Here are three routes to interest-free money that won't be found in the 'loans' section of your bank!
The words 'interest-free credit' usually put me on my guard immediately. Many of these deals come with enormous, scary hidden catches; and anyway, in a perfect world, we'd all live within our means and never spend money we didn't have.
Unfortunately, that's not always how it works. Genuinely interest-free loan deals do exist - and when you really need to access extra cash, they can be an economical and useful financial tool.
They can also help you get your finances back under control, by chopping the amount of interest you're already paying on debts.
Here, I'm going to highlight three good ways of getting interest-free cash. I'm also going to outline the pitfalls you need to watch out for - so your 'free' money doesn't drag you deeper into the financial mire.
By the way, if you've been hunting through the personal loans section, you won't have found these options. In fact, providers don't label them as 'loans' at all!
1.) An interest-free overdraft
Many current accounts now have a substantial 0% interest overdraft facility included in the package.
How much can I borrow? It depends on the account you go for, but at the moment (excluding student accounts) the largest interest-free overdraft on offer comes from Santander with its Preferred Current Account, which promises to match your previous overdraft up to a maximum of £5,000.
Sadly, the overdraft is only free for the first 12 months. But on the plus side, you will pocket £100 by opening the account as a welcoming present!
Remember that the size of the interest-free overdraft you're offered will largely depend on your credit rating. So for example, this account is advertised as coming with a 0% overdraft of 'up to £5,000'. This doesn't necessary mean you will be offered £2,000 interest-free.
How long is the cash interest-free? Again, it depends on the account, but borrowing via a 0% overdraft is definitely not a long-term borrowing solution. Unless you are a student, the majority of current accounts will only let you have an interest-free overdraft for the first year.
After this, you'll be charged substantial interest on your remaining negative balance (or in some cases a fixed daily fee) so you need to make sure you've paid off your debt within the 0% period.
What to watch out for: It's very important you don't exceed your 0% overdraft limit. Doing so will push you into an 'unauthorised' overdraft - on which you'll be charged horrendous rates of interest (typically 20-30% APR).
2.) A 0% on purchases credit card
The other main way of getting a totally 'free' loan is to take out a credit card that offers 0% interest on all new purchases.
How much can I borrow? A credit card will normally indicate what its maximum credit limit is before you apply. However, the credit limit you're offered might be much lower, and (like an overdraft) will depend on your personal financial circumstances.
How long is the cash interest-free? This depends on the credit card. At the moment, the market-leader is the Tesco Personal Finance Clubcard Mastercard, which offers 0% interest on new purchases for a whopping 15 months!.
So again, as you can only borrow interest-free for 15 months, it's not a long-term borrowing solution.
What to watch out for: When your 0% deal ends, you'll be charged a very high level of interest on your remaining balance (typically 15-20+% APR) - so it's crucial you clear your balance before this happens.
If you do still have a balance remaining when your 0% deal ends, you could try to take out 0% balance transfer card (see below) and shift their debts across to it.
However, this is a very risky strategy. We all know how much lenders have tightened up on giving credit, and there's no guarantee you'll be one of the lucky ones!
[SPOTLIGHT]You also need to make absolutely sure you make the minimum repayments every month (more if you can afford it). If you're late or default on a payment, you may well be fined, and your 0% deal is likely to be whipped away from you.
3) A 0% on balance transfers credit card
If you're already paying interest on a debt, you could turn it into an interest-free loan by shifting it onto a card offering 0% on balance transfers.
How much can I borrow? As with a 0% purchase card, a 0% balance transfer credit card will normally indicate what its maximum credit limit is before you apply. However, the credit limit you're offered will depend largely on your credit rating and salary.
How long is the cash interest-free? Again, this depends on which card you choose. At the moment, the longest balance transfer deal is on offer from Barclaycard. It lasts for 22 months (with a 2.9% transfer fee).
What to watch out for... While you'll temporarily eliminate interest payments on your debt, this is not totally free money: The vast majority of balance transfer credit cards charge transfer fees (typically 2-3% of the total debt) to move your money onto them.
If you don't manage to clear your debt during the 0% period, you'll be saddled with big interest charges. Rates will typically be between 15-20% APR - but there are plenty of horror stories about people being charged 30% APR or even more!
And again, make absolutely sure you make (at the very least) the minimum payments every single month. Otherwise, you could end up with a fine and a hefty rate of interest on that large balance!
A longer-term, low-rate solution
As you can see, all these are relatively short-term borrowing solutions. If you need a low-interest loan lasting much longer than a year, a long-term, low rate credit card might be a better solution for you.
For example, the Barclaycard Simplicity card offers a low rate of 7.9% APR (variable) on both purchases and balance transfers for the lifetime of your debt. And no transfer fees apply.
To find out more about low rate credit cards, read Fight the downturn with these credit cards.
Good luck!
This is a lovemoney.com classic article, updated for August 2011.
More: Buy now, pay later at no extra cost! | Six dangerous ways to borrow
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