How can I get an interest free short term loan?
There is pretty much only one way to take out an interest free loan for the short term and that is in the form of a credit card. Using this method can be a very useful way of borrowing money for no extra cost but it has it’s caveats, as with most other ways of borrowing money.
There are various other ways that you can borrow cash on a low cost arrangement, but they are seldom free of interest completely and the potential fees (if you miss repayments) can be high so you have to be very disciplined about scheduling repayments.
How would I get an interest free loan?
As already mentioned, you have limited options , because essentially money lenders or providers, do not ‘do owt for nowt’ in laymans terms! So they usually want to make a profit back from their loans.
The best options for borrowing money and not having to pay interest is the mighty credit card or potentially a bank overdraft, however many banks are now levying fees for the overdraft costs. You can see what the best current accounts are that have interest free overdrafts here
For a longer term borrowing arrangement , loans (either secured or unsecured) are the safest option, but these have interest already factored into the repayments and the final amount will therefore always be more than you borrowed.
What are these short term loan methods good for financing?
These sorts of loans are very good to use for big spending outlays or for project funding, because the interest rates are generally rather low if you borrow between £2000 up to around £1000, and for this reason they are popular for home renovation funding (eg. People use them to pay for a new kitchen) or for buying big ticket items that they could otherwise not afford easily. The repayments can be budgeted for in advance and for smaller amounts they can work well.
Interest rates can vary significantly on this type of loan dependent on your credit rating, the amount you are borrowing, and clearly, which loan provider you are planning on using.
1. Personal Loan or interest free short term loan, which is best for me?
To summarise, if you are seeking longer term and low interest credit, then a personal loan could well be the most suitable option for you, but if you only need the loan for a short amount of time, then a credit card may be the most suitable option.
2. Which is the safer option?
Any financing options carries with it risks if you default on repayments. You should only borrow money you can afford to repay, this means that a personal loan or a credit card interest free deal both could have serious ramifications for your future credit rating and personal circumstances if you didn’t make repayments on time.
How can I borrow with no interest then?
Show me the money!
Credit cards with an interest free period
Using the interest free period on a credit card is a clever way to borrow money with none of the costs associated, many credit cards will allow you to make purchases with
no extra interest provided you pay the money in full within 50-56 days. With some cards it is by the end of each month that the money has to be repaid before interest will be charged on the outstanding balance.
This route is often the best way to get a short term loan with very little extra cost, and you can even access it if you have a bad credit history! This nifty credit report guide is a good thing to run through prior to trying to obtain any credit, if you are unsure of your current credit status. If you are able to get a credit card for individuals with past credit problems, you need to be aware that the amount you can borrow will be lower to reduce the risk for the lender. Likewise, if you breach any interest free period or do not adhere to their payment terms, the interest rates on bad credit cards will usually be higher than for standard credit cards.
Credit card with 0% purchases rate
If you are wanting a slightly longer term, short term loan, for example to buy something expensive online or from the shops, then a 0% purchases credit card is the best option. This route can be a very effective borrowing means for larger purchase because you can find 6 or 12 month 0% deals, that , provided you have a good credit rating and make payments on time, every time, these can be a good option.
The concept with a 0% purchases credit card is that your credit balance will not accrue any interest on it during the interest free period. To benefit from this it is normally best to make on or several large purchases when you first take out the card and then work out the instalments you need to pay it off within the interest free period. Now, you pay the instalments off during the interest free period and voila, an interest free power purchasing method.
Here’s an example of how this would work in reality. If you wanted to purchase a new annual ticket for the train journey to work, and its cost was £6000 per annum (which saved you £1500 over paying for them each week) then you could use the 0% purchases credit card to buy the ticket and pay it off within the 12 month interest free period. That would work out at £500 per month, and provided you paid it all in time, you would have not paid any interest. If, horror of horrors, you had not managed to make all the payments and still owed £2000 with the interest free period running out, you could transfer that balance to a 0% credit card deal, pay the transfer fee and be back at 0% again!
Purchases like this should only be made for things you need, and that you can afford comfortably. In no way should lifestyle purchases be made in this manner, unless you have lots of cash incoming, otherwise you could end up in a very bad situation.
Credit cards interest free balance transfer
You can effectively borrow money for free by using a credit card balance transfer to move your existing credit card debts to a 0% repayment plan.
There is a transfer fee that needs to be paid for this service which is usually around 3%, but this is easily absorbed by the saving in interest payments.
