Interest-free loans UK: cheap and free ways to borrow with no interest

It's easier to get an interest-free UK loan than you might think. Here are the best no-interest loan options if you need to borrow cheaply.

There are a number of truly interest-free loans available on the UK market that will help you borrow money cheaply or simply keep existing debt in check.

We're going to highlight the various ways you can get a no-interest loan but be warned, not all of them are truly free as there could be some hidden fees involved.

Confused? We'll explain more as we run through each option, outlining all the potential pitfalls to look out for, so your interest-free loan doesn't drag you deeper into financial trouble.

By the way, if you've been comparing personal loans online, you won't have found these options.

That’s because providers don't label them as 'loans' at all!

As a final point, these options are only suitable for small to moderate sums: if you need to borrow thousands of pounds then an interest-charging personal loan might be your best bet.

But if you have been in debt for a long time now, or are going further into the red, simply taking out another loan might not be the best option. To help, we've put together a guide to getting out of debt and the help available.

No-interest loan 1: interest-free overdrafts

Good for: reliable, truly cost-free credit whenever you need it.

A small number of current accounts currently offer a 0% interest overdraft facility, despite changes around overdraft rules on borrowing costs.

How much can I borrow? That depends on the account you choose and your personal circumstances, but we're generally talking about small amounts.

One of the biggest on offer is from Nationwide, which gives an arranged overdraft of up to £1,500 on its FlexDirect account and charges no interest and no fees for the first 12 months (39.9% EAR thereafter). 

If you don't want your overdraft time-limited, first direct has an ongoing £250 0% overdraft buffer. You can also get access to a 7% Regular Saver account. 

You can see a full breakdown of the best interest-free overdrafts here.

Remember that the size of the interest-free overdraft you're offered could also be affected by your credit rating.

How long is the cash interest-free? This depends on the account but borrowing via a 0% overdraft is definitely not a long-term borrowing solution.

Unless you are a student, most current accounts will only let you have an interest-free overdraft for a few months or even a year.

After this, you'll be charged interest on your remaining negative balance, so you need to make sure you've paid off your debt within the 0% period.

What to watch out for: After the Financial Conduct Authority (FCA) replaced authorised and unauthorised costs with one standard rate in 2020, several banks hiked their overdraft rates to up to 40%.

No-interest loan 2: 0% new purchase credit card

Good for: single large purchases.

The other main way of getting a totally 'free' loan is to take out a credit card that charges 0% interest on new purchases.

How much can I borrow? A credit card will normally indicate what its maximum credit limit is before you apply. The credit limit you are offered might be much lower, and (similar to an overdraft) will depend on your personal financial circumstances.

How long is the money interest-free? This depends on the credit card. Currently, the top provider offers up to 21 months interest-free on new purchases, but the top rates can change regularly. You can check out the top 0% purchase credit cards here.

What to watch out for: When your 0% deal ends, you'll usually be charged a very high level of interest on your remaining balance (typically around 20%) – 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 a 0% balance transfer card (more on that in the next section) and shift the leftover debt across to it.

You also need to make absolutely sure you make the minimum repayments every month (and more if you can afford it).

If you're late or default on a payment, you may incur a fee, and your 0% deal is likely to be whipped away from you.

Finally, note that the longest 0% purchase cards tend to be reserved for those with the very best credit rating.

No-interest loan 3: 0% balance transfer credit card

Good for: consolidating and paying off credit card debt.

If you're already paying interest on credit card debt, you could turn it into an interest-free loan by moving it onto a credit card offering 0% on balance transfers.

How much can I borrow? Similar to a 0% new purchase card, a 0% balance transfer credit card will normally indicate what its maximum credit limit is before you apply.

The credit limit on offer will depend on your credit rating, so don't automatically assume you'll get the maximum amount.

How long is the cash interest-free? Again, this depends on which card you choose, but with these cards, it's important you focus on the fee as well as the 0% window to decide what's best for you.

Generally speaking, the longer the 0% offer the more likely you are to be charged a hefty fee.

Barclaycard currently offers the longest 0% period of up to 28 months, with a 3.45% balance transfer fee. To put this into context, you'd pay £34.50 to transfer £1,000 of debt onto the card.

If you don't need a long time to clear your debt, you could choose one of the completely fee-free balance transfer cards out there.NatWest currently offers the longest interest-free term of 13 months.

To see all your options, read our guides to the longest 0% balance transfer credit cards, the best low-fee balance transfers and the best fee-free balance transfer cards.

What to watch out for: While you'll temporarily eliminate interest payments on your debt, most of these cards are not totally free.

The majority of balance transfer credit cards charge transfer fees of around 3% of your total debt to move your money onto them. If you're willing to opt for a lower 0% window, you could choose one of the few fee-free balance transfer deals.

As a final point, remember if you don't manage to clear your debt during the 0% period, you'll be saddled with big interest charges.

Rates will typically revert to between 18% and 22% APR – but there are plenty of horror stories about people being charged up to 30% APR or even more!

And again, make 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!

No-interest loan 4: 0% money transfer credit card

Good for: consolidating and paying off overdraft debt.

If you have an expensive overdraft you want to pay off, you could clear it with a 0% money transfer credit card.

How much can I borrow? Again, this will depend on your financial situation.

How long is the cash interest-free? At the time of writing, Virgin Money offers the most competitive deal with a 12-month 0% period and a 4% fee.

What to watch out for: Like with balance transfers, money transfer cards come with an upfront fee for securing the 0% rate. This will vary depending on which card you choose, but they are generally higher than balance transfer fees.

The only real difference between balance transfer and money transfer cards is that, with the latter, you’re transferring money from a credit card to a bank account (so you have money to spend as you wish), instead of transferring debt from one credit card to another.

No-interest loan 5: PayPal Credit

Good for: immediate access to credit.

If you need money today, PayPal Credit could be a good bet.

You spend over £99 in one go with PayPal Credit and automatically get 0% interest on that purchase for four months. You can use this offer again for every purchase over £99.

It's important to pay off your debt within that time as the interest rate can be high. Also, it's not available to those with a poor credit rating – we've included alternatives in our guide.

Borrowing with little interest: longer-term loans

As you can see, all of these are relatively short-term borrowing solutions.

If you need a low-interest repayment plan that lasts longer, a low-rate credit card might be a better solution for you.

Alternatively, if you need to borrow a larger sum of money you may qualify for a low-rate personal loan.

And again, if you're borrowing more money to pay off existing debts, it may be time to seek help.

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