What Is a No-Interest Loan?

Borrowing money at no cost may sound like a dream — and in some cases, it may be closer to a dream than reality. No-interest loans exist in various forms, such as Buy Now, Pay Later (BNPL) apps and cash advance apps. However, “no-interest” or “zero-interest” doesn't necessarily mean zero cost.

These loans may come with strings attached, and in some cases, could cost more than a loan that charges standard interest. Here's a closer look at 0% interest loans and what you need to know.

Is it possible to get an interest-free loan?

Yes, it's possible to get interest-free loans, but most are for short-term financing needs and need to be repaid within two weeks to a few months. Loan amounts are typically limited as well. Here are some examples:

• Buy Now, Pay Later: Some retailers and financial services companies offer BNPL options. As long as you make payments as agreed — often in four biweekly payments — you can avoid paying interest. However, BNPL loans may charge fees for late or missed payments.
• Cash advance apps: Apps like Earnin and Klover use your next paycheck as collateral to lend small amounts of cash. These apps typically don't charge interest but may have fees, such as monthly membership or instant transfer fees. More importantly, because of short repayment periods and fees, the cost of using a cash advance app could be the equivalent of paying more than 300% APR.
• Payroll advance financing: You might be able to get a paycheck advance or earned wage access through your employer. These advances may not be 100% interest-free, but if interest is charged, it's typically much lower than other short-term options such as payday loans and pawnshop loans.
• Payment plans from healthcare providers or organizations: Healthcare organizations, such as hospitals and physician offices, might be willing to create an interest-free payment plan for you to encourage payment. Healthcare payment financing services offer loans or lines of credit with no or low interest, although some might charge deferred interest.
• Educational scholarships and emergency student loan programs: Some schools offer interest-free emergency student loans or interest-free scholarships through financial aid offices and scholarship programs. However, loan amounts may be small and a co-signer may be required.
• Carmaker auto financing: Occasionally, some car manufacturers may offer interest-free 0% financing on new cars. Only those with very good or excellent credit are likely to get approved for 0% APR financing.
• 0% APR credit cards: Some credit card issuers offer introductory 0% interest on purchases or balance transfers, with introductory periods lasting up to 21 months before the regular APR applies. Remember that you'll need to pay for the purchase or balance transfer in full before the introductory offer ends to avoid interest.

Some credit cards charge a balance transfer fee, typically 3% to 5% of the amount being transferred, that is added to the card's balance. For example, transferring $5,000 with a 3% balance transfer fee would cost $150.

If you're a student, ask your school about emergency student loans. For example, the Marshall University Emergency Loan Program provides one loan of up to $250 per semester if you have a financial emergency.

Moreover, nonprofits like the Jewish Free Loan Association offer emergency, business, education, and wellness loans with 0% interest or fees to all types of borrowers. You can get up to $15,000 for a personal emergency loan with two qualified guarantors. Guarantors are similar to cosigners and agree to cover your debt if you can't repay it.

Interest-free loans vs. personal loans

If you prefer a more straightforward way of borrowing money, consider taking out a personal loan. Although it's not a no-interest loan, a personal loan may offer advantages including:

• The cost of the loan is clearly defined by the APR (annual percentage rate, which accounts for interest and any upfront fees).
• Most personal loans have fixed APRs, which means your rate won't change and your monthly payments stay the same.
• They typically offer larger loan amounts than no-interest loans.
• The repayment period for a personal loan typically ranges from 1 to 7 years, as opposed to a couple of weeks or a few months.

If you have good or excellent credit, you may even qualify for a low-interest personal loan. Here are average APRs on two-year and three-year loans for borrowers with credit scores of 670 or higher, according to Credible data:

Low-interest personal loans

How does a no-interest loan work?

Zero-interest loans offer a way to borrow money without paying interest. However, they may involve meeting certain conditions, such as repaying within a short timeframe to avoid interest, or paying fees. Terms typically range from a couple of weeks to 21 months, but high-ticket items, like cars, may have terms of 48 months or more. 

For example, say you purchased a new car for $30,000 with a $5,000 down payment and 0% financing for 48 months. Paying off the remaining $25,000 balance would mean making 48 monthly payments of $521. Although you can avoid interest with a 0% APR financing if you repay on time, missed payments could lead to cancellation of the zero-interest offer. You would then pay the regular APR on the remaining balance.

