For most people, taking a loan is something that happens many times in life. It is something inevitable if you do not win on scratch cards or the like. However, being able to take out a loan where you do not have to repay any interest is something that has become more popular in recent years. But what are the lenders thinking about? How can they make money from giving out a loan that has no interest?
Loan itself costs you 10% of the loan amount
There are many different tricks that lenders can use to still earn money from lending interest-free. One of them is so-called fees. There are both start-up fees and newspaper fees. There are loans where they do not exist, but if you take out a loan of USD 1,500 with a starting fee of USD 150, the interest rate may be 0%, but the loan itself costs you 10% of the loan amount.
The real reason why lenders provide loans without interest is like a kind of advertising. An attempt to acquire more customers that you can then bind through customer satisfaction. It’s a bit like getting three months free on a new subscription. When you are already a customer of a certain company, the chance is that you will borrow there again.
How it works
Obtaining an interest-free loan is no more difficult than taking a regular loan. You need to contact the lender you want to borrow from and fill in the information they ask for. Most such as Loanstep and bank allow you to register using some kind of e-identification which makes it easier to verify your identity.
Generally, interest-free loans are at lower amounts and many times they are not above USD 5,000. At Loanstep, that limit is USD 5,000 and is USD 6,000.
The advantage of borrowing interest-free as a new customer is that it simply becomes free many times. However, repayment times are significantly shorter than a regular loan. If you borrow money from bank it is 30 days while it is 14 days at Loanstep.
Once you have filled in your information and the usual credit information has been made, the loan can be granted. Since the amounts are relatively low, the chance of getting it granted is very large. Most lenders who issue interest-free loans also have a fast payout period, which is the case for both Loanstep and bank. Usually the loan is deposited into your account the next weekday.
Are there disadvantages to interest-free loans?
There are no direct disadvantages of taking an interest-free loan against a loan with interest. The same obligations and requirements to repay the loan exist. The only difference is the repayment period. This is greatly reduced and is generally not over 30 days. In such a short time, it may be more difficult to repay the entire amount. If you find that you are unable to do so, there is a risk that you will receive a payment note. Therefore, be absolutely sure that you will be able to pay back. Obtaining a payment note makes it much more difficult to get e.g. a mortgage in the future.