A Brief Guide on 0% Loans and How it Works
While it may be a challenge to comprehend the concept of a loan with no financial charge associated with it, in recent years, some banks in the UK have started offering a 0% loan. These loans have either, a very low-interest rate or none at all, proving to be very useful for those customers who belong to a low socio-economic background. The amount required to be paid back is only the principal amount. A 0% loan refers to loan that the customer can borrow from the lender and pay back the amount borrowed initially without having to pay any interest whatsoever.
However, a no-interest loan has various hidden aspects to it. From processing charges to hidden fee transactions, these loans could prove to be a hassle for some people, if not too careful. When availing a 0% loan, one must have a credit score well above 700 along with a previous record of making timely payments.
An Introduction to 0% Loans
Loans in which only the principal amount is to be repaid is known as a 0% loan, it comes with a rigid monthly schedule set by the lenders which the customers must follow. The deadlines are to be met without fail as defiance can result in cancellation of the loan altogether. Those customers who fail to pay back the amount on time can face hefty penalties and their future approvals may be heavily impacted.
There are many advantages to avail a 0% loan. Patients and their families can now avail for 0% loans for healthcare purposes without worrying about the final amount. With the adoption of this loan scheme by so many healthcare institutes, patients who may not have a high socio-economic background can pay for their treatment. You can read all of the risks of applying for a loan here.
There are many rules to follow by those people who avail a 0% loan. Defaulters (customers who fail to make payments in time) can have their investment cancelled abruptly. This also holds true for revolving debt such as APR credit cards with a 0% loan and instalment debt. Borrowers must be mindful and aware of when their deadline is approaching and make payments prior to that date.
At times, while transferring money from a standard credit card to a 0% credit card in the UK, the transaction may come with a fee. In the sense, the loan isn’t right of a 0% interest rate. Customers must be wary of these hidden charges which may pop up at different times when making different transactions.
If you are planning to avail a 0% loan, approach with caution as nothing in this world is free, and some banks who offer this type of loan, often give it with exorbitantly high interest rates. That being said, it could be a good incentive for those willing to put in a little extra effort and keep this article in mind.
What are the Steps to Avail a 0% Loan?
These options listed below may be the safest bet for customers wanting to stick to paying just the principal amount and finish off their repayment procedure.
Interest-Free Overdraft
An interest-free overdraft is a secure, reliable and trustworthy source of availing a no-interest loan. The amount that you borrow is based on your personal choice; however, the general amount which is borrowed is small. The amount of funds offered depends mostly on your existing credit rating.
0% Credit Card
For purchases which are one-time buys and are of significant funds, credit cards may be the way to go. There is a maximum credit limit set by the lender who issues a 0% credit card and the funds can be used until the credit card limit is reached. In the UK, the payment is based on the amount of virtual funds used from the credit card.
PayPal Credit
In the UK, another method to avail a 0% loan for immediate access to credit can be done by getting credit in your PayPal account. It is essential to keep in mind that the debts must be paid in time or else the interest associated with the principal amount starts to come into play and may turn out to be an expensive ordeal.
The basic expenditure to avail a 0% loan is to buy a product over 99 pounds, you will get a 0% interest rate for 4 months on that purchase. After that, every time you spend over 99 pounds on any product, you will automatically get 0% interest for 4 months.
To enroll for PayPal credit, complete a short online application form and a decision will be given instantly. If approved, you will have a credit limit attached to your PayPal account which you can start using straightaway to make purchases at thousands of online stores.
Conclusion
A 0% loan is a type of investment that has both advantages and disadvantages. It largely depends on the person who is availing the loan and how mindful they are. While it may be a hassle for a regular customer to keep a close eye on the payment dates, some people may see it as a great incentive, for which they do not mind the extra vigilance.
0% loans have both short-term and long-term borrowing solutions, closely compare all the lenders that offer this type of loan and choose the one that you can benefit from the most.