Another example is using a BNPL loan to purchase a $1,000 smartphone. With the typical BNPL loan, you’d pay $250 upfront and agree to make three more biweekly payments of $250. You’ll likely be charged a late fee if you miss a payment. 

Both these examples might truly be no-cost loans. But some no-interest loans are high cost. For example, say you use a cash app to advance $150 from your next paycheck. You want the money today, so you pay an instant-transfer fee of $5. Since the loan is due in two weeks, the cost is equivalent to an 87% APR. If you add a $2 tip to the $5 instant transfer fee, the cost is equivalent to a 122% APR.

Why are zero-interest loans risky?

There are three main features that make many no-interest loans a risky proposition: short repayment times, deferred interest, and ease of approval. Here’s more on each. 

Short repayment periods

No-interest loans can be challenging to repay because some have short payback periods. Longer-term loans, like personal loans, often have years-long repayment periods, which can mean much lower payments. 

For instance, if you take out a $500 cash advance via a cash app to cover an emergency expense, the entire $500 would be due with your next paycheck. If, on the other hand, you took out a $500 loan with a one-year repayment term at 28% APR, your monthly payment would be only $48.

Deferred interest

With some credit cards or in-house financing offers, you pay 0% interest on your purchase only if you pay the balance within a certain timeframe, such as 12 months. If you don’t, you could be charged all of the interest that you expected to be deferred. Interest will continue accruing on your outstanding balance at these high rates until the loan is paid off. 

Risk of repeat borrowing

Some types of interest-free loans are small and easy to obtain, which could lead to overuse. A 2025 report from the Consumer Financial Protection Bureau found that in 2022, more than three-fifths of BNPL borrowers had more than one BNPL loan at the same time at some point during the year. About 20% of borrowers were heavy users, taking out more than one BNPL loan each month. 

How to get an interest-free loan

BNPL programs and cash advance apps might not check your credit score or require much documentation.  However, the application process for other interest-free financing tools like credit cards and car loans follows a more standard application process. 

Review eligibility requirements

Qualifying for a 0% APR credit card or 0% APR auto financing might require very good or excellent credit, generally defined as a FICO score of 670 or higher. Check your credit score for free using Credible’s credit monitoring tool or find out if your bank offers free credit monitoring.

You generally need a 670 credit score or higher for 0% APR credit cards, although your chances of qualifying are better the higher your scores are. 

Apply for the loan

Applying for credit cards online is common, but online or in-person at the store are also possibilities. If you’re applying for a car loan, you’ll likely do this in person at the dealership. 

You probably don’t need to show many documents for a credit card, just give basics like your:

• Full name and birthdate
• Social Security number
• Address and how long you’ve lived there
• Annual income
• Current employer and how long you’ve worked there
• Email address

Card issuers may sometimes ask about your other financial assets, such as savings accounts. 

Car lenders want to see much of the same as credit card issuers but also ask for more because of the car’s high purchase price. Additional documents they may ask for include:

• Proof of income and employment (W-2, tax returns, or pay stubs)
• Proof of address
• Proof of insurance
• Down payment (personal check, cashier’s check, cash; sometimes credit card)
• Phone number
• Car information (VIN, make, model)
• Current vehicle registration if trading in

Some car dealers might not accept personal checks for down payments and require a cashier’s check instead. 

Once you submit your application, lenders may run a hard credit inquiry. Soft inquiries don’t impact your credit score, but hard inquiries can lower your score by up to 10 points for as long as one year.

Read and sign the loan agreement

Look closely at a loan’s:

• Repayment terms
• Fees, such as late payment fees or service charges
• Any penalties you may be subject to, such as late payment fees, penalty APRs, and deferred interest charges

Closely reading the fine print before signing can help you confirm important details about the loan. If you have questions or see something that’s unclear, contact customer service. 

Alternatives to 0% interest loans

If a zero-interest loan isn’t a good fit, you still have a variety of low-to-no-interest alternatives, including saving up and applying for a traditional personal loan. 

Mike Kern, CPA and founder of FreeBudget, a free personal budgeting tool, says that paying cash is the most obvious alternative to a 0% APR loan. But a low-interest personal loan at a credit union or local bank could also be a good alternative, especially if you’re not sure you’ll be able to pay off a 0% interest loan before the promotional period ends. 

Some other alternatives include:

• Borrowing money from family or friends
• Using your home equity through a home equity loan, home equity line of credit, or cash-out refinance
• Taking out a secured personal loan, which requires collateral