Understanding the Mechanism Behind No Interest Loans

Loans are a necessity and an excellent means of having enough funds to buy things like furniture, houses, cars etc. The borrowed money is then repaid; however, a little interest is also incurred. The concept of interest is crucial for the survival of banks and benefits the lender by allowing the lender to get back more money than the amount which was borrowed. Most banks have distinct interest rates for different types of loans, namely personal loans, housing loans, etc. Interest rates also differ from one bank to another and borrowers usually go in for those lenders who offer the right amount of money at a low interest rate.

In recent times, the concept of no interest loans has come up in the UK. Borrowers can’t help but be suspicious of this new trend. Why would the lender not want to charge interest on the money which is borrowed? Questions arise whether or not no-interest loans are safe to go by, what it means for both the borrowers and lenders in the UK and are there indeed any benefits in this type of loan? These questions must be answered so that the borrower can make a well-informed decision while applying for a loan.

What is a No Interest Loan?

True to its name, no-interest loans refer to those loans which charge a zero percent interest. The payment which is to be made when the borrower returns the borrowed money is only the principal balance, which is the amount that was initially borrowed. While only the initial amount is to be paid, borrowers should be wary of additional charges which may be incurred such as origination fees. However, the borrower must adhere to the rigid deadline set by banks in the UK, by which the entire amount must be repaid. Failure to do so would lead to excessive penalties which will be very damaging to the borrower’s credit score.

Zero-interest loans or no-interest loans are facilitated via the means of third-party lenders. For the borrower to be eligible for the credit, they must exhibit their FICO scores in the UK, of at least 720. These loans are generally restricted to a short duration of up to 24 months for retailers and up to 36 months for car dealers. At times, borrowing money on no interest rate have introductory offers, and the investment is required to be returned in a specific period just before any interest is taken into consideration. Again, it is essential to ensure that you are already qualified for a zero-interest loan before applying for the same.

Factors to Consider While Applying for a No Interest Loan

While the prospect of no-interest loans may seem exciting, there are some factors you must keep in mind to attain the full benefit of the loan. It is essential to be careful of these factors as you may end up paying more than you realized. Keeping a check on the rules and regulations of no-interest loans is a must for borrowers. When applying for a zero-interest loan in the UK, take care of the following things:

Skipped Payments are Equivalent to Paying Interest

Many banks in the UK that offer no-interest loans have a deferred interest attached to their loan policy. This would mean that if you don’t make your payments in time or miss a payment entirely, you will be penalized with paying all of the interest which was associated with your loan. Thus, if one is not mindful of their expenses and fails to repay the borrowed amount, it would mean paying a lot more than the borrower had initially gotten as a loan. Special care needs to be taken with credit cards as those last only for a year and missing a 12 month loans payment could send you into a downward spiral.

Fees may be associated with the Loan

In some cases, while transferring money to a zero-interest credit card in the UK, there may be some fee you must pay for the transfer of the capital. It negates the whole point of applying for no-interest loans and the value of having a zero-interest credit card. Some fees cost as much as the general interest and the entire ordeal of availing no interest loans seems wasted.

Your Credit Score Counts Intensively

Applying for a no-interest loan is very different from actually being able to get it. No interest loans in the UK, are generally only offered to those customers whose credit score is well above 700. Many times, car dealerships offer zero-interest loans to its customers to attract them into showrooms, however, if your credit score is not high, you may end up getting a loan which does not have a zero percent interest rate. Thus, it is essential to keep your score in check if you are to apply for a no-interest loan.

Don’t Pressurize Yourself into Getting a No Interest Loan

Customers must understand the whole concept of no-interest loans before applying for the same. When it comes to applying for loans, it is essential to have a clear and calm mind and understand the math involved behind availing a loan. It is easy to get muddled up trying to figure out which loan is suited for you. In such cases seek professional guidance for a detailed analysis of what would benefit you the most and in the friendliest way. Keep in mind that smart thinking is involved while availing loans, you must cater to your requirements rather than follow trends without understanding them fully.


The concept of having a loan in which only the principal amount is to be paid is a beneficial thing. It comes across as an attractive deal and customers would love the idea of having not to pay any interest on the money which they borrow. However, these loans have dos and don’ts, which must be kept in mind to reap the full benefits. One major takeaway is that only those customers who have a high credit score will be eligible for a zero-interest loan. Making payments on time and being aware of incidental fees are essential practices that must be followed. No-interest loans are gaining popularity among customers, but at the same time, it is crucial to understand how you may benefit from this loan as an individual in the long term.