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What is the difference between interest free credit and interest bearing credit?

(9 Posts)
WhichJob Sun 20-Aug-17 18:32:01

Google isn't helping me much so far!

NoSquirrels Sun 20-Aug-17 18:39:25

No interest is charged on "interest free" e.g. 0% interest. Borrow £10 repay £10. T&Cs usually apply, read carefully.

Interest is charged on "interest bearing" so borrow £10 at 10% interest means you'll repay £11.

WhichJob Sun 20-Aug-17 19:22:12

Ahh thank you.

WhichJob Sun 20-Aug-17 20:47:41

On reflection, I'm not sure how that is different to a normal loan/finance agreement but perhaps I'm missing something!

NoSquirrels Mon 21-Aug-17 06:19:31

It is a finance agreement. What are you considering?

coriliavijvaad Mon 21-Aug-17 07:03:24

Interest is charged on "interest bearing" so borrow £10 at 10% interest means you'll repay £11.
Only if the 10% is explicitly per year and you pay back before the end of the year (or similarly for another time period)

There's fundamentally no difference between getting a loan and making a purchase via interest bearing credit.

I worked in a sector suppling the automotive industry for a few years and learned that the core business of the Ford motor company (ie where they make most of their money) is on the credit and finance side. The manufacturing of cars is a sideline generating the incentive that people get given as part of the nice profitable finance deal.

emochild Mon 21-Aug-17 09:05:34

Sometimes interest bearing loans have a deferred period of payments for 6 months or so -but interest is accumulated from day 1

Lots of store cards work like this

Essentially if you pay off the full amount early it makes no difference but if you choose to let it run over the period of time then the full amount of interest is added to the amount you have to pay back

UrethaFranklin Mon 21-Aug-17 09:55:01

One of them charges you interest and one doesn't!!

Interest free means you pay back the same amount that you borrowed, interest bearing means you will pay back the same amount you borrowed plus an extra amount on top. The extra amount will depend on what interest rate you are being charged.

WhichJob Mon 21-Aug-17 22:27:59

Thank you everyone. I just haven't heard the finance arrangement called that before.

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