Interest Free Credit
Banks offer interest-free loans/credits to attract new customers, but this service has its own characteristics, which you need to understand. For example, if you make a purchase in a store and you are offered to get a loan without interest, the following scheme may apply: the bank gives a loan at an interest rate, but the store makes a discount. Therefore, for the client, the loan seems interest-free, he simply pays the full cost of the goods without a discount.
Bank profit
The bank does not make a profit by lending money to the client, since the interest rate is equal to zero, but the credit institution’s earnings are to sell related services, without which you cannot take such a loan. Such services include insurance, a commission for cash withdrawals, a commission for making payments by credit money, a fee for servicing an account, issuing a card, and other services that may differ significantly from one bank to another.
Banks issuing interest-free loans
Most large banks offer such services. Most often such a loan implies that the client approves a card with a certain limit of funds. There are about 10 cards that operate on different conditions.
Ways to get an interest-free credit
There are several ways of such lending:
- Overdraft is offered by some banks. The interest rate per annum is 0%, while the borrower must pay a monthly amount, a monthly fee for using the services and record from two direct debits. The first 4 months you can use the overdraft for free, after that the payment for its use will be charged, the bank will set the amount on its own. The size of the loan depends on the rating of the client and is determined in each case separately. This is a short-term loan, but its term is also determined by the bank’s loan program chosen by the client. Much attention should be paid to full repayment of debt in the free period of use.
- Credit card for purchase at a rate of 0%. This is the second, no less popular way to use credit funds without paying interest in a short period of time. Such a credit card has a limit set by the lender which cannot be withdrawn from it more. In this case, the user is obliged to return the funds during the grace period, if this does not happen, the bank begins to calculate the interest rate. Often such cards provide a monthly payment for their use. In case of late payment of funds, the borrower may get a fine. You cannot withdraw cash from such a card for free, a rather high commission is in effect, for transferring money to a third-party card you also have to pay a commission of 1 to 3% of the amount you want to transfer. At the end of the grace period, the borrower will pay from 15 to 20% per annum.
- Installment purchase in a store. This is one of the popular ways that many customers use. For many new products, the price of which is high, the buyer can get a profitable loan. Having issued it, the client will be given a payment schedule, you need to pay a certain amount once a month. If possible, you can pay off the debt in advance. You can distinguish a loan from an installment plan by reading the contract. If this is an installment plan, there will be no interest, and the contract is concluded between the customer and the store. If there is a bank in the agreement and the agreement itself is a loan, then this is not an installment plan, but a loan, however, a grace period is often provided for 6 months, in which interest is not paid. If the client fits into it, he receives the desired product without overpayments, and in fact the loan acts as an installment plan, if the buyer does not have time to repay the loan, he begins to pay interest on the remaining amount and a monthly installment.
Benefits and disadvantages
This type of credit has the following advantages/disadvantages:
- it is not required to collect a large number of documents and wait for the bank approval.
- the ability to not pay interest in the grace period.
- money can be used at a time convenient for you.
However, there are a number of disadvantages:
- if you do not meet the grace period, you will have to pay a large percentage.
- the grace period is limited.
- the loan amount is small.
- high commission for the transfer or cashing of money.