Providing interest free loans

Where and how can you get an interest free loan?

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4 min

An interest free loan – does it sound too good to be true? There are many financial institutions out there that advertise interest free loans, but just how true are these offers, and where and how can you find one?

Read on to find out more.

What is an interest free loan?

An interest free loan is simply a loan that comes with 0% interest rate, or at least, that’s how it’s advertised. It may sound attractive but to borrowers who are unaware, it usually comes with a catch. If you are applying for an interest free loan, do remember to check the effective interest rate as well.

What is an Effective Interest Rate (EIR)?

An Effective Interest Rate (EIR) is a more accurate representation of the true cost of a loan amount as compared to the advertised interest rate. It takes into account other factors that contribute to your overall interest rate such as processing fees and repayment period.

You should always consider the terms and conditions of an interest free loan and if it comes with any hidden costs. 0% interest free loans can actually end up costing you more if you are not familiar with the terms and are unable to repay the original fee on time.

Some credit cards may advertise a 0% interest on their personal loan with a 1-year tenure. However, you might need to pay a huge processing fee – we have seen some that’s 3.5%. That does not seem so attractive now that you are aware of the terms, right?

Where to find an interest free loan?

Some financial institutions such as banks offer interest free personal and study loans but the downside is the borrower might have to pay more after factoring in the EIR and processing fees.

There are also government schemes with interest free loans to help students or young adults further their studies. These are very niche loans that can only be used for education-related purposes.

Apart from these financial institutions, a few licensed money lenders also offer interest free loans depending on the type of loan and tenure.

An interest free loan can be offered for shorter-term loans depending on the money lender’s terms and often requires the borrower to pay off their loans within a very short period, such as in two weeks’ time as opposed to a traditional loan with a longer tenure.

Banks vs Licensed Money Lenders – which is better?

Depending on what your needs are, you should always explore your options when it comes to loans. Here are some differences if you choose to borrow from banks or licensed money lenders.

Banks Licensed Money Lenders
Maximum sum you can borrow
  • Up to 10 times monthly income, subject to approval
  • While the loan amount is higher, the loan approval usually takes longer compared to licensed money lenders so people who are in need of urgent cash might not be suited for this option
  • Up to 6 times monthly income, subject to approval
  • While the loan amount is relatively lower, as long as you are able to provide a proof of income, most licensed money lenders are able to offer instant personal loans with no collateral required
Repayment period for personal loans
  • Up to 5 years
  • Up to 2 years
Loan approval time
  • Up to 2 weeks
  • Bank approvals are usually more stringent
  • Same day, usually within 30 minutes
  • Licensed money lenders are able to provide a faster turnaround for consumers in need of quick cash
Interest rate
  • 3.5-11% per annum
  • 1-4% per month (up to 48% per annum)
How to apply
  • Online or in-person
  • Online application, in-person verification required to collect your loan

How can you apply for an interest free loan?

Before you take up an interest free loan, you should always take into consideration all the hidden fees and charges involved so that you can make a more informed decision.

While not many money lenders offer interest free loans, there are always those with lower interest rates, so remember to compare rates before you commit to any loan.

Simply make sure you meet the eligibility criteria for your loan before applying:

Borrower’s annual income Singapore Citizens and Permanent Residents Foreigners residing in Singapore
Less than $10,000 $3,000 $500
At least $10,000 and less than $20,000 $3,000 $3,000
At least $20,000 6 times monthly income 6 times monthly income

You can apply for the loan online on the money lender’s websites or directly at their office.

And to improve your chances of getting a low-interest loan, do ensure that you have not taken multiple loans with other lenders or have defaulted on your previous loans. As long as you have been making repayments on time, you will have a higher chance of getting a loan at a lower interest rate.

Cash Direct offers some of the most competitive and economical interest rates in Singapore for any personal loans that suit your needs. Apply for a loan with us here.