If you have ever tried to borrow money from banks or other lenders, then you might have come across the term ‘interest-free loan.’ The biggest worry when taking out a line of credit is the interest you have to pay to the lender. Whether you are getting a personal loan or a cash advance, you have to pay back the money with a premium, which is determined by a predetermined or floating interest rate.

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Depending on the product and interest rate, a loan could cost you a considerable amount. For this reason, interest-free loans look attractive to many borrowers. How much do you know about no-interest loans, though? Before applying for one, learn the fundamentals of a zero-interest loan and show to find the most suitable one. Consumers should also know how to compare interest-free loans, and this guide helps.

What is an Interest-Free Loan?

A no-interest loan works as the name suggests – it doesn’t come with an interest. Personal loans, home loans, payday loans, and other products charge interest that you must pay back according to the agreed terms. The interest rate dictates the amount you pay back to the lender. Banks, credit unions, online lenders, and other financial institutions offer no-interest loans to attract customers. In most cases, these products are promotional, hence, are not easily available. Nonetheless, Filipino borrowers can find various lenders providing interest-free loans.

The most common no-interest loan is where a lender offers deferred interest. It means you receive funds with no interest for a specific period in which you have to make the repayments. If you fail to complete the payments of your no-interest loan within that time, you must pay interest. Another option is getting an interest-free loan for part of the term. For example, you could get a personal loan without interest for the first year, and then incur interest for the remaining portion of the tenure.

Are Interest-Free Loans Really Interest-Free?

Are Interest-Free Loans Really Interest-Free?

Some consumers jump on interest-free loans because they are appealing from a distance. However, never make the mistake of thinking you are borrowing for free. The interest rate is a percentage of the loan amount the lender takes as the cost of advancing you the cash. So, in a no-interest loan, lending companies find other ways to make a profit. The most common solution is charging various fees. A zero-interest loan can have prepayment, origination, and application fees, among other charges. Not every lender informs you about all the applicable fees upfront. Therefore, be sure to read the fine print before applying.

Other products include certain conditions, like repaying the loan in a specific term. If you failed to meet the monthly repayments, then you would have to pay the interest in full. A majority of interest-free loans charge you in other ways. Hence, ensure you comprehend all the conditions, or you could find yourself paying more for a no-interest loan than a conventional personal loan.

Advantages and Disadvantages of Interest-free Loans

If you are considering getting an interest-free loan, then know what to expect. Analyze how well this financial product serves your needs. For that, we highlight the pros and cons of interest-free loans to help you make an informed decision.


The biggest appeal of a zero-interest loan is the absence of interest. A high-interest rate can leave you saddled with large monthly payments that strain your financial well-being. With a no-interest loan, you can save money if you satisfy the loan terms. It’s not to say, though, that you won’t pay anything to get the loan. Although personal loans with zero interest are available, these products are usually for large purchases. You can take out a loan to buy a car, kitchen appliances, or dental procedures. When you don’t have disposable income to cover various purchases, a no-interest loan allows you to afford items sooner.


Interest-free loans are not as free as most consumers believe. Lenders use ‘no interest’ for advertising. These lines of credit include fees, meaning you may end up paying a significant amount for the loan. 0% loans have stringent prerequisites. Lenders ask for excellent credit scores and other requirements, like proof of income. In cases where the loan is a promotional product, you may need to be a loan customer to qualify. For these reasons, interest-free loans disqualify a lot of borrowers.

How to Get an Interest-free Loan

How to Get an Interest-free Loan

The options for no-interest loans in the Philippines are not as many as other products, but you can still find a decent offer. When looking for a zero-interest loan, start by shopping among different lenders. Decide which type of loan you want. Besides personal loans, banks and online retailers grant auto, home improvement, and large purchase loans without interest. Search for providers with the lines of credit you wish to apply, and compare them.

Pick at least three interest-free loans and look at their requirements. Settle on the lender whose eligibility criteria you meet. Then, apply for the loan. Most lenders provide online applications that take less than five minutes. If the loan you want requires a high credit score, you might consider waiting until it’s better if it’s not good enough. You can negotiate a favorable loan agreement with a great score.

Repayment of the loan

Never take a loan you cannot afford to repay, regardless of how cheap it appears. No-interest loans can be particularly enticing because you don’t have to worry about paying interest. However, the fees lenders bundle into these products are not to be ignored. Since the charges come out of the loan, it means getting a big sum to meet your demands. So, be sure you can meet the repayment conditions. Read the fine print to learn the penalty if you default.

Alternatives to Interest-free Loans

Alternatives to Interest-free Loans

As alluring a loan without an interest rate is, it might not always be the best solution. Consider a few other options before settling on this financing method. If the loan is for a large purchase, consider postponing it. Saving money to buy what you need eliminates a lot of stress. If you can put enough money together, you can make that purchase without relying on interest-free financing.

A 0% APR credit card allows you to use a line of credit without incurring interest. Some issuers offer deals for interest-free credit for a particular duration. Hence, you can use the card for the promotional period without paying interest.

Consider grants from nonprofits, as well. If you need funds for a medical procedure, business, or home purchase, several organizations offer need-based grants. Find out if you qualify and apply for one.

Borrowing from friends and relatives may not be for everyone, but it could be a practical alternative to no-interest loans. You can agree on the loan terms, even on paper, to avoid conflicts.