The Pros and Cons Of Availing No Interest Loans

There have been many times loans have come to the aid of people who require some extra funds to make large purchases such as houses or vehicles. These loans are usually approved with the agreement that a certain amount of interest needs to be paid upon the repayment of the amount. Thus, the borrower pays more than the principal balance, which was initially borrowed. A loan can be helpful in meeting education expenses, marriage expenses, home renovation expenses, etc. Banks provide competitive interest rates on their loans to attract customers, making it challenging to find a suitable loan for a reasonably low-interest rate.

Due to the level of competitiveness in the UK loan market, certain banks have started providing zero-interest loans. This type of loan lets the customer pay back only the principal amount, and no interest whatsoever is applied to the initial borrowed amount. No-interest loans are sanctioned to a few select people, especially to those individuals who have a credit score well above 700 and have displayed a high level of responsibility in their financial transactions. A zero-percent interest loan comes with various clauses and if not fulfilled, can lead to hefty penalties. However, if the rules and regulations are followed as required, then this type of loan can benefit borrowers immensely.[no_toc]

Understanding the Pros and Cons

Before you go ahead and apply for no-interest loans, it is essential to understand what are the conditions under which this loan is sanctioned and whether or not those conditions are feasible for you. As with most things, even no-interest loans have pros and cons and to reap the full benefit of the loan, analyzing whether or not the benefits outweigh the drawbacks is a crucial step. Below are some of the factors to be aware of when applying for no-interest loans.


  • The pre approved loans provide zero interest rates, thus becoming beneficial to customers, especially those who may be in the low-income bracket. As the affordability of availing loans increases, low-income customers can apply for loans without worrying about the massive interests which may be incurred on their principal amount.

  • Car companies often sell cars by offering no-interest loans as a means of financing, where they would suggest to make the purchase at no interest that is spread over 12 months rather than as a lump sum payment. This creates more desirable cash flow and this arrangement is beneficial to both the dealers as well as the customers.

  • Medical providers are supportive of no-interest loans which means medical expenses are much easier to handle. With a zero-interest loan, it is now possible to pay just the principal amount as well as reap the benefits of medical services which are much more likely to help you as they are keen participants in the zero-interest loan scheme.

  • Various organizations are participating in the concept of no-interest loans and are helping out people who need temporary or emergency assistance via the means of sufficient funds. These loans are explicitly directed towards healthcare, child protection, and providing shelter.

  • No-interest loans are provided very quickly to family members of the Air Force Aid Society, and those families that are facing emergencies.

  • A no-interest loan can be quite beneficial to your Credit Score if the payments are made on time.


  • If you avail a no-interest loan but are unable to make the payment in time, a deferred interest comes into play. This means that the customer would have to end up paying all of the interest which was actually supposed to be paid with the principal amount. The penalty of missing a payment or delaying payment is so substantial that most people feel that this type of loan is pointless.

  • At times there are hidden fees that are associated with the loan. In the case of credit cards, when transferring the amount, charges may be applicable, this can catch certain customers off guard. Therefore, the concept of having a zero-interest loan seems negated as extra charges are applied.

  • If you don’t have a high credit score that is above 700 points, your application is not going to be accepted. Those customers who have a history of delayed payment and record of hard searches on their credit file have a very low chance of getting a zero-interest loan approved.

  • Lenders are very picky and cautious about who they sanction no-interest loans to, meaning that the chances of this loan getting approved are very slim. Thus, customers who apply for zero-interest loans without analyzing their eligibility often get rejected, which further adversely affects their credit score and narrows down their chances of getting any type of credit in the future.

  • Once a no-interest loan is approved, the tendency of customers to make impulsive purchases drastically increases. This impulsive shopping often leads to a large amount of debt. The excitement that comes with the knowledge that no interest rates are associated with the principal amount of the loan often makes people overestimate their spending capacity.

Eventually, customers find themselves in a downward spiral where they are unable to repay even the principal amount, and hence when massive interest rates are incurred, there is more trouble.


No-interest loans are a good option for those people seeking loans at low-interest rates. The benefits suit customers who are mindful of their spending habits. The participation of various organizations in this type of credit, along with medical care providers, car dealerships, electronic dealers, etc. speaks volumes about the effectiveness of the loan. It also means that customers are more likely to be able to make purchases in the above-mentioned fields without too much hassle.

Zero-interest loans are especially beneficial for people in the low-income bracket. Since their payment capacity is already low, it makes it difficult for them to pay substantial interest rates associated with the principal amount.

These types of loans ensure people in low-income slabs have a fair chance at better funding for their life. However, a no-interest loan also comes with many factors that one needs to be cautious of. If a customer does not have a high credit score the chances of the loan being approved are slim, and missed payments or delayed payments can lead to hefty penalties. Therefore, applicants should carefully read the offer document and terms and conditions of no-interest loans before availing one.



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