Things To Consider Before Taking Interest Free Loans

“Interest free” isn’t it sounding great, actually heavenly? However, this heaven is not as nice as it appears to be. There are many pitfalls and traps that can end up giving you huge financial burden. Interest free loans are great but have you ever imagined how the lender is earning his share of profit by giving you the so-called “interest free” loans? There are tricks to it which you must be aware of thoroughly before getting the deal.

Hidden Interest

Loans having the tag of being interest free actually come with hidden interests. While the interest amount gets saved if the borrower pays back the required sum of money as monthly installments on time, it generally fails to happen that way. Most lenders calculate a minimum monthly installment amount to be paid and asks the borrower to pay accordingly. However, it is here that the trick lies. The minimum amount is not the actual amount that is needed to be paid every month for repaying the loaned amount on time. The rest of the amount then starts getting added every month and just because the required amount doesn’t get paid, the lender starts adding interest on that because these loans are subject to interest once the due date crosses. This is how the lender calculates the repayment and makes the borrower pay almost double the money that has been borrowed.

High Interest Rate

Despite being termed as interest free, these loans also become applicable for interest addition once the due repayment date crosses. To top that, these loans come with very high interest rates, as high as 28 percent, which often makes the repayment very difficult and complex. Hence, the borrower end up paying off twice as much of money as may be actually required to buy a product and that too for 2-3 consecutive years.

Read Agreement Papers

Your interest free loan scheme should come with agreement papers just as with any other financial deals. Hence, whenever you are planning to go for such a deal, make sure that you read the terms and conditions and agreement papers thoroughly so that the lender fails to trap you.

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