Most of us will be familiar with the fact that if we want to borrow money, we'll have to pay interest. This obviously ups the cost of any purchase you make, sometimes considerably, so it goes without saying that the less you pay, the better.
However, there are several ways to borrow that mean the money can be yours for nothing, leaving you free to use it and pay it back without additional cost. Here's how you can borrow without paying interest.
1. 0% Purchase Credit Cards
If you spend money on a credit card and don't pay back the balance in full every month, you'll usually have to pay interest on your outstanding balance. This interest will, over time, increase the cost of your borrowing significantly so you end up paying much more for your purchase than the RRP.
However, some credit cards offer interest free purchases to new customers so for a number of months after first getting your card you'll pay absolutely no interest on your spending. These 0% offers can last anything from 3 to 12 months and mean that during that time you can spend and carry a balance on your card but no interest will accrue on that balance.
Essentially this means that while the offer is in effect, you can use your credit card to borrow for free.
What's the catch?
Firstly the main problem with interest free offers on purchase credit cards is that the 0% period is only ever temporary. After the 0% period is up the card will revert to the lender's standard rate of interest - meaning that any balance still outstanding on that card at that point will suddenly start accruing interest at what may be an alarming rate.
As such it's crucial to have a plan in place that means that any balance you are carrying on your card is paid back in full by the time the introductory 0% period is over.
To do this you'll need to note when the 0% period will end and ensure you have repaid your balance in full by then. Otherwise, you'll have to look at transferring that balance to another 0% or low interest credit card to ensure you aren't hit by the sky high standard rate of interest.
Another important thing to remember if you choose this method of borrowing is that even though you don't pay interest, you still need to make all your repayments on time - this will be at least the minimum amount each month. If you miss one of these repayments your 0% rate is likely to be withdrawn immediately and you'll start being charged interest on your balance.
Finally it's worth noting that cards with interest free purchases should never be used to withdraw cash as you would on a debit card. This is because withdrawing cash on credit is extremely pricey; not only will you incur a charge, but you'll be charged a far higher rate of interest from the moment you get your hands on the money.
2. 0% Balance Transfer Credit Cards
Credit cards aren't just for spending on; you can also move existing borrowing to a 0% balance transfer credit card to cut your interest costs.
This means that if you are paying interest on other credit card balances, an overdraft or loan, then you can move them to a balance transfer card with a 0% rate and make your borrowing free as it will no longer be accumulating interest.
That said, that the 0% period on a balance transfer card will only be temporary, with the length of the offer varying between 3 and 18 months. However, this does mean that any money transferred to the card won't accrue any interest during the introductory 0% period, essentially giving you free borrowing.
What's the catch?
Again, as the 0% period is only temporary, any balance still remaining on your card when the offer ends will begin earning interest at the card's standard rate, which could be significant. As such you will have to have a plan in place to get the balance cleared before the 0% period is up, or move your balance to a different 0% balance transfer credit card to keep your borrowing free.
What's more, you will still have to continue making minimum repayments on the balance each month - in fact it can be a good idea to pay more than the minimum required so that the balance is cleared in time. If you make a late repayment the card's introductory 0% offer is likely to be withdrawn straight away.
Something to factor in to your considerations is that most 0% balance transfer credit cards will apply a handling fee to your borrowing, charging you around 2-4% of however much you transfer. However this may be seen as a fair price to pay for several months of interest-free borrowing. Of course, you should make sure you shop around for the credit card that offers you the interest free period you need for the lowest handling fee.
If you transfer a balance to a 0% balance transfer card remember that the card shouldn't be used for purchases or for withdrawing cash - in fact once you've transferred the balance, the best thing to do is to stash the card away somewhere you won't be tempted to use it.
This is because while a transferred balance will accrue no interest, this 0% offer is unlikely to apply simultaneously to purchases made on the card. Any purchases are likely to be charged with card's standard rate of interest and even worse,could sit at the back of the queue accruing that interest until you have paid off the transferred balance. Cash withdrawals likewise will be charged and will accrue interest at n alarming rate.
3. 0% Overdrafts
Opt for an account with an interest-free overdraft and you can use your current account to borrow money without paying interest.
Interest free overdrafts are now offered by many current accounts and mean that if you run out of funds and need to dip into the red, you won't be charged interest on the money you use.
Essentially this means you can borrow money from your bank without having to pay a penny in interest for the privilege.
You can find current accounts offering interest-free overdrafts by browsing our interest-free overdraft comparison tables.
What's the catch?
As with any kind of interest-free borrowing, interest free overdrafts are only likely to be 0% for a temporary period of time. This might be during the first year of opening your current account, for example, after which the rate on your overdraft will revert to a standard rate of interest.
As such if you are going to use your overdraft to borrow funds for free you'll need to find out whether an end date applies to the 0% offer and to make a note so you can make sure you have paid back all of what you have borrowed by then.
Interest-free overdrafts may not offer you the extent of funds you need; for example you might only be able to borrow up to £500 at 0%, after which any money borrowed is charged a standard rate. So you'll have to check what your interest-free limit is before applying, and not go beyond that limit or you're likely to be charged heavily.
4. Friends and Family
Finally, and although perhaps not a viable option for everyone, your friends and family are perhaps the only lender you'll come across who'll offer to lend you money on the least stringent terms. If you are in dire need of money for a particular purchase or to temporarily fund an unexpected expense, turning to your loved ones may be a good idea if they agree not to charge interest. Just remember to ask nicely!
What's the catch?
Of course borrowing money from friends and family can be a thorny issue that you may wish to steer clear of; issues with 'I.O.Us' between loved ones are said to be one of the biggest causes of relationship breakdown. So, if you find a friend who is kind and generous enough to lend, it's a good idea to have a written agreement in place stating how much you have borrowed and how you will be repaying it. Only borrow what you need and repay it as soon as you can.