An interest free short term loan can only really be taken out in the form of a credit card and can be a useful way of borrowing money at no extra cost, if managed correctly.
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 are not very strict about how you organise your repayments.
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Can I get an interest free loan?
You can only get an interest free loan period with a credit card, or possibly an overdraft with your bank. However, an ‘interest free loan’ does not really exist, as personal and secured loans always have interest included in the repayments.
Loans, in the traditional sense of the word, are better suited for long term cash borrowing at a low rate, although they are not as flexible as other forms of borrowing like credit cards, for example.
They are usually used for big purchases or projects, as rates are generally quite low for borrowing amounts between £3,000 and £10,000. So it’s quite common for people to take out a loan to buy a new car or renovate their kitchen.
The rates are often much lower than a credit card or a mortgage, but they can vary significantly depending on your credit rating, how much you want to borrow and which provider you use.
If you are 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 is probably the only option that will be viable.
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How can I borrow interest free?
If you want to borrow interest free, then there are four possible methods using a credit card, and a potential fifth way using a bank overdraft, but this is less common.
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 is 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.
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0% purchases credit card
If you want a short term interest free loan 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 is best used to make one or two big purchases when you first get the credit card, and pay it off in installments, spread out over the course of the interest free period.
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 are struggling with debts and need a short term interest free loan, then read on to learn more about balance transfers.
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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 a 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.
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Interest free money transfer credit cards
Money transfer credit cards essentially do a similar job to a balance transfer credit card, except it can be used to repay bank debts such as an overdraft.
If your current account is linked to your mortgage, then you could also theoretically use the money transfer interest free loan to repay those debts.
They are also known as ‘cash advance cards’ because it sends cash to your bank account and then it can be used in theory the same way as a loan.
The interest free period is generally shorter than on a loan and there is 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.
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Overdraft short term loans
An arranged bank overdraft can usually let you borrow a few hundred pounds interest free. Again, like with the basic short term interest free periods on credit cards, the interest free offer often only lasts a month or so (or sometimes much shorter than that), and charges a very high rate of interest after.
Call up your bank or visit a branch to arrange an overdraft and make sure you fully understand how long the interest free period is and what your limit is.
The charges can be extremely high for going over the limit or for not paying it back in full and on time.
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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 have some important bills to pay but just can’t afford one more on top of that.
However, interest will most likely be charged during the repayment holiday period, so double check the terms of your loan first.
Are there any 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.
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, so if this is what you want, make sure you have exhausted all of your other options first.
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 are worried about not being approved for credit because of a low credit score, then an overdraft with your bank could be helpful.
Banks tends 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.
- Dealing with debt – 0% Cards or Loans – What’s better, a loan or a credit card? There are thousands of financial products offering credit, but how should you choose?
- Money transfer credit cards – interest free cash loans? – Money transfer cards allow you to transfer credit to a current account to spend as cash, often the credit is interest free.