No-Interest Loans: Do They Really Exist?

Looking for a no-interest loan? The offers behind the ads work differently than most borrowers expect. This guide covers where genuine 0% financing exists, the catch to watch for, and how to choose the right option for your situation.

Do 0% interest personal loans really exist?

Rarely, and generally not in the form most borrowers wish they did. A personal loan from a bank or online lender with 0% APR and a fixed term is rare. 

There’s a good reason for this. Lenders make money from interest income, disclosed fees, or both. A 0% APR loan takes away both of these, so such a loan would actually cost a lender money to make. 

When an offer to borrow money advertises zero interest, there’s usually someone else absorbing the cost. For example, 0% financing from a retailer generally builds the financing cost into the price of its items. Buy-now, pay-later (BNPL) lenders get paid by merchants for facilitating no-interest financing. 

There is one narrow exception. There are small-dollar short-term relief loans that come with no interest and instead charge a single disclosed fee, which can bring the APR up to 36%^18. We’ll talk more about those later. But in most cases, the term “no interest” refers to a promotional structure and not a loan product. 

Where can I find legitimate no-interest personal loans?  

There are legitimate forms of zero-interest financing available to consumers, and most fall into five categories. 

• Buy now, pay later (BNPL) plans. BNPL financing may allow consumers to split purchases into a series of equal payments. The most common form is paying in four bi-weekly installments. These have no interest and are widely used. There are two big caveats to keep in mind. First, late fees generally apply if you don’t make payments on time. Second, most BNPL loans aren’t reported to the credit bureaus, so they won’t help you build credit history. 
• 0% intro APR credit cards. Some credit cards offer introductory periods with a 0% APR, often a year or longer. These are legitimately interest-free during the intro window, though balance transfers typically incur a fee. They require good to excellent credit for approval. 
• Retail store financing. Furniture, electronics, and appliance retailers often advertise 0% financing for a set promotional period. These are usually structured as deferred-interest financing, which works differently from true 0% APR financing. More on that in the next section. 
• Short Term Relief Loan. The Short Term Relief Loan through Upstart is a small-dollar loan that charges no interest. It has just a single disclosed origination fee that you pay once, which can bring the APR up to 36%¹⁸.
• Medical and dental financing. There are plans that offer promotional financing windows of 6 to 24 months. Like retailer financing, these are often deferred-interest programs. 

Of course, this isn’t an exhaustive list. Some employers and credit unions operate small no-interest hardship loan programs, to name one example. 

The deferred-interest trap to watch for

As mentioned in the previous section, deferred interest isn’t true no-interest financing. Deferred interest involves a 0% promotional window, after which you’ll be charged retroactive interest on the full original balance if it isn’t paid off before the promotional period ends. 

Let’s say that you make a $1,000 purchase on an 18-month deferred interest plan. You make monthly payments, and after 18 months, you owe only $50. If it were true 0% APR financing, you’d simply owe $50, and interest would begin to accumulate only on that amount. Under a deferred interest plan, interest is added on the entire original balance from the day you bought it. Assuming a standard rate near 30% for illustration, the $50 remaining balance could swell by a couple hundred dollars when your next statement arrives. 

This is also why it’s important to understand the difference between interest and APR. APR captures most fees and the full cost of borrowing, rather than just the interest rate. If you’re interested, here is how APR is calculated on a personal loan. 

While we’re on the subject of traps, it’s also important to watch for scams that aren’t promotions at all. The FTC warns that a lender who guarantees approval or demands a fee before the loan is funded is likely a scam. Other red flags to watch for include unsolicited calls, texts, or pressure to decide right away.

What lenders look at for 0% interest personal loans

Promotional 0% offers are generally reserved for borrowers with good to excellent credit, as the issuer or merchant is absorbing the cost. More broadly, lenders look at a wider set of factors when evaluating personal loan applications. There are four in particular that are the most commonly used: 

• Credit score tier. 0% card offers are typically available to higher credit tiers. Those in the fair or bad credit range are frequently declined. 
• Income. Lenders want to see documented, verifiable income. 
• Debt-to-income (DTI) ratio, the other piece of your ability to repay. DTI is your monthly debt payments divided by your monthly gross income. 
• Employment. Steady employment reduces the risk that you’ll be unable to repay the loan. 

