How to borrow without paying interest

Many financial experts predict that the easing of lockdown will see a spending boom among consumers looking to spend money they have saved over the last 12 months. While ideally, consumers will be using their savings to enjoy the new freedoms, others may be considering borrowing money instead.

When considering borrowing money, it is not advisable to borrow unnecessarily and borrowers must have the ability to keep up with repayments. But, while it should often be a last resort for consumers, if done sensibly, borrowing can be a useful tool for personal financial management.

For those who have to borrow, the best way to do so is to borrow without paying interest. The best way to borrow using interest-free credit is to have a repayment plan in mind before borrowing the money to ensure that it can be fully repaid before the interest-free period ends so that interest is never added to the money borrowed.

One of the most common ways to borrow without paying interest is with a 0% purchase credit card. These cards offer borrowers a period in which they can make purchases on the credit card without having to pay interest. In addition to this, credit cards also have the added benefit of providing consumers with added protection on purchases under Section 75 of the Consumer Credit Act.

Under Section 75, credit card providers must protect all purchases over £100, which can include holiday bookings and household goods. This protection means that consumers can get their money back if they fail to receive the item purchased or the goods are faulty.

The longest interest-free term on a 0% purchase credit card is currently 21 months, which is available on Lloyds Bank’s Platinum 0% Purchase and Balance Transfer Mastercard. Once the interest-free period on this card ends, it charges 21.9% APR.

The next longest interest-free period is 20 months, which is available on four cards:

• Barclaycard's Platinum All-Rounder Visa, which charges 21.9% APR after the interest-free period ends.
• MBNA Limited’s 0% Transfer and Purchase Credit Card Mastercard, which charges 20.9% APR after the interest-free period ends.
• M&S Bank’s Shopping Plus Mastercard, which offers customers the ability to earn reward points on purchases. It charges 21.9% after the interest-free period ends.
• Sainsbury’s Bank’s Dual Offer Credit Card Mastercard. Reward points can be earned on purchases made with this card. It charges 21.9% APR after the interest-free period ends.

Borrowing via an overdraft is often one of the most expensive ways to borrow, but some bank accounts do allow customers to go into their overdraft for a limited amount without paying interest. This interest-free overdraft limit is often very small, for example on HSBC's Advance account, customers can only borrow up to £25 of their overdraft before interest of 39.90% EAR is charged.

As well as this, borrowing through an overdraft does not provide consumers with the Section 75 protection that borrowing on a credit card provides.

Another way consumers can borrow interest-free is through buy now, pay later. Although many stores offer this method of borrowing now, consumers should be cautious about borrowing this way as buy now, pay later lending is not regulated, which means consumers cannot complain to the ombudsman if there is an issue. In addition to this, purchases made through buy now, pay later are not covered by Section 75 protection.

Consumers should also be wary about borrowing through buy now, pay later as they can encourage unnecessary borrowing, which can lead to some borrowers falling into a high amount of debt.