Here are four ways to borrow money without the need for a personal loan – and they're all interest-free!
If you have to borrow money, it’s essential you do so as cheaply as possible.
Thankfully, there are a number of interest-free loan deals available on the market that will help you do just that.
These can help you get your finances back under control by slashing the amount you're already paying on debts.
We're going to highlight four ways you can get your hands on interest-free cash. In each case we'll also outline the pitfalls (and fees) to look out for, so your 'free' money doesn't drag you deeper into the financial mire.
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!
1. An interest-free overdraft
A number of current accounts offer a 0% interest overdraft facility.
How much can I borrow? That depends on the account you choose and your personal circumstances.
For example, Nationwide gives an example of £1,200 on its FlexDirect account, which charges no interest at all and no fees for the first 12 months.
Santander also offers fee-free overdrafts with its 123 Current Account. It also pays up to 3% cashback on certain household bills and up to 3% on in-credit balances between £3,000 and £20,000 (note there's a £5 monthly fee).
To qualify for these perks you need to be able to deposit at least £500 a month, set up at least two direct debits and pay a £5 monthly fee. There will be no overdraft usage fee for the first four months, after which time a 'usage fee' of £1 a day will be applied.
Alternately you can get a £500 overdraft from First Direct with its 1st Account, of which the first £250 is absolutely interest-free.
Remember that the size of the interest-free overdraft you're offered will also depend on your credit rating.
How long is the cash interest-free? Again, this 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 few months.
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) and possibly usage fees as well.
2. A 0% new purchase credit card
The other main way of getting a totally 'free' loan is to take out a credit card that offers 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. 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 money interest-free? This depends on the credit card. Currently the longest 0% offers come from the Post Office Matched Card and Sainsbury's Nectar Purchase Credit Card which both boast a 27-month 0% period.
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 APR of up to 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 0% balance transfer card (see below) and shift the leftover debts across to it.
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% balance transfer credit card
If you're already paying interest on a 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? As with a 0% new 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, you can get a 40-month 0% period with Tesco. For the latest best buys, read our guide to the best 0% balance transfer credit cards.
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 of 1-3% of your total debt to move your money onto them (although there are some truly fee-free balance transfer cards available).
More importantly, 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!
4. 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? The top money transfer cards offer an impressive 40 months interest-free. Take a look at the Tesco Bank Balance Transfer Credit Card or the Virgin 40-Month Balance Transfer Card – or read our more in-depth guide to money transfer cards.
What to watch out for: Like with balance transfers, money transfer cards come with an up-front fee for securing the 0% rate. This will vary depending on which card you choose, but tend to be between 3% and 4%.
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, instead of transferring a debt from one credit card to another.
Longer-term, low-rate solutions
As you can see, all 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.
This is a classic article that is regularly updated
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