While you can’t necessarily get interest-free loans, it’s still possible to borrow money interest-free. But this may not actually be your best solution.

Although personal loans incur interest, they usually have lower interest rates than credit cards and can be a more suitable option if you’re looking to borrow a large amount of money to pay back over a longer period of time.

Here we’ll look at your options for interest-free borrowing and explore what a personal loan could look like for you.

Can I get an interest-free loan?

There’s no such thing as an interest-free or 0% interest loan. If you take out a personal loan with a lender, they will always charge interest.

The only way you may be able to get an interest-free loan is if you borrow from a family member or a friend.

When it comes to personal loans from lenders, it’s important to note that interest rates are generally much lower than credit cards for example. If you want to borrow a substantial sum over a longer period of time – say £7,000 over four years – a low-interest personal loan could be the best and most cost-effective option.

How does loan interest work?

When you apply for a loan, the lender will offer you an interest rate as a percentage of the amount you borrow. You must pay the interest on top of your monthly repayments for the length of the loan.

The interest rate you’re offered usually depends on a range of factors, including:

• How much you want to borrow: Often larger loans have lower interest rates.
• The loan term: Short-term loans – like 12-month loans – will likely have higher interest rates than longer-term loans.
• Your credit score and borrowing history: If you have a strong credit score and a good history of responsible borrowing, lenders will view you as less of a risk and will likely offer you a lower interest rate. If you have a poor credit score, you may be offered higher interest rates.
• The Bank of England base rate: Lenders use this as a base to calculate interest rates in line with the current economic situation.

You’ll see loans advertised with a representative annual percentage rate (APR). This is the interest rate plus any fees you’ll have to pay for the loan, like the arrangement fee.

When it comes to loans, the terminology used can be tricky to understand. To help, we’ve put together a financial jargon buster to help explain what these terms mean.

Interest-free alternatives

If you’re looking to borrow money interest-free there are alternatives, including:

0% purchase credit card

With a 0% purchase credit card, you pay for something upfront on your credit card and can spread the cost over a set period without paying interest.

Make sure you pay it all off in the interest-free period as you will likely be subject to hefty interest charges outside this period. And always meet your payments, as any missed payments could not only harm your credit score, but you could lose the 0% offer too.

Interest-free overdrafts

With most bank accounts, you’ll be charged interest for going into your overdraft. This is usually at a higher interest rate than personal loans. You may find that some student bank accounts offer interest-free overdrafts whilst other accounts give an interest-free buffer up to a certain amount or a time-limited interest-free offer as an introductory bonus.

Be aware of how big the buffer is or how long the interest-free offer lasts. If you go over this, you will be charged interest at the standard rate. Plus, if you borrow outside your arranged overdraft, it can affect your credit score.

0% transfer credit card

A 0% money transfer credit card lets you transfer money to your bank account and pay it off over a set amount of time interest-free.

It’s important to pay it back before the 0% period is up as the interest rate will likely be high after this time. If you make any subsequent purchases on the card, you will be charged interest for these. And if you miss any repayments, you’ll likely lose the 0% deal.

0% store finance

Many retailers offer 0% store finance as a buy now, pay later scheme to help spread the cost of your purchases. Often, you’ll get 0% APR for a fixed period to pay it off. You’ll also often see many retailers offering buy now, pay later through companies like Klarna and Clearpay that pay the retailer for you, and you pay them back over time.

It’s simple to borrow with store finance, which can make it easy to borrow beyond your means. Especially if you don’t keep track of your spending. If you miss a payment, the fees can be high too.

How do I get a lower interest rate on a personal loan?

Whilst loans with 0% interest don’t exist, if you want to borrow a specific sum to make a bigger payment and spread the cost, they can offer a more cost-effective choice than some 0% borrowing options.

Interest rates are typically lower than credit cards and the payments can be spread out over a longer period on a fixed-term and fixed-rate basis. That means you can spread your monthly payments out into manageable and affordable chunks over a longer time.

When looking at loans, it pays to compare different loans from different lenders to try and get the best possible interest rate. At Asda Money, we work with a carefully selected panel of trusted UK lenders that offer loans from £1,000 to £25,000 across one to seven years.

We also have a helpful personal loan calculator, so you can see how different terms and interest rates affect your monthly repayments.

With one simple eligibility check, we’ll search our carefully selected lender panel to find different offers that meet your requirements and borrowing needs. You’ll then see a range of offers from a wide range of trusted UK lenders. These will be presented clearly and simply, so you can make the right decision for you. If you choose to, you can then go on to complete a full application with the lender.

How Asda Money can help

At Asda Money, we’re here to help you find the right loan for you from our panel of trusted UK lenders. You can check your eligibility without it affecting your credit score.

To understand more about loans and your finances, we also offer free and impartial advice and support on all things money through our Financial Support. Whether you need help understanding terms with our jargon buster or you want to check your financial health, we’re here to help.