

This comes at the cost of paying a transfer fee of around 3%, but this varies depending on the length of the short term 'loan' and your credit rating.

So if you have debts of, say £1,000, you could transfer them over to an interest free balance transfer credit card. You would have to pay a fee, and for this example, it would be £30 (3%). But then you would get up to 12 months to repay the debt.

After the interest free period, your debts will accumulate interest, and at a far higher rate than you were probably paying before. So you need a plan to pay off the loan during the interest free period, or you need to shop around for a new 0% deal. Check what interest rate (known as APR or Annual Percentage Rate) your card will revert to at the end of the interest free period.

Interest free money transfer credit cards

Money transfer credit cards can be used to repay bank debts such as an overdraft. However, it is an expensive way of borrowing and could land you in greater debt.

Money transfer cards are also known as 'cash advance cards' because they send cash to your bank account which can then be used in a similar way to a loan.

The interest-free period is generally shorter than on a loan and there's a fee to pay upfront, usually around 3-5% of the amount you want to transfer.

A money transfer credit card will also revert to a much higher rate of interest after the offer period is over, so make sure you have a plan to repay this in full and on time.

Overdraft short term loans

Some bank accounts come with an interest-free overdraft buffer of a few hundred pounds. Others offer customers a potentially larger interest-free overdraft amount - but for a limited period of generally no more than 12 months. If you go past this agreed limit, you will be hit by the full overdraft rate.

Call up your bank or visit a branch to arrange an overdraft, and make sure you fully understand how any interest-free period is and what your limit is.

You will also need to have a good credit rating in order to get a large overdraft facility with your bank.

Repayment holidays

You can also consider taking a repayment holiday with a credit card or a loan, which means you can skip a month or two of repayments. This can be useful if you are struggling with your finances and need some breathing space. However, interest will most likely be charged during the repayment holiday period, so you need to think about whether this option will land you in more debt in the long term.

If you are really struggling with your finances you could seek advice from a free debt charity such as StepChange or National Debtline, who can talk to creditors on your behalf and help you clear your debts.

Buy Now Pay Later

If you are buying something specific, rather than borrowing money generally, you might be able to use a buy-now-pay-later (BNPL)service to effectively borrow the cost of the item interest-free for a short period too.

However, this is tied to a specific purchase, rather than a general credit facility. It is also very easy to get into debt this way, as you end up buying items you might not be able to afford at the time. Think carefully about BNPL deals, and make sure you understand what interest rates you will be charged and what you are signing up to.

Should I avoid short term loans?

Credit cards are the most suitable type of loan if you want flexible and short term borrowing, as are arranged or authorised overdrafts.

Other options include payday loans, but the interest rates and late payment fees are extremely high, so should be avoided entirely.

There are potentially other ways to borrow money on a low-cost basis. But very rarely on an interest free basis, and the risks (and potential fees) are quite high if you're not very strict about how you organise your repayments.

Interest rates for personal loans are often much lower than a credit card or an overdraft, but they can vary significantly depending on your credit rating, how much you want to borrow and which provider you use.

What if I want a short term cash loan?

Any cash loan lasting for a period shorter than six months is likely to be a payday loan, which you should avoid because the interest rates can quickly rack up. If you are really finding your finances tough, then a debt charity can help you sort out your money and save you from taking on extra debt.

A money transfer credit card or an overdraft from your bank are likely to be far better options for flexible short term borrowing.

If you're worried about not being approved for credit because of a low credit score, then an overdraft with your bank could be helpful. Banks tend to be more helpful to their own customers, and may overlook a low credit rating if you ask for an authorised overdraft.

However, before applying for any new credit, check your credit report and see what your chances are of being approved and see if you have any outstanding debts that can be cleared first to improve your score.

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