GLOSSARY: Interest-free Loan

Consumer Financing    >   Glossary   >  Payment Plans

Do interest-free loans exist?

The definition of interest-free loans refers to loans whereby the borrower is not charged any interest fees.  However, it is highly unlikely that any loan is completely free of cost. Even if there is no interest on the loan amount, there is likely to be an origination fee charged for taking out the loan. Many loans and credit cards offer an ‘interest-free’ period, during which the borrower will not be charged interest. However, if the loan or credit card balance is not paid by the end of this period, the interest is charged on the original amount for the entire duration of the loan, plus compound interest added on top. 

Certain POS loan companies offer short term installment loans where there is no interest, but a fee that may be transferred to the retailer rather than the customer.

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