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Learn more about interest-free personal loans

Interest-free standard personal loans are not currently offered by Australian leaders, however there are a range of low-interest personal loan options on the RateCity database.

What are interest-free personal loans?

Interest-free personal loans are, quite simply, loans that are free from interest charges. When you take out a standard personal loan, the lender will typically charge you interest calculated as a percentage of the amount borrowed. Charging interest, plus any applicable fees, is how banks make their money. For this reason, it’s unlikely you’ll find a standard personal loan with no interest attached.

However, there are other types of non-standard personal loans that may be available, but it’s important to do your research to find out if they might be the right solution for you.

What kind of personal loans are interest free?

Generally speaking, there are two main types of personal loans in Australia that don’t charge interest:

1. No Interest Loans

No Interest Loans (NILs) provide eligible low-income earners with access to safe, fair and affordable credit. They can be used to pay for essential goods and services such as household items and appliances, education essentials, car repairs, and medical expenses. Eligible borrowers can borrow up to $2000 to be repaid over a period of up to 24 months.

According to the Good Shepherd website, you may be eligible if:

  • Have a Heath Care Card / Pension Card OR
  • Earn less than $70,000 gross annual income as a single or $100,000 gross annual income as a couple or person with dependants OR
  • Have experienced family or domestic violence in the last 10 years
  • AND You can show that you have the capacity to repay the loan

You can find out more about how NILs works and how to apply by visiting the Good Shepherd website.

2. Payday loans

A payday loan, also known as a fast loan or quick cash loan, is a short-term loan of typically up to $2000. Payday loans won’t charge interest but will generally make up for it in high-cost fees, often ending up more expensive than a standard personal loan with interest.

Payday loans are often used for emergencies that require fast access to cash, such as a car breakdown or an unexpected vet bill. But they are sometimes also taken out by borrowers with bad credit who are finding it difficult to get approval from a standard bank or lender.

The problem with taking out a payday loan when you have a low credit score is that it will add another credit enquiry to your file and potentially push your score even lower. A safer solution to this may be to consider working on improving your credit score before applying for additional access to credit. Visit RateCity’s credit score hub for a free credit score check and to learn more.

What alternatives to interest-free personal loans are there?

If the reason you’re looking for an interest-free personal loan is to save money, there are other options you to consider, including the following:

  • Credit card – While credit cards tend to have higher interest rates on average than personal loans, some may offer special interest free periods on sign up. This means that you can use the card to make purchases without being charged interest for a fixed amount of time. If you are capable of paying off the balance in full before the end of the interest free period, you will avoid paying any interest. But keep in mind, you may still be charged ongoing fees, and the interest rate will revert back to an often higher rate at the end of the special offer period.
  • Buy Now Pay Later (BNPL) – A wide variety of services allow you to make purchases today and pay the sale price in instalments over time. Most BNPL services have relatively low limits on purchases, and repayment terms of just a few weeks or months. While BNPL services usually don’t charge interest, you may have to pay fees if you’re late with your repayments.
  • Low-interest personal loan – If you have a healthy credit score, you may be eligible for a personal loan with a low interest rate. While you will of course still be charged some interest on this kind of loan product, there are plenty of competitive products available that can help you keep costs low. Plus, if you’re willing to keep extra features to a minimum, you may also find a loan with low or no ongoing fees.
  • Centrelink advance – If you are a recipient of Centrelink benefits, you may be eligible for an advance on your payment with no interest or fees charged.

If you’re experiencing financial stress and need help getting on top of your debts, consider reaching out to the National Debt Helpline for free financial counselling.

This article was reviewed by Personal Finance Editor Mark Bristow before it was published as part of RateCity's Fact Check process.