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What are Interest Free Loans?

Back to questions list September 1, 2021

Interest free personal loans are too good to be true. Even if the lender promises no interest, you will still have to make certain payments or there are tricky references that are usually written with the smallest font and have exceptions and amendments.

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So, there are two types of interest-free payday loans:

  • Personal interest-free loans until the last payment.
  • Personal interest-free loans for a certain period (usually up to 12 months). After that period, the interest occurs.

The first type includes “Service Charge” or “Merchant Fee” instead of common interest. It might be a fixed amount or calculated amount according to the loan amount. In fact, it acts the same way as interest. While you don’t pay interest, the fees of the loan make it even more expensive than the traditional loan.

The figures show that interest-free adoption loans until the last payment aren’t that attractive as they sound.

Lenders use a similar trick when it comes to interest-free loans for a fixed period. When the interest occurs, it happens to be higher than it could be during the whole repayment period:

The same happens to interest free car loans and interest free student loans. Even if you don’t pay interest, you still make additional expenses and pay fees. Therefore, before applying for this option, compare the benefit.

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