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Interest free short term loans

What is an interest-free short term loan? If you are looking for a cash loan without interest then there are a number of different options. Read on to find the best interest free short term loan.

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What is an interest free short term loan?

An interest free loan is a debt which 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 at no extra cost, if managed correctly.

If you are buying something specific, rather than borrowing money generally, you might be able to use a buy-now-pay-later 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.

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.

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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, 0% interest personal loans don't 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. However, they are not as flexible as other forms of borrowing like credit cards, for example.

Loans can be 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. 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.

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.

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.

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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.

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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.

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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 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. Check what interest rate (known as APR or Annual Percentage Rate) your card will revert to at the end of the interest free period.

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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're 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'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.

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Overdraft short term loans

Some bank accounts come with an interest-free overdraft buffer of a few hundred pounds, while others offer people signing up to them a potentially much larger interest-free overdraft amount - but for a limited period of generally no more than 12 months. But if you go past this agreed limit, you will be hit by the full overdraft rate - typically about 40% as things stand.

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.

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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 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'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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