It’s possible to have zero interest rate for a loan. But there’s a catch. When taking out a loan, the interest and the APR have two different meanings.
Paying the interest means paying the percentage of the amount you borrow on top of the principal. Meanwhile, the APR includes the origination fee and the payment terms required to take out a loan.
Bottomline, a zero-interest offer doesn’t mean you don’t need to pay the upfront origination fee to take out a loan. A zero-interest offer is not free financing. Instead of being too enthusiastic with a zero-interest offer, the more accurate way of determining a good deal is by looking at the APR. The more accurate way of determining a good deal is by looking at the APR.
A zero interest offer is often limited to a specified period of time. Once you fail to follow the terms of the loan, there will be hefty penalties.
Other instances may also include deferred interest. This is the interest added to the principal balance when you don’t pay it in the required timeframe or when you make late payments. These charges and fees even with no interest rate offer may be higher in cost compared to other offers.
Now that we’ve covered the “catch” to zero interest loans, here are the…
PLACES WHERE YOU CAN FIND ZERO-INTEREST LOANS
Credit cards often offer an introductory 0% APR. These are used for balance transfers or purchases. After the promotional period ends, you go back to your regular APR that depends on your creditworthiness.
Electric Retailers and Furnitures
You can usually avail zero interest loan offers with retailer stores. But, if you miss a payment in the predetermined date, you become responsible for paying off interest on your remaining balance.
The government has undergraduate interest rates approximately 5.05%. Private loans can range from 4% up to 14.3% APR. With a no-interest student loan, you are able to pay back the actual amount of loan and nothing more.
These zero-interest student loans are usually offered local and state-based. Because funds are limited, the process of availing this is more intense than regular student loans. They require a solid academic record, an essay or/and an interview. One can also take help of financial companies like SoFi, where one can get estimate of their monthly loan payments with their student loan calculator.
Auto-dealer companies that offer zero-interest loans to buyers with excellent credit. They present their vehicles as a no-lose opportunity, and it’s meant to compel you to open up your wallet. The catch is, sometimes when you accept this offer you sacrifice incentives like a manufacturer’s rebate. It can also mean having higher fixed monthly payments.
There are also nonprofit organizations that offer no-interest loans. These are often to assist you during a financial need, whether it’d be for emergencies and health care.
Is a zero-interest loan perfect for you?
Like I’ve mentioned, take note that a zero-interest offer is not free financing. Even licensed moneylenders offer premium loans at a very considerable amount.
For a better assessment if you’re getting a good deal, check the APR of the offer.
Most zero-interest offers are designed for companies to get their foot in the door. It often tempts you to make impulse buying decisions and have the tendency to overspend.
You can avail zero-interest loans if you’re a buyer or borrower with FICO scores of 720 or higher.
It might be a good choice if you’re the type who can stick to rigid monthly payment schedules and hard deadlines. Otherwise, you’ll be paying huge penalties for violating the terms that often come with zero-interest offers.