Six ways to borrow money without paying any interestJanuary 28, 2022
BORROWING money is always risky business, but there are more ways to get interest-free credit than you might think.
Here are six potential options if you're looking to borrow without paying any interest.
With the recent rise in interest rates, borrowing in the form of credit cards, loans, mortgages and overdrafts is set to become more expensive.
Interest can quickly rack up on debt, especially if you're only making minimum repayments, making it harder to clear the money you owe.
Taking on debt should never be your first choice – it's always better to save up for anything you want to buy.
Borrowing should always be a last resort and typically only used in an emergency.
If you do find yourself in need of credit, finding an interest-free option can make repaying your debt less stressful – here are some potential options.
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An interest-free overdraft can be a simple way to borrow as it's linked to your bank account.
Current accounts with these useful additions are available at all the major banks.
For example, First Direct offers a £250 interest-free buffer on all standard current accounts, while TSB provides £100 as standard to Spend & Save Plus account holders.
How much is available to you will depend on your credit rating.
Crucially, overdrafts have ceilings – and you could face hefty charges if you spend above your limit.
Make sure you're overdraft is authorised, too, which means it's confirmed and approved by your bank.
Many accounts have unauthorised overdrafts, which often come with punitive charges.
If you open a new bank account, be sure to check upfront whether there's an overdraft and if it charges interest.
You can phone your bank to check what the overdraft is on your existing account to make sure too.
Many high street shops and online retailers now offer interest-free financing if you pay off your purchase in time.
For example, Currys offers six months interest-free credit on purchases over £99 – subject to terms and conditions.
Amazon also provides interest-free credit to buyers of certain products like electronics.
It's a risky move though and could encourage you to spend money you don't have, so be very careful when considering these plans.
You need to be sure you can afford the repayments or the interest can be incredibly high after the deal period.
These arrangements are slightly different to buy now pay later schemes as they're offered by shops themselves, so there's usually no middle man.
But as it's still an application for credit, it will show up on your credit record and could affect your score.
Buy now pay later financing
This increasingly popular way of borrowing involves the same principle described above, but on a wider range of products and retailers and on slightly different terms.
Instead of the seller lending you the item till you've paid it off, an independent buy now pay later (BNPL) finance firm such as Klarna or Clearpay will secure your purchase.
That means you owe the money to the finance firm NOT the retailer, who passes on your debt to this middle man company.
This means it's vital you're aware of the terms of your borrowing as they can vary drastically.
Crucially, lenders will only perform a "soft" credit check on you, which means they don't know how much you've borrowed elsewhere.
As a result, critics have warned that BNPL a slippery slope to unfettered spending.
Repayments are usually weekly or fortnightly so make sure you can afford the plan you agree to and be incredibly diligent about your repayments.
If you miss an instalment and you'll likely face hefty penalty fees and may get a mark on your credit record – in some cases your debt could be passed on to a debt collector.
The sector is still unregulated and in some cases not subject to vital consumer protections, according to MoneySavingExpert, so tread carefully.
You should also be aware that by using BNPL, you'll lose your Section 75 consumer protection, which means you can't use chargeback if there's a problem with your purchase.
0% credit cards
These credit cards offer a period during which zero interest rate is charged on new purchases.
That sounds easy enough – but key point with a 0% spending credit card is how long the interest-free window is.
They tend to offer much longer repayment periods than interest-free overdrafts, for example, which typically expect you to clear your debts within a year.
Barclaycard offers a 24-month 0% credit card, while Sainsbury's Bank will give you 23 months to pay off your debts.
However, you need to apply for these like any other credit card so you do need to pass a credit check.
And if you fail to make your minimum monthly payments or fall outside the credit limit, your coveted 0% rate could be taken away.
Money Saving Expert has a useful guide to the best ones on the market, too.
A credit union can be a vital lifeline to those struggling with their finances.
They are usually locally-based not-for-profit organisations where members pool their savings to lend to one another.
This means the interest rates are typically lower than on standard loans or credit cards.
You'll have to check the requirements of your nearest credit union – some need you to have already saved money with them before you can get a loan.
Moneyfacts has a helpful guide to credit unions.
Family and friends
Loved ones may be able to help you out of a tight spot without you having to take out credit.
While it can be difficult to admit to friends or family that you need financial help, they may be willing to assist if they can.
However, if you are borrowing from anyone you know, it's incredibly important to have an upfront conversation about the terms.
Ask how long they are willing to lend you the cash, and if they're expecting more back on top.
We recently spoke to one mum who was made homeless after she borrowed money from a friend who turned out to be a loan shark.
Remember: friends and family should not be looking to profit from you.
Other tips to keep in mind
Borrowing money should never be your first options, and it's important to keep all the risks front of mind if you are considering any form of debt.
If you have a poor credit score, it's less likely you'll get the best terms available.
Lenders only have to give the advertised rate to 51% of borrowers, so many people end up paying more than they expect to.
And as always with credit, don't overspend just because you can.
It's all too easy to fall into a debt trap and rack up hundreds, or thousands, in interest charges.
We've looked at ways to better use your credit card – and potentially save thousands.
And here are some red flags that credit advisers keep in mind when you're considering an application.
So one of these options could be right for you – but don't bite off more than you can chew.
It's never, ever too late to start paying off your debts.
If you're struggling under the weight of money owed, there are several sources you can go to for free debt advice and support including Citizens Advice and StepChange.
Citizens Advice has a really useful debt help page packed with information.
You can also contact a personal finance expert at the non-profit via the Citizens Advice online chat tool, which is available 8am to 7pm Monday to Friday.
StepChange's free expert debt advice is accessible via its easy-to-use web app.
Contact National Debtline online or at 0808 808 4000 between 9am and 8pm Monday to Friday, and 9.30am to 1pm on Saturdays.
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