Life has a funny way of throwing unexpected expenses at you. It may be in the form of a hospital bill, an essential house repair, or some academic expenditure. Under these conditions, you would be bound to look for urgent help with money. The main drawback of a conventional personal loan is the rate of interest, which will enlarge your payback to unrealistic proportions. It is from this reason that interest-free personal loans have become extremely popular.
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What are interest-free personal loans?
These interest-free personal loans, also called zero-interest loans, add no extra charge. You just pay back what you borrowed. To people who need financial help, these loans seem to be a good option. They get rid of the extra costs that come with regular loans.
Are these personal loans really interest free?
Depending on the lender, however, this term “interest-free” is not at all times true. In fact, for the reasons explained below:
- Collateral requirements: Most interest-free loans are secured by cheaper goods like jewellery, electronics, furniture, or restaurant bills. For you to qualify, though, they might also need you to make use of certain payment methods.
- Extra fees: Lenders often charge fees like origination, prepayment, or application fees, even though interest can be waived. These costs can add up quickly.
- Fines: You may incur fines if you cannot make timely principal repayments, which will increase your total debt.
Benefits of interest free personal loans
- Instant access to purchases: These loans are the best for urgent financial requirements because they enable you to buy what you need immediately.
- Fast approval: These loans are often sanctioned much faster than traditional loans because they require less paperwork and formalities.
- Potential savings: Provided you use them correctly, they will help you control your expenditure without the burden of interest payments.
Drawbacks of interest free personal loans
- Reduced financial stress: You will have a low credit score but also increased financial stress in case you fail to pay on time. This can even lower your credibility and the future prospects of borrowing.
- Limited use: There are limited options because usually, these loans are connected to specific goods or services. Some of them have serious eligibility conditions like interest-free loans by the government.
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Who qualifies for interest free personal loans?
Lenders have different eligibility criteria, however, common ones are;
- Age: They must normally be between 21 years and 65.
- Identity proof: You will need to provide a PAN card, Aadhaar, or any other government-issued identity proof.
What minimum credit score is required for interest free personal loans?
To qualify for an interest-free loan, you need to have a high credit score, often between 700 and 900. Lenders want applicants to have a high credit profile very often since they are taking a risk in not charging interest rate.
In conclusion, although interest-free personal loans might seem like the best possible solution for one-off spending, one must read the fine print. Some organizations, religious or charity ones, might genuinely provide interest-free loans in order to help their communities; however, others may have restrictive restrictions or costs that are well hidden to outweigh the benefits.
(Note: Raising a loan comes with its own risks. So, due caution is advised)
