Six ways to get interest-free or cheap loans if you’re struggling
MILLIONS of households struggling to pay their bills could consider resorting to debt to cover the cost of essentials.
Getting into debt should always be a last resort – but sometimes there are no other options.
If you need to take out a loan, it’s important to find the cheapest rate, so you don’t end up racking up big interest charges that can add to your financial pressures.
Always be sure to read the terms and conditions and understand the total amount you will repay over the term of the loan, as well as any penalties or late fees.
When the Bank of England raises the base interest rate, it has a ripple effect on borrowing – and interest rates on loans, mortgages, credit cards and overdrafts have all started to rise. increase.
But for those in financial difficulty, there are ways to get cheap or even interest-free loans.
This week, the Icelandic supermarket even announced plans to launch interest-free customer loans to help shoppers through the cost of living crisis.
The frozen food specialist will start by offering a £100 interest-free credit to members of its Food Club.
If you borrow money, be sure to consider how you will pay it back.
Peter Tutton, head of policy at StepChange, said: “Even interest-free credit can lead to financial hardship, and at a time when energy bills are expected to rise further and inflation is at record highs.
“Companies that provide credit to people to buy essentials need to look very carefully at loan accessibility and how they will support customers who are struggling to repay.
But there are alternative avenues you can explore if you need to borrow more.
We look at some of the other options:
Overdraft without interest
A free overdraft in your bank account can provide a handy buffer for unexpected expenses.
But not all banks offer them. In fact, this week Barclays revealed that it would be removing its arranged overdrafts for many clients.
Overdrafts can have incredibly high interest charges, so it’s important to check before going overdrawn.
According to MoneySavingExpert, Nationwide is offering an interest-free overdraft of up to £1,500 for its FlexDirect customers. But that’s only 0% for a year, after which you’ll be charged 39.9%.
Meanwhile, the First Direct 1st account offers an interest-free overdraft of £250. If you exceed this limit, you will pay 39.9% interest on any amount over £250.
Some stores will allow you to spread the cost of your payment, especially on larger purchases.
Common examples that come to mind for interest-free store credit include furniture such as a sofa or electrical appliances and appliances such as a new television.
For example, sofa company SCS allows customers to spread the cost of their purchases and offers 0% interest on orders over £320.
Applying for this type of financing involves a credit check, so if you are denied, it will be noted on your file for other lenders to see, and it could impact your score.
Obviously, this type of credit is only useful if you’re also making a specific purchase — there’s no point buying a sofa just because you can get an interest-free payment plan for it.
Buy now pay later
Buy now, pay later (BNPL) is an increasingly popular payment option – it allows you to break down the amount you owe into smaller chunks.
It’s not a loan, but if you need to make a purchase but can’t afford it right away, it’s a way to delay your payment.
BNPL is interest free and free of charge – but some providers will have late fees if you miss a payment.
Typically, payments are made weekly or fortnightly for a short period.
For example, Klarna lets you pay in three installments over 60 days, with the first piece taken at the time of purchase. Alternatively, you can pay nothing on purchase, but must pay the full amount within 30 days.
With BNPL, the money is taken automatically from your card or account, so you need to make sure you have enough money to cover it.
Most BNPL companies will do a credit check to decide how much you can borrow. They’re also starting to report to credit reporting agencies, so missed payments can affect your score.
Be sure to check the terms and conditions, as all BNPL providers operate slightly differently, and late fees and charges vary.
Interest-free credit cards
Some credit cards charge no interest for a set period.
However, you must make at least the minimum monthly repayments, otherwise the 0% rate could be withdrawn – always check the terms and conditions.
Be careful not to exceed your limit either.
If you get a 0% balance transfer card, you can transfer debt from other credit cards. This can be a great way to pay off your debts, as all the money you pay back goes towards paying down your balance rather than paying interest.
Before applying for a credit card, use an eligibility calculator to see how likely you are to be accepted.
Lenders only have to offer the advertised rate to 51% of applicants, so even if a 0% rate is advertised, you may be offered a higher rate.
Currently, Barclaycard has a credit card that offers 0% for 25 months, while M&S and Nectar have cards that charge no interest for 24 months.
Universal Credit Emergency Loan
If you’re on Universal Credit, you may be able to get an emergency loan.
This is known as a budget advance and is available to help cover unexpected costs, such as if your boiler breaks down or your car needs repairs.
You can borrow between £100 and £348 if you are single, up to £464 if you are in a relationship and up to £812 if you have children.
This money, however, must be repaid via your Universal Credit payments – so you will find that your benefit will be reduced while you repay the money.
A credit union is usually started by a non-profit organization and can provide cheaper loans to those in need.
With a credit union, members can pool their savings and lend the money to others.
This means the saver gets a return on their money in the form of the interest you pay on the loan, and the borrower gets a cheaper rate than they could get through a lender. traditional.
You don’t necessarily need to be a member to get a loan, but it can vary and you may have to pay a fee to join.
Be sure to check around – don’t just assume it’s cheaper than a standard credit card or loan. The way interest is charged may be different from other loans, so be sure to do your math.
You can find the nearest credit union on the Association of British Credit Unions Limited website.
Where to get debt help
If you are having financial difficulties or are in debt, it is important to get help.
Do not take money from loan sharks and try not to resort to very expensive debts such as home loans.
Your friends and family may be able to help, but talking about money with loved ones can be difficult.
If you’re behind with a payment, it’s essential that you speak to the company – this should help you work out a manageable payment plan to get you back on track.
You may be able to apply for Breathing Space, a program that suspends interest charges for a certain period and saves you from being hassled for payment.
A number of organizations can also offer advice and support – and we’ve already looked at all the places where you can get debt help for free.
These include Citizens Advice, StepChange and National Debtline.
A benefit calculator can help you work out if you are entitled to extra cash.
A number of energy companies also offer grants to people who are late in payment.
You should also check whether you are eligible for any grants or additional support, such as your local council’s Household Support Fund.