With digitalisation and diversified modes of payment, money is more associated with financing now. The digital-savvy world has allowed easy access to credit with a simple click and people are no longer as reluctant as they were a few years ago. Diverse types of loans have profited a considerable number of borrowers, and an interest-free loan is one type of loan that is available for you today.
However, many are sceptical of this type of borrowing and rarely use it. If you’re among the ones who are doubtful about this type of loan and want to learn more about it, read on!
What is an interest-free loan?
Also known as a “zero-interest loan,” this is a loan where you are not required to pay any interest. You only have to repay the principal amount. You can either opt for interest-free education loans, interest-free home loans, interest-free car loans, interest-free travel loans, interest-free loans for business, and others from various lenders, or opt for government interest-free loans.
Eligibility
The eligibility for zero-interest loans varies depending on the lender. The standard eligibility criteria are as follows –
- You must be over the age of 21 and should not exceed 65.
- You must have identity proof such as an Aadhaar card, driving license, or pan card.
Is it really interest-free?
Though it varies according to the lender, an interest-free loan isn’t really free. We’ll tell you how.
- Firstly, many of these are small-ticket loans, for consumer-durable goods and services such as restaurant bills, technology, jewellery, furnishings, automobiles, and so on. You can simply use any acceptable mode of payment to avail of interest-free personal loans through which your lender lends you money.
- Many lenders might also demand additional fees in order to supply you with this option. You may be required to pay application costs, prepayments, origination fees, etc. These fees are usually deducted from your loan amount solely, so you’ll have to borrow more than you need.
- Finally, if you cannot repay the principal amount within the time frame given, you will have to pay penalties and fines. It will add to your overall payment For example, students availing interest-free education loans when failing to pay back their principal amounts, have to pay considerably higher money than availed. In many cases, the burden of their interest-free education loan also falls on their parents.
What are the advantages loan without interest?
People with interest-free loans have more liberty and more money in their pockets for day-to-day expenses.
- Instant purchases: You will be able to buy what you need right away. For example, suppose you want to buy a piece of essential household furniture but don’t have the cash to do so right now. You can easily take out an interest-free personal loan and use the funds to meet your immediate needs.
- Instant approval: Obtaining other forms of loans takes longer than obtaining a no-interest loan. You won’t have to wait weeks for documentation and approval. It is an obvious advantage, especially in certain instances, such as an interest-free home loan or interest-free education loan. You can complete the minimal paperwork requirements and other formalities and get these loans readily.
- Save money: If used properly, this loan will not only assist you in managing your finances and needs but will also help you save money. For instance, suppose you wish to get a car that is currently at a lower price than the original. You can acquire it with the help of an interest-free car loan and later pay off the principal on time. This will help you save significant money in the long run.
What are the disadvantages loan without interest?
Instant availability of funds can sound good in the first instance. However, there are risks associated with these types of loans.
- More financial strain: If you are unable to repay the loan, it will simply add to your overall financial burden, due to which your credit score will be affected negatively. Let’s say, your interest-free loan for business enabled you to commence your business, but you were not able to pay the loan on time. Not only will it affect your future financial requirements, but also affect your credibility.
- A habit of mismanaged credit: Taking up an interest-free home loan might be regarded as good credit because a home is a necessity. But, taking an interest-free car loan or loans to buy luxury items like jewellery, on the other hand, is not a prudent strategy to manage your finances in the long run.
- Limited to particular products: Interest-free loans are not available for all types of consumer goods or services. Many of them, including government interest-free loans, have their lists of criteria and categories exclusively for which you can get zero-interest loans.
What minimum credit score is required to qualify for an interest-free loan?
Your credit score is a key factor that determines your eligibility for an interest-free loan. In the case of a zero-interest loan, since the lender is taking on a higher risk of lending funds without interest charges, they typically require a higher credit score.
This is because a higher credit score indicates the creditworthiness of the borrower and ensures the lender makes timely repayments. As a result, you must check your credit score before applying for a loan. While the minimum credit score to qualify for an interest-free loan varies between 700 and 900, you must check the lender’s eligibility requirements before applying.
To conclude
No-interest loans are a viable alternative to other sorts of funding, including interest loans, high-interest credit cards, and other external borrowings. Apart from borrowing from various lending institutions, you can also look into government interest-free loans. However, before opting for this loan, you must carefully assess your needs and affordability.
At Tata Capital, we offer interest-free consumer durable loans for 6 to 24 months with minimal documentation. We also approve loans promptly and offer a flexible repayment structure. Reach out to us to get interest-free loans now.
FAQs
1. What are the eligibility criteria for obtaining an interest-free loan?
While the eligibility for a 0-interest personal loan may vary from one lender to another, the standard criteria are as follows-
1. The applicant must be between the age of 21 to 65 years
2. The applicant must have a valid identity proof such as Aadhaar card, PAN card, or driving licence
2. What is the maximum loan amount available under an interest-free loan scheme?
The maximum loan amount you can apply for under an interest-free loan scheme varies from one financial institution to another. You must visit the lender’s website and check their loan features to know the maximum loan amount.
3. Are there any hidden charges associated with interest-free loans? An interest-free loan might carry added charges such as processing fees, late payment fees, pre-payment penalties, and so on. It is crucial to carefully read the loan agreement and terms to understand all potential costs involved and clarify with the lender upfront to avoid any hidden charges.
10 July 2024
6 mins read
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