So for example if you owed £2000 on an existing credit card, you could transfer this balance over to a new credit card with an interest free balance transfer offer. The fee, if it was 3% would be £60 but then you would have 12 months interest free to repay the amount in full. A caveat of this type of borrowing is that it is dependant on your means to repay and your credit rating. So the credit card companies will know the total amount your current credit cards would allow you to borrow and will limit their amount across all cards to a ceiling value they deem to be safe for your circumstances.
Money transfer cards that are interest free
Money transfer credit cards are basically the same as a balance transfer card, but they can be used to get direct funds and pay off other debts, such as bank overdrafts, loans and so on.
If for example your bank current account is tied in with your mortgage (like an offset mortgage) then you could potentially use the money transfer payment to repay some of that debt and buy some interest free time.
There is a fee to pay upfront which is usually 3-5% of the amount you want to transfer and you must be aware that the card will revert to a far higher interest rate after the offer period expires, so make sure it is paid off in time, or that you have suitable credit rating and standing to be able to transfer it to another deal card before the deal expires.
Overdraft as a short term loan
A bank overdraft will often let you borrow a few hundred pounds (£200-£300) for free with no charge, see the current account comparison guide here for which accounts offer what. But this is only usually with new current account offers and when the deal runs out, you will start getting charged. Typical rates are £1 a day for amounts under £1000 and double that for amounts £1000-£2000 which is most certainly not free borrowing.
Also, charges for going over the limit can be exorbitant and this must be factored into any decisions about taking an overdraft
Repayment holidays or repayment breaks
These have to be negotiated with the card provider and not a wise route unless you are really in financial strife. This would be preferable to borrowing to pay off other borrowings for example, but it does go down on your records with the lender and interest is still charged during a repayment holiday.
What is the best short term loan?
Credit cards are without doubt a very useful short term loan but only if managed right, as are arranged overdrafts. Other things available to you are payday loans but these are far from interest free and should be avoided whenever possible, seriously.If managed well interest free credit card(s) can be a very effective method of financing things at a very low cost in interest payments and that’s why they are top of the list for interest free short term loans. But money management is important, very important.
Managing your short term loan
You could use a scheduling app on your computer or phone and ensure that you input the dates you need to re transfer if you have not paid off the balance. Next, ensure you have direct debits setup for the required payment amount each month to clear the debt within the interest free periods. Be careful there is not an overhanging amount as they will start charging you interest on that and you will not be debt free when you thought you were!
Be aware with short term loans of any type
Using an Overdraft as cheap short term finance
If your credit rating is not stellar but you always get your wages paid in every month to the bank, it may be wise to get an overdraft from them and possibly a 0% credit card as they may be more favorable to your actual current circumstances and ability to pay the debts.
How can I find out my credit score?
Make sure you know your credit score, you can sign up at experian for this and then you can see your current total potential borrowing amount (eg the amount you could get on all of your credit facilities) *yes, its all there to see!* and factor in will you be able to get another credit card. Bear in mind, failed credit applications go down as black mark on your credit score so you could consider cancelling an old credit card that has no debt on it but also has no special offer 0% deal rates on it, to make way for a new player that is offering the latest hot deals. This goes for any other stale cards you may have, it is sometimes worth cancelling them and getting a different card with a new deal to take account of the benefits that are out there, eg you could pay off your remaining car finance, then pay the 0% balance off before the deal period expires and you would have had interest free car finance for that period!
What other useful info could researching my credit rating give me?
It is a legal right to check your credit rating, and this is because it is important to know exactly what information companies have on you. As above, I would advise using one of the bigger providers like experian as they have always been the industry leader in my opinion and I have first hand experience of their system, and it is very details and works well.
Experian very often have a months free trial, but you submit all your bank details on signup and then if you wished to cancel the monthly subscription cost, you need to phone them, ignore their pleadings for you to stay and you can terminate the agreement. The current monthly cost is £14.99 per month for Credit Expert which is experians full reporting service. It tells you if anyone is trying to obtain credit in your name, or indeed if they have done already and you don’t know about it, in addition to many other things like addresses on file, your credit score, total credit outstanding, total credit potentially available (by adding all your credit facilities) and lots more. Basically the credit reference agencies know everything, and here you can too which also means you can clean any areas of your history if you spot something amiss in addition to seeing how the banks view you as a lending prospect.
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