Interest-free loan — what it is and how to apply

What is an interest-free loan

Microfinance organizations generate profit from their sole product — short-term or medium-term loans. Depending on the term, the debt is repaid by the borrower in a single payment or in installments in accordance with the schedule specified in the contract with the company.

An interest-free loan agreement is a contract under which the lender (MFO) provides funds to the client (borrower) on a free-of-charge basis. Interest is not accrued under such an agreement. The borrower returns the exact same amount that was received.

Who is eligible for interest-free loans

The main purpose of the product is to attract new clients and/or retain existing ones. To enhance the competitiveness of its offering, a microfinance organization must offer something appealing to potential borrowers.

An online interest-free loan is an effective solution that provides market participants with an additional flow of clients. In most cases, the offer is designed for borrowers applying to the company for the first time. Free loans are also used as a reward for existing clients who have been using the company's services for a long time.

For new clients

In 2015, interest-free loans to new clients were issued by only a few MFOs. Today, this product can be found in the product lines of a whole range of companies, including the largest online organizations. The rationale behind this offer is as follows:

1. Out of a large number of programs, the potential borrower chooses the most profitable ones.
2. The final choice is made in favor of the company offering an interest-free loan without additional commissions.
3. The client receives the required amount, and the MFO gains a new borrower.

Thus, the company replenishes its client base. According to statistics, 9 out of 10 borrowers apply to MFOs again. If the borrower returns the money on time and never uses the services again, the organization loses nothing. Repeat applications are available on standard terms — the amount is issued at a specific daily interest rate. This is precisely what the strategy is based on: by issuing funds to the borrower without interest, the MFO expects that they will turn to it for financial assistance again.

For repeat (regular) clients

Attracting clients is one of the primary tasks for a company operating in the microfinance market. Retaining them is recognized as an equally important goal. MFOs need to develop conditions that will encourage individuals to use their services repeatedly. These conditions include:

• Promotional campaigns.
• Bonus programs.
• Cashback — a percentage of all issued loans over a certain period is returned to the borrower's account.
• Issuing funds according to tariff plans.

In each of these points, the company's goal is to motivate the client to apply again. Some MFOs use a practice where each subsequent loan is issued to the borrower on more favorable terms. For example, after taking out and timely repaying 4 loans in a row, the client can receive money for the fifth time without interest — completely free of charge.

Персональный подбор

Подберем предложения под вашу ситуацию

Оставьте телефон — покажем варианты с высокой вероятностью одобрения и актуальными условиями.

• Проверенные предложения
• Без звонков от менеджеров
• Результат в удобном канале

Website

Phone required

Email for selection

Согласен на обработку персональных данных и получение информационных и рекламных сообщений. Privacy Policy. Также хочу получать персональные подборки в Telegram. Это необязательно, отключить можно командой /stop. Подобрать предложения

What is the benefit for microfinance organizations

An interest-free loan to a card, electronic wallet, or in cash determines not only the MFO's benefit in terms of attracting new clients. When signing an agreement with the borrower, the microfinance organization takes into account the risks of the client going into default.

If the funds are not returned on time, the MFO reserves the right to apply sanctions against the borrower, such as penalty interest and late fees. By violating the terms of the agreement, the client is obliged to return the initial amount (principal) plus penalties. This turn of events is taken into account by the microfinance organization in every case.

What amount is an interest-free loan issued for

Companies set different rules for this parameter. As a rule, the amount is minimal since the MFO is cooperating with the client for the first time. The most common limit is 2000-3000 RUB. This is the exact amount available for a first interest-free loan.

The validity period of the contract is also limited: the new client uses the money for 10-15 days, after which they are obliged to repay the debt in full. In some companies, the term may be longer.

Borrower requirements and approval probability

The service is designed to attract new clients, so the company's requirements are standard. There are MFOs on the market that impose minimal requirements on clients. These include:

• Russian citizenship.
• Permanent registration in any locality in the Russian Federation — without being tied to a specific region.
• Age — 18 years.
• Having a mobile phone and an email address.
• Credit history — the minimum scoring score depends on the level of loyalty of the specific MFO to new borrowers.

Some companies, in addition to the stated requirements, impose additional ones: having a permanent income, with the ability to provide the employer's contacts and details. This information is checked selectively. Such offers are less popular, as most borrowers are interested in obtaining an interest-free loan without checks and phone calls.

The advantage of microloans is their accessibility. MFOs do not request documents confirming permanent employment. The information provided by the borrower plus the results of the credit history check are sufficient data to make a final decision.

In rare cases, company employees call the employer's contacts to clarify whether the borrower actually works for the organization. This approach is used if there are doubts about the accuracy of the data provided by the client.

Probability of application approval

The average application approval score for microfinance organizations is 9.5. Rejection is possible in the following cases:

Bad credit history — existing overdue payments on agreements with third-party MFOs and banks.
Non-compliance with requirements — lack of citizenship or a passport of a citizen of the Russian Federation; failure to meet the age limit.
The client has several outstanding loans issued by other organizations.
False or inaccurate data provided in the application.

Reasons for refusal are not disclosed, as this right is granted to them by federal law. The cases listed above are those for which the MFO cannot make an exception. If any of them apply, there is no point in applying for financial assistance.

If you fail to repay a free loan on time

An interest-free loan agreement serves as a reliability check for the client. MFOs are interested in long-term cooperation with solvent borrowers. If an interest-free loan goes into default, loan extension (prolongation) is not available.

The reason for the absence of this important option is that interest was not accrued on the loan, and the money was issued to the borrower for free. Prolongation is a paid service, the price of which consists of the interest accrued under the contract. Accordingly, in this case, extending the agreement is not provided for. In case of untimely repayment of the debt, the company gets the right to apply penalties. A free loan essentially ceases to be such, as the client incurs expenses to pay off late fees, fines, and penalties.

Conclusion

The target audience did not accept this offer immediately, considering it not entirely clear. Questions arose as to why lend money for free — this contradicted the nature and meaning of microfinance activity.

Doubts among potential borrowers disappeared after the Central Bank of the Russian Federation began maintaining the State Register of Microfinance Organizations. Companies included in the Register closely monitor that the terms of their products and offers do not contain hidden commissions or ambiguous meanings. For such violations, they are stripped of their Bank of Russia license.

Consequently, an interest-free loan, provided the debt is repaid on time, is completely free for the client. All subsequent applications will be processed under standard terms.