What are interest-free personal loans?
As their name suggests, interest-free personal loans are a type of financing which enable you to borrow money without being charged any form of interest. However, as mentioned above, there aren’t currently any personal loans on offer in Australia that can charge you 0% p.a. interest throughout your repayment term. There are some lenders who are willing to offer an introductory interest-free period on their personal loans, but this will only typically last a few months out of a multi-year repayment 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.
What are some of the 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. Consider some of the following to see whether they could be a potential option for you:
No Interest Loan Scheme (NILS)
This scheme is offered to low income-earners by community organisations across the country as a way to provide people who find themselves short on money with fair, risk-free financing. These loans are available for up to $1,500 and can be repaid over a maximum of 18 months without any interest or fees charged. Their usage is largely restricted to essential goods and services like necessary household appliances and medical costs, with food and other bills unable to be covered with this loan.
Centrelink cash advance
A Centrelink cash advance simply affords you access to money intended to be paid to you in future instalments, meaning it’ll be taken out of your next few repayments. There’s no interest attached to these advances, but you’ll need to bear in mind that you’re reducing your available funds for your next few payments. There are also restrictions on how much you can access in advance and the number of times you can do so each year, although these change from year to year.
Small loans, which offer amounts between $300 and $5,000 and terms from 16 days to two years, come with a fixed fee structure based on the size of your loan. This is an establishment fee worth 20% of your initial loan sum and a monthly fee of 4% with each repayment. 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.
How can Savvy help me find a low-interest loan?
As another of the viable alternatives to an interest-free personal loan, Savvy can help you find the best personal loan offer with a low interest rate. We can do this because we’re partnered with a panel of online lenders who offer personal loans at some of the lowest rates on the market, enabling you to save money on your flexible finance deal. The comparison process is made much simpler because we do much of the heavy lifting for you: we compile and compare personal loans to find the best on offer and lay out all of their key features for you to consider.
With Savvy, you can choose your lender, be taken straight to their website, mould your personal loan to fit your needs and submit a fast and simple application to experience instant, 60-second approval and funds transferred to your account in just 24 hours. You can start comparing deals today and secure your funds at a low overall cost before you know it.
Top tips for reducing your personal loan’s interest
Paying above the minimum is one of the most effective ways of cutting down on the cost of your personal loan’s interest and fees. This is because, by paying it off at a faster rate than agreed upon initially, your loan amount will decrease more quickly, causing your interest to do the same. It’s important, though, to always ensure that your lender doesn’t charge you fees for doing so, as these can end up outweighing the benefit of paying your loan off early if you’re not careful.
If you have outstanding debts in the leadup to your application, it’s a good idea to pay off as much as you can before you formally apply. This is because it’ll decrease your debt-to-income ratio and help increase your credit score, which can potentially expose you to a lower interest rate and reduce your loan’s overall cost.
Electing to repay your personal loan over a shorter span of time will also help you reduce your overall spend on your finance deal. Doing this will increase the cost of your repayments each month, so you should only choose the shortest loan term that you can afford to repay. Repaying your $30,000 personal loan at 7.5% p.a. over five years would cost $602 monthly and over $6,000 in interest overall, while opting for a four-year term would cost you $100 more each month but save over $1,200 in interest alone.
One of the best things you can do in terms of maximising your chances of an affordable personal loan deal is to hold stable employment and earn a comfortable living, with the former being important to the success of your application. This is because your lender will want to eliminate any potential risk of you not being able to fulfil your loan obligations consistently, and job stability is an indication that your income is less likely to run dry during your loan term.