There’s no doubt that interest fees are the bane of any borrower. Depending on the interest rate and the size of your loan, interest fees can add thousands of dollars in extra costs to a purchase.
On the plus side, there are a few ways to finance a purchase without forking over a fortune in interest fees. Here’s a look at five different ways to avoid interest on your next purchase.
1. 0% APR credit cards
One of the best ways to finance a purchase with no interest is with a 0% APR credit card offer. Many credit cards these days come with promotional offers for new cardholders that give you six to 18 months of 0% APR on new purchases.
With a regular credit card, if you don’t pay off your full balance by the due date, you’ll get charged interest fees on your balance at the standard APR. Since 0% APR offers set your APR at, well, 0%, this means you won’t accrue interest during the promotional period, even if you carry a balance the entire time. Once the promotional period ends, however, you’ll start accruing interest at the go-to rate.
Two things to note:
- Even if you aren’t paying interest, you still need to make at least your minimum credit card payment on time every month.
- Most 0% APR credit card deals are offered by cards aimed at applicants with good credit or better.
2. Balance transfer credit cards
If you’ve already made a purchase and need a way to drop your interest rate, a balance transfer credit card may be the ticket — specifically, a credit card with a 0% APR on balance transfers.
Similar to cards that provide 0% APR on new purchases, 0% APR balance transfer promotions give you six to 18 months of 0% APR on balances transferred from another card. Any remaining balance from your transfer after the promotional period will start accruing interest at the go-to balance transfer APR.
The main drawback to a balance transfer card is that nearly all credit cards charge a balance transfer fee. These fees tend to be between 3% and 5% of the total transferred amount.
Another thing to keep in mind is that most cards that offer promotional rates for new cardholders require you to transfer your balance within the first 90 days to take advantage of the 0% APR offer. That said, you may occasionally be offered a 0% APR promotion from an existing credit card, but this is hard to predict, so it shouldn’t be relied upon.
3. Buy Now Pay Later (BNPL)
Buy Now, Pay Later (BNPL) financing is a type of loan with an interest-free promotion. You’ll typically receive six months or more interest-free to pay off your purchase.
The downside? These plans operate on deferred interest. This means if you don’t pay off your full balance before the end of the promotional period, you’ll be stuck paying back all of the interest charges on the entire amount. In some cases, you may also be on the hook for late charges or service fees.
BNPL plans are usually obtained through a retailer. In fact, you can find them in just about every furniture and appliance store in the country, often heralded by giant signs that promise: “No interest until 2025!” Recently, BNPL plans have gone digital, popping up on online checkout screens with a variety of retailers.
4. No-interest payment plans
Perhaps the rarest form of interest-free financing is the no-interest payment plan. These are sort of like BNPL loans, but without the deferred interest gotcha — hence the rarity. No-interest payment plans are most often found in medical offices, offered by dentists and doctors to cover pricey procedures.
The specific nature of the payment plan will vary a lot from place to place. Depending on the type of payment plan, you may need good credit to qualify, though some plans may be available for applicants with lower credit scores.
5. 401(k) loan
If none of the other options on this list are viable, you may consider taking out a loan from your 401(k) retirement account. Some qualified 401(k) plans allow you to take out loans against your retirement balance. By law, this cannot be more than $50,000 or 50% of your balance, whichever is less (so if your balance is $30,000, the maximum loan you could take out is $15,000).
Technically, 401(k) loans do come with interest fees — usually around the prime rate, plus a point or two. However, you’re not paying the interest to a bank or lender. Instead, since you borrowed the money from yourself, your payments — including the interest fees — go back into your retirement account.
Unfortunately, 401(k) loans have a number of negatives. To start, the money you withdraw is no longer earning interest. This means you’ll lose out on any income that money could have generated in the time it takes you to repay the loan.
If you fail to stick to the terms of your loan in any way, including not repaying it on time, the loan turns into a distribution, which can come with hefty tax penalties. Additionally, since 401(k) accounts are typically tied to your employer, losing or changing your job could reduce the amount of time you have to repay your loan.
Whichever method you choose to finance your purchase, be sure to read the terms and conditions for any details that may get you into trouble. Things like deferred interest or early termination penalties can turn a valuable zero-interest loan into an expensive problem.