A lower credit score doesn’t eliminate all options, but it does make it more difficult to be approved for promotional offers. If you’re outside the top credit tiers, you may still have fixed-rate installment financing available, including loans through Upstart for bad credit. In this case, income and employment factor into the decision alongside your credit history.

How to apply for a no-interest offer

There are five main steps to applying for a no-interest offer: 

1. Identify what you’re being offered. Is it truly a 0% APR promotion, or is it a deferred-interest plan? This is often in the fine print, and the phrase to look for is “interest will be charged from the purchase date.”
2. Find the promotion’s end date. Then calculate the monthly payment required to pay the entire amount before that date. If the provider’s listed monthly payment is smaller, be sure you can afford to pay this amount every month instead. 
3. Check your credit file. You can get a free copy of your credit report at AnnualCreditReport.com from each of the three major credit bureaus, and if you have a credit card or bank account, you may be able to access your credit score as well. If you’re below the “good” credit range, promotional 0% financing offers are less likely. 
4. Compare with a fixed-rate option. Of course, if you can pay the full promotional balance on time and never pay a penny of interest, promotional financing is likely favorable. But you should also estimate the cost if you miss the deadline and still have a balance remaining, especially with deferred-interest financing. Compare this against a fixed-rate personal loan, whether that is a debt consolidation loan through Upstart or another lender’s offer. 
5. Apply to one option. You can prequalify for as many financing offers as you want, with a soft credit check, if they allow it. But a full application triggers a hard credit inquiry, so only apply once you’ve decided. 

Is there a no-interest loan through Upstart?

Yes, in one narrow form. The Short Term Relief Loan through Upstart is a small-dollar loan, separate from a standard personal loan, that charges no interest. It has a single disclosed origination fee that you pay once, which can bring the APR up to 36%18. No interest accrues over time, and no retroactive deferred charge happens after a promotional window expires. 

If a small, fixed-cost loan fits your situation better than a promotional offer with a deadline, it could be worth reviewing the disclosed terms and comparing the total cost side by side with other options before you decide. 

FAQs

Do 0% interest personal loans really exist?

They rarely exist as standalone personal loans from a bank or online lender. Most zero-interest financing is a part of a buy now, pay later plan or some type of promotional financing.

What credit score do you need to qualify for a 0% interest personal loan?

Promotional 0% offers generally go to applicants in the good to excellent credit range, though issuers set their own thresholds, and approval isn’t guaranteed at any credit score. There are several factors in addition to credit score that are typically considered.

Can you get a no-interest personal loan with fair or bad credit?

It can be difficult, as promotional offers are often targeted towards the top credit tiers. Borrowers with fair or bad credit often have better luck with fixed-rate installment loans. Some lenders will consider income and employment alongside credit history.

What’s the catch with no-interest personal loans?

Many no-interest loans are actually deferred interest. This means that if any amount remains unpaid after the promo window closes, interest will be charged retroactively on the full original balance.

What happens if you miss a payment on a 0% interest promotional loan?

It depends on the agreement. A single late payment can cause a late fee or even cancel the promotional rate entirely. Review the terms before you accept any promotional offer, especially the penalty provisions.

Are 0% interest personal loans safer than payday loans or cash advances?

Generally yes. Payday loans often have extremely high effective APRs over very short terms, while a legitimate 0% offer can cost nothing if repaid on schedule.

Does applying for a no-interest personal loan hurt your credit score?

Submitting a full application for any legitimate personal loan triggers a hard credit inquiry, which may temporarily lower your score by a few points. Prequalifying for offers uses a soft credit check and does not impact your score.

Is a no-interest loan too good to be true?

Not necessarily. There are legitimate no-interest promotions from merchants, card issuers, and other providers. Legitimate offers disclose the promotional end date and what happens after. Offers that guarantee approval or demand an upfront fee are the ones to be wary of.