Interest-free loan – who and how can it get it?
December 17, 2019
With interest-free loans you can borrow a certain amount of money without having to pay anything extra. They are offered by both banks and non-banking companies and, for example, by employers to their employees. What are the conditions under which zero interest loans are granted, who can obtain them and what should be observed?
What is an interest-free loan?
It is a loan with an interest rate of 0%. Most people are likely to recall loans between family members, which are usually backed by a so-called interest-free loan agreement. Others will remember the various non-banking companies and their tempting slogans promoting free loans.
However, this type of loan is also offered by some banks and in many cases also by employers who provide interest-free loans to employees as part of benefits.
There are therefore several types of interest-free loans:
- Interest-free bank loan
- Interest-free non-bank loan
- Interest-free loan to a partner
- Interest-free loan to employees
Although the loan is not linked to any interest, the APR (annual percentage rate of charge) need not be zero. The APRC also takes into account the fee for arranging a loan, which usually has to be paid both to the bank and to companies outside the banking sector.
Interest-free bank loan
Providing interest-free loans does not pay much for banks, but there are those that offer them to their clients.
Best Bank interest-free loan
Zero interest refers to the first loan, which is coupled with very simple terms and a number of benefits. These include, for example, the lowest APRC on the banking market, the possibility to apply for an interest-free online loan or early repayment of a loan without penalty.
Product parameters Best bank Plus:
- Interest rate: 0%
- Loan amount: 10 000 – 40 000 $
- Maturity: 1 or 2 years
- One time fee: 2% of the amount borrowed
- Maximum APR: 3.81%
Best Bank provides an interest-free loan to anyone over 18 years of age, resident in the US, proves regular income and does not owe Best Bank or any other bank. As a permanent source of income is one of the conditions, it is not the most appropriate alternative to a loan for students. Non- interest-bearing loans for young people may be a better option for non-bank loans.
Interest-free non-bank loan
Non-bank loans always require greater prudence than bank loans. In some cases, hidden fees are attached to them and the client can be pretty fooled. However, it is certainly not true that a non-bank interest-free loan automatically amounts to fraud.
They operate on a similar principle to zero-interest bank loans and are usually advertised as the first free loan. It follows that once the client borrows from the company again, he will have to pay interest. One of the main advantages of interest-free non-bank loans is the speed of application processing and money transfer.
In the case of interest-free loans, it is possible to borrow rather a smaller amount of money, usually up to $ 10,000. Thus, they can be used, for example, as pre-payment loans when expenditure on unexpected expenditure is necessary.
Benefits of zero interest non-bank loans:
- possibility to arrange an interest-free loan online
- no fees
- quickly process and transfer money
- without pledge
- without a guarantor
It should be borne in mind that some unfair providers charge a fixed fee for a fixed term loan (for example, 300 $ for a 2000 $ 14-day loan) instead of traditional interest. Therefore, it is always necessary to carefully study the conditions of the company.
In the case of free loans, there is usually no need to prove income and money can be obtained in minutes. Therefore, they are often advertised as quick loans, interest-free loans for young people without income, loans for the unemployed and the like.
Interest-free loan to a company partner
A free partner can also get a business partner. In the case of an interest-free loan to a shareholder, it should be borne in mind that there may be an obligation to deliver interest savings – a zero-interest loan can be considered as a hidden distribution of profits.
If one of the partners borrows money from the company, its operation or ability to fulfill its obligations to clients must not be reduced.
An interest-free loan may also be granted to a shareholder of the company.
In the case of an interest-free loan to an executive (a partner of a limited liability company is also its executive), it must first be approved by the General Meeting. The company may also negotiate an interest-free loan agreement with a member of the Supervisory Board or another person who has the right to enter into such an agreement on behalf of the company.
Interest-free loan from employer
An interest-free loan to employees without tax consequences can be provided up to $ 300,000. It is therefore always worth asking your employer whether a free credit option exists. In the case of a higher loan, only the amount exceeding $ 300,000 will be taxed.
The interest-free loan agreement should include the purpose and amount of the loan, the amount of repayments, the repayment term and the method of repayment of the loan in the event of termination of employment.
What to watch out for?
There is no need for fraud behind interest-free loans. For example, an interest-free loan from an employer is a frequent benefit for employees. Bank and non-bank interest-free loans are usually offered in order to attract new clients, so we do not have to worry even in these cases.
However, it is always necessary to bear in mind the early repayment of the loan, otherwise high interest rates on late payments may start.