In this article:
When you're out shopping for a big-ticket item such as a car, appliance or furniture, you may be lured by advertisements for no-interest loans. A no-interest loan may seem like a dream come true, and with a solid budget and repayment plan, it can be a good option for financing your purchase. However, without a plan to repay what you borrow, your 0% financing offer can lead to financial hardship if you're not careful. Let's dive deeper into what a no-interest loan is, the types available and whether one makes sense for you.
Are There Loans With No Interest?
Most loans require you to pay back the principal amount plus interest, but a no-interest loan allows you to skip the interest charges and repay only the principal. Interest-free loans aren't as common as loans that charge interest, aren't typically available from traditional lenders and may come with fees that can increase the amount you have to repay if you violate the loan terms. You may even be responsible for interest charges if you don't pay your balance in full by the end of the no-interest period.
Pros and Cons of Interest-Free Loans
No-interest loans have pluses and minuses. Here are a few to consider.
Pros
- No interest charges: If you repay what you borrow according to the loan terms, you'll avoid interest charges.
- Financing for large purchases: Some no-interest loans are specifically designed to help you finance big-ticket items, such as vehicles, furniture and appliances.
- Credit qualifications: Some no-interest loan options, like those available from cash advance apps, don't require a credit check.
Cons
- Uncommon: No-interest loans aren't typically available from traditional lenders and may be difficult to find.
- Limited uses: Some no-interest loans can only be used for specific purchases like buying a car.
- Fees: If you don't adhere to the loan terms and conditions, you may have to pay fees, which can increase the amount you have to repay—even if you avoid interest charges.
- Deferred interest: Your no-interest loan might come with a catch: If you don't repay the balance in full by the time the loan term ends, you may have to pay interest retroactively on the entire balance.
- Credit requirements: You typically need good or excellent credit to qualify for no-interest loans from retailers and car dealerships.
How to Get a No-Interest Loan
You probably can't borrow money interest-free from a traditional lender, but you may be able to get a no-interest loan from:
- Retailers: Car dealerships and other retailers may offer 0% annual percentage rate (APR) financing for a set amount of time.
- Buy now pay later (BNPL) plans: BNPL apps and plans allow customers to pay for purchases over time without paying interest. When using a BNPL app or plan, you typically repay what you borrow in four equal payments over six weeks, though some apps offer extended repayment timelines for larger purchases.
- Paycheck advance app: Paycheck advance apps loan small amounts of cash, using your next paycheck as collateral. These apps don't typically charge interest or fees, but you may need to pay extra to get your money immediately.
- Friends and family: If you know someone who would be willing to help you out, you may be able to borrow money from them interest-free. Just be sure to agree to a repayment plan and stick to it so you don't damage your relationship.
- Health care facilities: Some doctors and hospitals offer no-interest loans to help patients pay their medical bills.
- State and local governments: Some government entities offer interest-free loans to help low- and moderate-income individuals finance home repairs and pay for education.
Alternatives to No-Interest Loans
Here are some alternatives if you can't find or qualify for a no-interest loan.
- 0% Intro APR credit card: Credit cards with 0% introductory APR offers typically work one of two ways: They charge interest on the remaining balance when the promotion expires, or they charge deferred interest retroactively on all purchases if you have a balance when the promotion expires. However, they can be a great alternative for a big-ticket purchase you know you'll be able to pay off during the introductory period.
- Low-interest loan: If a no-interest loan isn't possible and you have good credit, getting a personal loan with a low interest rate may be a good option.
- Savings: If you're looking to finance the purchase of a "must have" item, dipping into your emergency fund instead might make sense. Be sure to replenish it as soon as possible so it's available the next time you need it.
Find a personal loan matched for you
Let us know what type of loan you’re looking for from a list of options.
Tell us your income and address—then verify everything is correct.
See and compare your best loan offers with no impact to your credit.
Frequently Asked Questions
Credit qualifications for no-interest loans vary based on the source of the loan. Car dealerships and other retailers offering no-interest loans may require good credit scores. However, your credit scores may be less important if you get a loan from a friend or family member or cash from a paycheck advance app.
Here are some types of no-interest loans you may find.
- Furniture or appliance loans: Retailers often offer no-interest loans to help finance the purchase of furniture or appliances at the time of sale. You typically need a strong credit profile to qualify, and you could pay deferred interest on the full original balance if you don't pay it off by the end of the promotional period.
- Car loans: Some dealerships entice buyers with no-interest auto loan offers, but they usually only apply to certain models, and there may be limits on the loan terms you can choose from. You usually need good credit to receive 0% APR dealer financing.
- Medical loans: Some doctors, hospitals and nonprofit organizations offer interest-free financing for medical expenses.
It depends on the terms and conditions of the loan. Some may have late fees, while others don't. If your loan has deferred interest and you don't pay the balance in full by the end of the promotional period, you could be charged interest retroactively.
Is a No-Interest Loan Right for You?
A no-interest loan may be a good option for financing a purchase if you can fit the payments into your budget and repay what you borrow in full to avoid interest charges, fees and other penalties. But if you don't have a way to repay what you borrow, getting a no-interest loan probably isn't a good idea.
Before taking the plunge and agreeing to a zero-interest offer, take a close look at your budget and lifestyle to ensure you can meet the requirements to maintain the 0% interest rate. If not, consider alternative financing that's less likely to put you in more debt.