Are you looking for a personal loan without the added cost of interest? While this isn’t a standard loan product in Australia, there is a range of lending options available depending on your needs and circumstances. Join us as we look into low-interest lending and ways to reduce the cost of your personal loan.  

What are interest-free personal loans – and can I get one?

As the name suggests, interest-free personal loans are a type of financing that enables you to borrow money without being charged any form of interest. However, there aren’t currently any personal loans on offer in Australia that charge you 0% p.a. interest throughout your repayment term. While there are some lenders that offer an introductory interest-free period on their personal loans, this will only typically last a few months out of a multi-year repayment term. Once the introductory period is over, the standard interest rate will apply for the remainder of the loan term.

The reason that interest is never really waived by lenders is that it’s their primary revenue stream. By offering a loan without interest, the benefit to the lender of agreeing to the deal is essentially lost. Fees in themselves aren’t enough to make up for this, as interest will almost always create more income for the lender. As such, if you’re looking for a personal loan, the next best thing is to take out low-interest financing.

How can I get a low-interest personal loan?

Low-interest personal loans can be a viable alternative to an interest-free personal loan. In Australia, some lenders currently offer starting rates below 6% p.a., but it’s important to be aware that these are not available to everyone. Loans are tailored to your specific circumstances, so the interest rate you receive depends on more than just the lender. Here are some ways you could lower the interest rate on your loan:

• Improve you credit score: a higher credit score can significantly improve your chances of securing a low interest rate. To improve your score, pay your bills on time, reduce your debt and regularly check your credit report for errors.
• Compare your options: use online comparison services or finance brokers to help you find the best deal with the lowest interest rates available to you.
• Opt for a secured loan: a secured loan backed by collateral such as a car can result in lower interest rates compared to unsecured loans.
• Apply with a guarantor: having a co-signer with a good credit score can help you secure a lower interest rate. The guarantor shares responsibility for the loan, reducing the risk for the lender.
• Choose a shorter loan term: if you choose a shorter loan term you will pay less interest overall – though be mindful that your monthly payments may be higher.

You should also keep in mind that the loan with the lowest interest rate is not necessarily the cheapest, as loans typically come with other fees such as establishment fees and monthly account fees that drive up the overall cost. When looking at loans, it is therefore important to look at the comparison rate, which combines both interest rate and fees, to get an idea of the true cost of the loan.

What are some other alternatives to interest-free personal loans?

There are several other financing options that you can look to if you want to avoid paying interest but need to access funds:

No Interest Loan scheme (NILs)

This scheme available through Good Shepherd offers low income-earners loans of up to $3,000 without any interest or fees charged. Their usage is largely restricted to essential goods and services like household appliances, car repairs, technology, education and medical costs.

Centrelink cash advance

A Centrelink advance payment gives you access to your tax benefit or support payments ahead of time, which are paid back out of your subsequent payments. There’s no interest attached, but your available funds for your next few payments will be lower. There are also restrictions on how much you can access and how often.

Small loans

Small loans offer amounts up to $5,000 with a fixed fee structure. The faster you pay off your loan, the less you’ll pay in monthly fees. However, depending on its size, you may find that a small loan ends up costing more than a low-interest personal loan.

Buy now, pay later (BNPL)

BNPL is a payment method that allows you to break down the cost of your purchases into manageable, interest-free instalments rather than paying in full upfront. The service provider covers the cost of your purchase, giving you immediate access to it, and you repay the amount over a set period. However, late payments can incur steep charges.

Interest-free credit cards

Interest-free or 0% APR credit cards have an interest-free introductory period, typically ranging from 6 to 18 months. However, after the introductory period ends, the standard interest rate applies to any remaining balance. It’s important to pay off the balance before the promotional period expires to avoid high interest charges.