High-interest rates always make someone think twice about availing a loan. These high-interest rates sometimes may not be beneficial to the borrower, that is why financial institutions now have availability of no interest or 0% loans.
What are No-Interest Loans?
The kind of loans where you are required to pay off only the principal amount is called a no-interest loan or a 0% loan. The principal amount means that you only pay back the amount borrowed and nothing more.
There are no interest rates charged on 0% loans but this only applies if you return the borrowed money within the due date that was agreed upon. Failure to pay back the borrowed amount may result in high-interest rates or hefty penalties. These loans may sound alluring with the ‘no-interest’ catch but there are quite a few hidden charges that may fall on you when you opt for these loans, like the originating fees or the processing fee, there is a transaction fee applied when you transfer money from your standard credit card to a no-interest credit card.
However, not everyone is eligible for these 0% loans, you are required to have a good credit history and credit score. Few things to keep in mind before availing a 0% loan:
- When you avail a loan it is important to read and remember the deadlines and the other conditions. Failure to comply with those conditions may lead the lender to impose hefty penalties on you or charge you with high-interest rates on the borrowed amount.
- Re-evaluate the need for the loan and the reason behind availing the loan. Make sure you apply for one only if you need it.
- Try getting the required money from another source. Only avail the loan as a last resort.
Who is Eligible for a 0% Loan?
Not everyone is eligible for a 0% loan, there is a certain criteria to be met by the individual when applying for the loan.
- The age of the applicant must be 25 or above.
- The applicant needs to have a score of 720 or more.
- Additional documents have to be provided if you are self-employed.
- A steady source of income is a must if you want to avail a 0% loan.
- You also shouldn’t have any cheque returns in the last month.
Where to Get No-Interest Loans?
As mentioned before, availing a loan is no joke and it is important to assess your current financial situation before availing a loan, it helps you get a clearer picture as to the requirement of the loan. Trying to acquire the money from other sources is also wise but if you have no other option, then there are a lot of lenders who offer a 0% loan. With the number of lenders offering this type of loan, the application process is more seamless and can be done entirely online.
Electronics and Furniture Stores
Furniture and electronic retailers are always offering excellent deals on their products by providing no-interest loans or 0% loans. If you happen to delay or miss the monthly payments, there may be high-interest rates applied on the remaining amount.
Non-Profit Organizations
There are organizations that provide no-interest loans to people who are in need of a financial emergency. Air Force Aids Society and The International Association of Jewish Free Loans are few examples of Non-profit Organizations that offer 0% loans. However, they have their own eligibility criteria.
Medical Expenses
There are a lot of lenders who offer 0% loans to cover the medical expenses and may also require the respective medical caregiver to participate in their programs. Under medical loans, 0% loans are interest-free throughout the lifespan of the loan as long as the loan amount is paid back within a certain time-frame as failure to pay back the amount in time will result in high interest rates.
Automobile Dealerships
People who have a good credit history and credit score will usually receive no-interest loans on cars but by doing so, the borrower may lose out on the incentives that come with the car, for example, a manufacturer’s rebate.
Are there Fees and Penalties for No-Interest Loans?
Certified Financial Planner David Rae once said, “0% loans do exist, but a lot of them do have a fine print that make them not as great as 0% or free sound.” Though these are known as 0% loans or no-interest loans, in no way does it mean that there are no extra charges to be paid. Hidden charges are something you have to look out for as paying the processing fee or the originating fee is equivalent to paying interest on the borrowed sum. Also, if you are not capable of paying back the borrowed amount and miss or delay the monthly payment, then you will be charged high-interest rates. Also, heavy penalties will be imposed on you.
No-interest loans are only beneficial if you are capable of paying the borrowed amount back, if not you should consider other alternatives as failure to pay back the borrowed will result in higher interest on the borrowed sum and adversely affect your credit score.