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Key Takeaways
✔ Zero interest loans typically have no interest, but may come with fees and other costs.
✔ South African lenders generate profit by charging interest. Hence, zero rated loans are often difficult to find. These loans are usually only available to borrowers with a good credit score.
✔ In addition, borrowers who manage to secure no interest loans often deal with short repayment periods, low credit limits, and strict payment schedules.
✔ Although 0 interest loans are attractive, they can lead to impulsive borrowing, making it harder to pay off the debt.
✔ You may incur hefty penalties when the 0% clause expires and the entire balance is not paid off. Also, a high interest rate may now apply to the remaining loan.
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What Does 0% Loan Mean?
A no interest loan lets you borrow money, without interest, within a fixed time period. The best kind of 0% loan is one where you only repay what you borrow, with no fees or charges (0% APR). For example, if you borrow R2000, you pay the lender back R2000 (the principal balance only), over time.
In contrast, normal loans come with an interest rate, which means you pay back the principal balance plus extra.
Is it Possible to Get a Loan With 0% Interest?
Many loans offered by South African lenders are not zero rated since lenders want to make a profit from borrowers. However, it’s still possible to get a 0 interest loan in South Africa.
These interest free loans are likely only available to the most creditworthy borrowers. For example, you must have a strong credit score, a reliable income, and a good debt to income ratio.
Common Types of 0% Interest Loans in South Africa
Credit card companies and companies who want to increase product sales typically offer zero interest loans.
0% Credit Cards
Credit card companies usually offer zero rated cards for a limited time only. That means the lender will only charge interest on your balance once the introductory 0 percent interest period is over.
After that, standard rates may apply. You can use 0% credit cards to pay for:
- Medical bills, dental bills, and other important bills
- Everyday expenses like groceries
- Online shopping or payments
- Education expenses and other essential expenses
- Debt consolidation
A 0 per cent intro APR card can be a good idea since you can use credit without accumulating interest during the promotional period. Interest-free cards may have lower and more affordable monthly credit card payments. This makes it easier to pay off your debt swiftly since each payment goes toward reducing the principal balance only.
0% Interest Purchase Loans
These loans are only available if you want to buy a product. For example, a car dealership may encourage you to buy a car from them by partnering with a third-party lender that offers 0% loans.
You can also purchase items like phones, laptops, TVs, and washing machines from electronic retailers. In most cases, there are no interest charges, but that doesn’t always mean the loan is free. Other charges may be hidden elsewhere in the product. You may also be required to pay a deposit.
Where can you find loans without interest in South Africa?
Looking for the best 0 interest loans in South Africa? Here are some top options to consider if you’re ready to apply today.
0% Credit Cards
Some lenders like Standard Bank and RCS offer interest-free credit for up to 55 days if you pay the full outstanding balance within the allotted time.
0% Interest Purchase Loans
Local companies like Payflex and PayJustNow provide a buy-now-pay-later option at 0% interest. For example, with Payflex, you can shop online across thousands of stores and repay the money over six weeks in four equal instalments.
PayJustNow offers another convenient payment solution and has partnered with many brands. You can shop online and pay later in 3 interest-free instalments.
Pros and Cons of 0% loans
It’s important to weigh the benefits and drawbacks of 0% interest loans to determine if this option is right for you.
Pros
- It’s a win-win solution. If you’re sure you can pay back the full amount in time, then there’s no reason you can’t take out a no-interest loan. You can make a purchase and spread out the cost instead of making a lump sum payment. This greatly improves your cash flow situation.
- Simplifies your payments. Interest rate calculations can be confusing for some people. 0% finance loans make it easier to understand your monthly charges, allowing you to plan and budget better.
- Helps improve your credit score. You can use a card with a 0% introductory interest rate to build your credit score. Without interest charges, paying down debt and making timely payments is easier. In addition, this also improves your credit mix (having different types of credit), which is another factor that may be used to calculate your credit score.
Cons
- Can encourage over spending. One of the biggest pitfalls of no-interest loans is the idea that the loan is free. You may be tempted to borrow more than you need or make impulse purchases.
- Hidden charges. Credit cards with a 0 percent intro interest usually replace interest charges with other charges under a different name. You may have to pay various fees, like monthly or processing fees, ending up with a low interest loan with a higher price. Be sure to read the fine print of your loan agreement, so you know the full cost of the loan.
- Hidden markups. 0% interest purchase loans help increase sales. The products may have high markups, so the seller will still make a decent profit even when advertising the loan as interest-free. Sometimes, the total cost of the product will be cheaper if you’re paying with cash upfront.
- Expensive penalties. If you’re unable to pay off all your debt before the 0% offer expires, your loan can switch to a higher interest rate than the standard. The lender can also cancel the zero-interest clause if you miss even one payment, leaving you with late payment penalties and interest charges you didn’t budget for.
Choosing the Right Zero Interest Loan
Before applying for a zero-interest loan, consider the following factors:
- Total cost of the loan. The most critical factor when choosing a zero rated loan is the total cost. The loan should not only be interest-free, but it should also have lower rates and fees.
- Offer period. The best interest-free loans have a lengthy introductory period. You can spread out your monthly payments further, making them more affordable, while still avoiding paying interest.
- Extra benefits. Look for flexible terms. For example, some lenders offer thousands of options when shopping online or in-store, while others make it easier to manage your account easily or withdraw cash from an ATM with your card.
Frequently Asked Questions
Personal loans with a lengthy no-interest period are rare. In most cases, South African lenders will offer interest-free cards for up to 55 days. Buy-now-pay-later options like PayFlex usually extend credit for several weeks.
Your loan is usually split into instalments, payable over time. Read your loan agreement or talk to the lender to ensure you fully understand the repayment terms.
Most zero-interest loans are only available to people with a reliable income. Even if you’re applying for a normal, interest-bearing loan, you’ll still need to prove you have sufficient funds to pay the debt.
Not likely. If such a financial product is available, chances are the car has a high markup and there are hidden charges, so the lender/seller can still make a profit.
0 interest student loans are rare. Lenders like Standard Bank, ABSA, and Capitec typically offer student loans with reasonable interest rates.
It’s possible, but usually, a good candidate is someone with a strong credit score.
Our Research Expert
Gracie Makowe is a full-time personal finance writer with 10 years of experience and a Bachelor of Commerce in Financial Management from UNISA. Learn more.